Category: Erisa

The Associated Press reports via Newsday.com: “House Bill Changes Church Pension Laws.” The legislation (H.R. 1533) passed the House by a 397-0 vote and would amend current securities laws so that church pension plans would be able to participate in “collective trusts” for investment purposes. Normally, secular pension plans diversify their holdings by investing a portion of their portfolios in rental real estate and other private investment offerings. Frequently, pension plans make these investments by joining other pension plans in a collective trust fund that is created and managed by a financial institution solely as an investment vehicle for pension programs. Current securities laws have prohibited church plans from participating in these arrangements.

You can read more about the bill here. If anyone has any insight into why these rules have been different for church plans, I would be interested in knowing the history.

Stephen Schurr writes an interesting article for The Street.com: “The Seven Deadly Sins of 401(k) Plans.” I concur with Mr. Schurr’s comments regarding the lack of clear guidance for plan fiduciaries of 401(k) plans. The article quotes Don Trone, president and founder of the Foundation for Fiduciary Studies, a nonprofit group that offers training for retirement plan sponsors and providers, as stating:

“If the chairman of a company’s 401(k) committee called the Department of Labor and asks, ‘What should I do to make sure I fulfill all my responsibilities?’ There would be no answer, other than act prudently,” Trone said. If the same chairman then hired an investment adviser to handle the 401(k) plan and “the adviser calls the Securities and Exchange Commission and asks the same question, there would be no real answer,” Trone said. “The industry has never defined the details of a prudent investment process of fiduciaries.”

Comment: It is important to note that the courts have provided some guidance in this whole area, by emphasizing that ERISA fiduciaries must engage in prudent process and procedures in order to fulfill their fiduciary obligations under ERISA. The In re Unisys Savings Plan Litigation case (173 F3d 145 (3rd Cir.), cert. denied, 120 S. Ct. 372 (1999), is a good example. In that case, the plan fiduciaries had invested in Executive Life GICs as an investment for one of its funds, but were held not to have violated their fiduciary duties when the GICs became worthless because the court found that they had engaged in prudent conduct in selecting the investments. (An example of some of the prudent processes mentioned by the court in Unisys: the fiduciaries had hired an experienced investment consultant, and, in evaluating potential insurance companies from which to purchase GICs, had obtained information and ratings from Standard and Poor’s and A.M. Best ratings services that evaluated the stability and potential profitability of the various types of companies. There was also testimony that the fiduciaries had kept abreast of developments in the GIC industry by reading trade publications and journals and that they had available to them SEC forms 10K and 10Q to review prior to making their selection.)

Despite the lack of clear guidance, it is important for ERISA plan fiduciaries to become educated as much as possible and engage in prudent process and procedures in fulfilling their duties and responsibilities under ERISA.

I highly recommend reading How Appealing‘s 20 Questions for Circuit Judge William Curtis Bryson of the U.S. Court of Appeals for the Federal Circuit posted yesterday. Circuit Judge Bryson reports how suprising it is that so many lawyers are unprepapred for oral argument:

The thing that most surprises me the most about oral arguments is how unprepared lawyers are. By and large, the judges on our court prepare pretty thoroughly for oral argument (my experience is that the same is true of other federal appellate courts as well). As a result, a lawyer’s lack of preparation sometimes has the awkward consequence that the lawyer knows less about the case than the judges do. We have had stunning instances of lack of preparation in cases before us, such as the failure on the part of one lawyer to have read the case on which the other side principally relied or, on many occasions, the failure to anticipate questions that are so obviously presented by the case that two or more of the judges trip over themselves asking the same question at the outset of the argument. All I can conclude is that people just don’t appreciate the need for preparation or don’t understand the kind of preparation that is necessary. In particular, lawyers do not seem to prepare by examining their own positions critically. I frequently see lawyers react with surprise and annoyance when the judges begin to ask questions that suggest some skepticism about the lawyer’s position.

He also states that if he were arguing before the court, his opening line in every case would start: “The central issue in this case is . . . .”

Finally, I greatly enjoyed Judge Bryson’s comments about his love of astronomy:

There is something magical to me about looking through the telescope at a galaxy cluster hundreds of millions of light years away containing trillions of stars in a single eyepiece field. When you are taking in photons that have been traveling for half a billion years on their way to your retina, it puts into some perspective questions such as whether particular regulatory action was consistent with the agency’s authorizing statute and whether the statute of limitations was equitably tolled.

Today’s Federal Register contains a Department of Labor (“DOL”) Notice of Proposed Amendment to Prohibited Transaction Exemption (PTE) 84-14 for Plan Asset Transactions Determined by Independent Qualified Professional Asset Managers. The original PTE 84-14 provides an exemption from the prohibited transaction rules under ERISA for various parties that are related to employee benefit plans who engage in transactions involving plan assets if, among other conditions, the assets are managed by “qualified professional asset managers” (QPAMs), which are independent of the parties in interest and which meet specified financial standards. The Notice issued today proposes certain amendments be made to PTE 84-14.

The reason behind the proposals, according to the Notice, is that a number of interested persons had expressed concerns over difficulties encountered in complying with several conditions contained in PTE 84-14. According to the Notice, the difficulties have to do with consolidation in the financial services industry and the large size of the resulting institutions, so that many financial institutions have found it more difficult to ensure that section I(a) (power of appointment) and section I(d) parties “related” to the QPAM) of PTE 84-14 are satisfied. Therefore, with respect to section I(a) (power of appointment), the proposed amendment would delete the “one year look-back rule” under which the exemption would be unavailable to a party in interest if it had exercised the power of appointment within the one-year period preceding the transaction. Second, the proposed amendment would clarify that section I(a)’s power of appointment refers only to the power to appoint the QPAM as manager of the assets involved in the transaction, as opposed to any of the plan’s assets.

Interested parties are invited to make comments to EBSA regarding the proposed amendment on or before October 20, 2003. (PTE 84-14 is apparently not available online at the DOL website.)

You can read Trucker Huss’ analysis of the IBM and Xerox cash balance plan decisions handed down this summer in this article: “Recent Court Cases on Cash Balance Plans.” The cases have been discussed in previous posts at ERISAblog which you can access here and here.

The U.S. Department of Labor today brought suit against the trustees of seven union-sponsored pension and health plans in Ohio and Minnesota, alleging violations under ERISA for imprudently investing plan assets in risky private placement investments with Capital Consultants LLC. The DOL is alleging:

• That between 1995 and 2000, the trustees allegedly authorized increasing investments of plan assets in private placement investments, despite warnings by the plans’ investment advisors about the illiquid nature, unacceptable collateral and risks associated with the investments.
• That for two of the plans, the trustees failed to adequately monitor or to retain experts qualified to monitor investments made in the private investments by CCL.

The department is seeking court orders to require that defendants restore to the plans any losses and illegal gratuities received by them and to institute new plan procedures and controls relating to plan investments

The New York Times is reporting: “Software Maker Settles Claims on Accounting.” Apparently, the settlement includes ERISA class action claims brought by participants. Although the details of the settlement are not entirely clear from the articles reporting on the subject, it looks like Computer Associates will issue to the shareholder classes up to 5.7 million shares of its common stock as part of the settlement.

Thanks to David Giacalone of ethicalEsq. for this great post: “Fee-duce-ary Advice and Pension Funds” which discusses this article by Benchmark Alert captioned “Invasion of the Class Action Securities Lawyers.” (The article was the subject of a previous post here and discusses fee arrangements where securities class action firms pay pension lawyers heft referral fees for recommending lead counsel status.) Quote of Note: “I agree with the Benchmark article: pension fund attorneys need to abide by the “highest ethical standards,” and should therefore stop taking such referral fees. Pension funds owe it to their own beneficiaries to insist upon it, perhaps requiring a signed statement from their lawyers confirming that no referral fees will be taken. That’s the only way to avoid the appearance of giving or receiving “fee-duce-ary” [fee-induced] advice.”

(By the way, Mr. Giacalone has a very humorous post here today about how he has become a Blawgoholic and is taking a very much-needed break.)

Today’s edition of the Wall Street Journal contains this op-ed: “Not Your Father’s Pension.” The article discusses the recent cash balance plan decisions and expresses the concern that has been stated by so many that, with all of the litigation over cash balance plans, employers may decide to terminate these plans for less costly plans which will be a loss to those who want them.

The ERISA Industry Committee announced that it has issued a brief that criticizes the IBM cash balance plan decision, Cooper et al. v. IBM Personal Pension and IBM Corporation. By the way, today I added links over on the right to the IBM and Xerox cash balance plan decisions recently handed down, as well as some great links relevant to the cases.