Category: Erisa

Randy Myers for CFO.com has a very good article on alternative investments for pension funds: “Casting for Returns: To juice up their sagging portfolios, pension fund managers are seeking alternative investments.” The article suggests that ERISA plan fiduciaries have a duty at least to consider alternative investments and how they might fit into the overall portfolio. The article points out the illiquidity of such investments as well as the high expense ratios associated with them, but offers these precautions for their use:

[T]ake a long-term approach to these investments; avoid funding them with assets that may be needed short-term to meet pension liabilities; avoid making large bets on any one deal or manager; and, to mitigate transparency risk, spend a lot of time with your managers to understand their investment philosophy and process (and be sure they stick with them).

An interesting article by Ted Siedle for the Benchmark Companies–“Invasion of the Class Action Securities Lawyers“–states that lawyers who represent large pension plans are being paid hefty referral fees by securities class action law firms which in some cases are not being disclosed to the client. The securities firms, according to the article, are seeking to secure lucrative lead counsel status in cases the firms seek to bring. The article reports that “[w]hile ten years ago you’d hardly find a lawyer in the crowd at a pension conference, today pension conferees are subject to an “invasion of the securities class action lawyers” because that is where securities lawyers build the relationships to attain lead counsel status in some of these cases. The article goes on to make the point that when lawyers are advising pension boards about whether to participate in a securities class action lawsuit and when those lawyers advising the board then receive referral fees from the securities lawyers, this is not impartial advice and the financial interest should be disclosed to the client. The article warns that those making decisions for pensions plans “should take the time to become knowledgeable about the hidden financial incentives that may motivate their advisers so they can make informed decisions.”

This is the first that I have heard of such arrangements. However, a speaker I heard at an ERISA fiduciary conference stated that when securities firms do not attain lead counsel status in a securities class action law suit, some are then filing ERISA lawsuits instead on behalf of plan participants.

David Giacalone at EthicalEsq. this summer had a great discussion of fee arrangements in the ERISA lawsuits being filed on behalf of participants in 401(k) plans who have lost money from investments and discussed ethical considerations in connection with those fee arrangements. It would be great to hear what he has to say about the fee arrangements discussed here today.

Jake Bleed for the Arkansas Democrat-Gazett writes a very interesting article on some developments in Arkansas on a state “any willing provider” (“AWP”) law: “Blue Cross hopes suit preempts new ruling.” According to the article, Arkansas Blue Cross and Blue Shield filed suit in federal court Tuesday asking for “a judicial determination” on how a U.S. Supreme Court decision in April might affect the state’s “any willing provider” law. The case referred to is the U.S. Supreme Court case of Kentucky Association of Health Plans v. Miller (discussed previously in posts which you can access here) which held that Kentucky’s AWP law was not preempted by ERISA. According to the article, the Arkansas AWP law had been barred from being enforced by a federal appeals court in 1998, which concluded that it ran contrary to ERISA. However, with the recent Supreme Court case holding that a Kentucky law was not preempted by ERISA, certain providers have written to Blue Cross, demanding access to the plans’ network and citing the Supreme Court case as authority for the proposition that the Arkansas law should be enforced. The case being filed is an attempt by Blue Cross to resolve the dispute.

OnQue Technologies has an article discussing ERISA fiduciary duties from a health plan perspective: “What Is Your ERISA Fiduciary Duty To Beneficiaries?“

Thanks to Be Spacific for shedding some light on the barrage of spam today. You can read more about it at C-Net News.com: “World squirms as Sobig returns.”

Today’s Federal Register contains the prohibited transaction exemption issued by the Department of Labor to the Northwest Airlines pension plans, permitting the in-kind contribution of Pinnacle Airlines stock to the pension plans to satisfy funding obligations. You can read more about it in yesterday’s post and in this article for the New York Times: “U.S. to Allow Northwest Air to Use Stock in Pensions.” Ellen Schultz and Susan Carey for the Wall Street Journal (subscription required) also report: “Northwest Airlines Can Use Stock Of Unit to Fund Retirement Plans.”

Bill Mann for the Motley Fool has this take on the subject: “Underfunded Pension? Just Add Stock.”

The Department of Labor announced today that it will permit Northwest Airlines Corp. to contribute stock of an affiliate carrier, Pinnacle Airlines, to its pension plans instead of cash. It is an unusual move by the Department, designed to provide a solution for a struggling airline with an underfunded pension plan. Northwest’s three pension plans have hired an independent fiduciary to establish the fair market value of the Pinnacle stock and to see if the stock is a prudent investment for the plans. The plans cover about 72,850 employees nationwide. The company has obtained a waiver from the Internal Revenue Service to pay about $450 million in 2003 obligations over five years. The following sources report:

• Associated Press via Yahoo! News.com: “Northwest to Fund Pensions with Stock”
• Minneapolis Business Journal: “Northwest allowed to contribute Pinnacle stock to pension plans“

“Firms trim stock’s role in pensions“: Todd Mason for the Knight Ridder Newspapers via the Seattle Times reports.

William Hoffman for the Dallas Business Journal reports: “Company savings plans under watch in courts.” The article discusses the class action lawsuits being filed against companies with 401(k) plans funded with company stock. The article quotes Karl Nelson, partner in the labor and employment practice group at Gibson Dunn & Crutcher L.L.P. in Dallas, who recently won dismissal of a case brought in Rhode Island against Textron Inc. as saying: “What I’ve been telling folks … is that they need to give some thought to the way their plans are structured and take some prophylactic steps that maybe they weren’t thinking of when stocks were looking up.”

An interesting article from the Wall Street Journal (subscription required) on search engines–“Google Is Most Popular Search Site, But Others Sometimes Do It Better“–mentions a search engine I had not heard of called Teoma. According to the article, the search engine is built around finding the Web “communities” around a particular topic. I tried it and found it to be very helpful.

Robert Ambrogi for LawSites refers us to a great site called On the Docket. Mr. Ambrogi writes:

On the Docket, a project of Northwestern University’s Medill School of Journalism, offers a journalist’s perspective on the Supreme Court. The site lists pending and prior-term cases, with a story on each case, additional feature stories on selected cases, links to Web sites relevant to the cases, information provided by attorneys and parties in the cases, the dates for scheduled oral arguments, the questions presented to the court, names of the attorneys in the cases, and citations for the lower court opinions.

In a previous post–ERISA: Trap or Oasis–I mentioned two articles which had discussed some of the roadblocks to a plaintiff’s recovery under ERISA. Brian Scheiderer in his blawg, LiveFree, at this post and this post discusses the subject as well. Brian aptly points out that the main obstacle to recovery under ERISA is the arbitrary and capricious standard or abuse of discretion standard which is applied when a claim for wrongful denial of benefits is brought under ERISA. In other words, when an ERISA plan fiduciary decides that a participant is not entitled to certain benefits under a plan, if the participant sues, the plan fiduciary’s decision will only be overturned if it was arbitrary and capricious. (This can be good for plans and ERISA plan fiduciaries, but bad for plaintiffs.)

I guess this discussion would be lacking if I did not mention that in order for a plan to obtain this standard of review, the plan must, under the U.S. Supreme Court landmark case of Firestone Tire and Rubber Co. v. Bruch, contain language providing the plan fiduciary with discretionary authority to determine eligibility for benefits or to construe the terms of the plan documents. If the plan document does not contain such language, then the case will proceed under a de novo standard, which means that plaintiff will have a greater chance of recovery.

Please note that, in cases of a strong conflict of interest, such as under the case of Lang v. Long-Term Disability Plan of Sponsor Applied Remote Technology, Inc. courts have sometimes applied the de novo standard even where the plan contains the necessary language. Also, as to a plan administrator’s factual determinations, BNA reports that there is a wide split in the federal circuits over whether Firestone requires a de novo or an abuse-of-discretion standard of review.

Note to ERISA Plan fiduciaries: Most plans now include this “Firestone” language giving discretionary authority to determine eligibility for benefits or to construe the terms of the plan documents. However, all plans subject to ERISA should be reviewed to make sure that they include this language and the language should also be included in the summary plan description as well.

(By the way, Brian had one of the greatest posts ever here. (IMHO) Yes, I definitely think that lawyers can be ministers.)

In a 218 to 201 vote, the ABA’s policy-making body amended its ethics code to allow, but not require, lawyers to breach attorney-client privilege if they believe doing so would stop a client from committing a financial crime or fraud. Reuters reports via Yahoo! News.com: “ABA Allows Lawyers to Act as Whistle-Blowers.”

The Dow Jones Newswire via the Wall Street Journal also reports in this article–“ABA Approves Corporate Whistleblowing Rule For Attorneys” and this article–“US Lawyers Given More Freedom To Report Corporate Fraud” (Subscription required.)

The Christian Science Monitor provides this op-ed in favor of the new rules: “Client Confidentiality.” The article supplies the following information:

The new rules simply keep up with the times, and it is hoped, give attorneys a little more room to blow a whistle when needed, without compromising conscience. Thirty-eight states already allow attorneys to take such action; four states require it. Eight others, plus the District of Columbia, have laws prohibiting lawyers from revealing client confidences, except to prevent death or bodily harm.

David Giacalone has provided some very prolific coverage of the news as well as Denise Howell.

So much has been happening this summer in this whole area of attorney-client privilege. I am thinking of the news this summer of the IRS requiring a certain law firm to turn over names of clients who had invested in certain tax shelters. (See the New York Times article–“Lawyers warily watching a U.S. demand for client lists.”) I am also thinking of the SEC rules that took effect last week requiring lawyers to report “up the ladder” to top executives or the board of a public company that is a client if they find “evidence of a material violation” of securities laws which Corp Law Blog reported on here.