Benefits Counsel

There have been multiple posts here about the issue of whether 906 Certifications are required for SEC Form 11-Ks for employee benefits plans. The SEC recently came out with a statement discussed here that it is deliberating on the whole issue. Assuming the certification is required, it has been suggested that the proper party to sign the 906 Certification probably is the chair of the plan committee which is normally appointed to oversee the plans, since the plan is really the “issuer” in this context. This should really cause a stir in the plan fiduciary community! They are still reeling from all of the fallout from Enron and the ERISA fiduciary litigation which is running through the courts. So, now they are not only subject to personal liability for fiduciary violations under ERISA, but they are subjected to possible criminal liability under Sarbanes-Oxley as well? Since I am not a securities lawyer, am I right on this? After the DOL’s Amicus Brief in the Enron case, many practitioners are advising that high level individuals in the company (with insider information) not be allowed to serve on plan committees where employer stock is involved, due to the conflicts which may arise, so who would be left to sign these certifications? If readers are so inclined, comments would be welcome . . .

Today’s edition of the Wall Street Journal reports on the ratings release today by Corporate Library, a governance-research firm, which ranks companies on corporate governance. Unlike Institutional Shareholder Services Inc.(“ISS”) the leading proxy-advice firm which has been the subject of reports in the Journal last week and the subject of this blog today, Corporate Library refuses to take consulting or other fees from its ratings subject, according to the Journal. A common thread among those companies ranked the worst in corporate governance were lavish compensation and benefits to executives.

A real disappointment! PlanSponsor.com has reported that the House of Representatives has abruptly pulled from the schedule the Comp Time Bill that was going to be voted on. This bill would have allowed employees to choose between getting overtime pay or compensatory time off, both calculated at a time-and-a-half rate. The bill, called the Family Time Flexibility Act, would have been particularly good for families, allowing individuals to spend time with their families instead of receiving overtime pay. It would have also been good for employers who would not have had the expense of paying the overtime during these tough economic times. Apparently, the bill did not have enough support from “pro-business Democrats to counter opposition from a sizable pro-labor bloc among the 228 House Republicans.”

Benefitslink provides us with IRS Revenue Ruling 2003-65 to be published soon. The ruling provides that years of service earned following the establishment of a plan must be counted for vesting purposes under a frozen plan which is later amended to provide for a new benefit formula. The ruling also provides: “If, instead, the accruals are earned under a new plan maintained by the same employer and the new plan is merged with the frozen plan, then this holding also applies, so that, after the merger, service after the frozen plan was established must be taken into account for purposes of vesting in any benefit accruals under the new plan.”

Benefitslink points us to this Special Report which has it all when it comes to learning about the IBM cash balance plan conversion case to be decided soon and discussed here yesterday.

CFO.com has this article–” Stock Option Standoff: Bill would place three-year moratorium on revising employee stock option accounting; angry Herz says the move could impair FASB’s independence“–by Craig Schneider. According to the article, HR 1372, “The Broad-Based Stock Option Plan Transparency Act” introduced by Rep. David Dreier (R-Calif.) and Rep. Anna Eshoo (D-Calif.) in March has gained nine new co-sponsors, since the hearing on the subject (discussed here) last week, bringing the total backers for the bill to 44. The article reports FASB Chairman Robert Herz as saying that intervention by Congress would appear to be inconsistent with the language and intent of the Sarbanes-Oxley Act and the related SEC Policy Statement, both of which were intended to enhance the independence of FASB. It also reports SEC Chairman William Donaldson as opposing legislation by Congress.

What do you think about the whole subject? Smart Pros provides this article–“The Accounting Cycle Here They Go Again! More political attempts to thwart good accounting“–by Edward Kertz. You can take a poll at SmartPros by clicking here.

This article at SeattleTimes.com by Mark Schwanhausser–“Accounting rules threaten worker stock-buying plans“–highlights how FASB’s proposals to expense stock options might be the death knell for employee stock purchase plans (“ESPPs”). The article reports that 10 to 15 million workers could potentially lose their benefits under these types of plans, if FASB’s proposals are adopted, and that executives at companies are re-examining their ESPPs to determine the effect that ESPPs could have on profits. One bank executive apparently learned, according to the article, that the bank’s ESPP could potentially wipe out $20 million in profits under the proposed accounting changes.

Today’s Federal register is here and contains the proposed incentive stock option regulations.

A parallel tax universe? Fortune.com has posted this very good article by Shawn Tully: “Taxpayer, Beware! Washington will soon be taking back a good chunk of that new tax cut. How? By using the sneakiest trap it’s got: the Alternative Minimum Tax.” The article discusses how many taxpayers may, under tax changes brought about by the Jobs and Growth Tax Relief Reconciliation Act of 2003, find themselves falling into the Allternative Minimum Tax (“AMT”) world despite the tax cuts. According to a recent study by the Urban-Brookings Tax Policy Center, 95% of families and individuals with incomes from $100,000 to $500,000 will fall into the AMT zone by 2010.

I guess none of us are really surprised at what this article at GreenvilleOnline.com by Brian Tumulty for the Gannett News Service reports on IBM’s motives for converting to a cash balance pension plan in the 90’s: “Documents reveal IBM’s reason for pension-plan change: saving money.” The U.S. District Court for the Southern District of Illinois is expected to issue a ruling within weeks on charges that the new pension plan, instituted in mid-1999, and an earlier one that took effect in 1994, discriminates against workers based on age. However, here’s what U.S. District Judge G. Patrick Murphy is reported to have said at a hearing on the case: “I’m not a priest,” the judge observed at one of the hearings. “I’m not here to look into the souls of the IBM people . . .”