Benefits Counsel

Today’s Federal Register here.

The Ninth Circuit in Lessard v. Applied Risk provides a warning for M & A lawyers about terminating employees in an asset sale who are on medical leave. A concurring opinion by Judge Kozinski states that the “lawyers who papered this transaction should have advised against it, and the client should have heeded the warning.” An article by BenefitsNews.com analyzes the case.

More here about the debate over mortality assumptions for blue collar workers going on in the House with respect to the Pension Preservation and Savings Expansion Act of 2003 (HR 1776) also known as the Portman-Cardin Bill. A response by the American Academy of Actuaries to the debate has been issued. The Academy makes the point that it has not been consulted regarding the recent push for different mortality assumptions for blue collar workers and that if a different table is used, well-paid union workers (such as airline pilots) should be excluded from the definition of “blue collar workers” (since the income level is seen as an age determining factor, lengthening life expectancy.)

The New York Times reports today that the House of Representatives is considering measures that would allow assumptions to be made for purposes of pension calculations that blue collar workers do not live as long as white collar workers. The New York Times says that the assumptions are based upon a study performed by a committee of the Society of Actuaries which studied and analyzed 11 million “life years” and concluded that blue collar workers and the poorly paid both tend to die young. The findings are being used to support a bill pending in the House which would allow businesses with union workers to reduce their company pension obligations. The United Auto Workers are supporting the provision. (Other articles on the subject by CBSNews.com,FindLaw, and Reuters at Forbes.com.)

A Philadelphia law firm reports fiduciary violations here.

In the news today, an article on the high cost of Sarbanes-Oxley in the audit, legal, and insurance areas. The article by Bloomberg.com states that insurance premiums for D & O insurance is up as much as 1000 percent. Forbes.com reports here that U.S. pension funds have diverted billions of dollars away from stocks and into hedge funds and other alternative investments recently. The article warns about the higher costs of these funds and the lack of experience of the managers of these funds (important matters for ERISA plan fiduciaries to consider). The article states that a fifth of all plans surveyed showed they are using hedge fund portfolios.

In the news today, the Washington Post reports that the Pension Benefit Guaranty Corporation disclosed yesterday that it has a deficit of $5.4 billion, as opposed to a surplus of $7.7 billion just 18 months ago. The Associated Press reports here that more than half of the 32,000 traditional pension plans offered by private employers are underfunded. This in turn relates to the debate going on over how to value pensions in the first place. CFO.com has an article which reports that officials at the Treasury Department believe changes need to be made in the way pensions are valued. A bill sponsored by Rob Portman (R-Ohio) and Benjamin Cardin (D-Md.) would increase the discount rate which is used for determining pension fund obligations and is currently being debated. The New York Times also reports on the subject.

CFO.com has another article which reports on benefits costs for private-sector employers. As everyone knows, it has been a bad year for benefits costs. The article reports that employer costs for benefits (health insurance, retirement plans, paid leave, and Social Security) account for nearly 30 percent of compensation costs, based on government statistics.

BenefitsNews.com reports here about a growing trend to offer professionally managed options for amateur investors in 401(k) plans. Called “lifestyle” or “age-based funds,” the asset mix changes over time to reflect differences in age and risk levels and the funds are professionally managed to reflect those differences. According to the article, both Charles Schwab and Nationwide are offering this type of program, with participants paying additional fees for the programs. Despite the costs, participants appear to be liking the idea.