Hope that everyone did well on exams.
Here are some links to other benefits blogs that may interest you.
Benefit Blog
Employee Benefits Legal Blog
Precept Employee Benefit BlogThe Delaware Employment Law Blog's List of top benefits blogs
The Retirement Plan Blog
12/1/09
A proposal to end the executive bonus system
A proposal to end executive bonuses will not go over in C-suites and among benefits attorneys. Read the article here.
Author Henry Mintzberg makes an interesting argument about the importannce of goodwill, which is not easily measured, but likewise not easily manipulated like financial measures.
Excerpt:
"A company's health is represented by its financial measures alone—even better, by just the price of its stock.
Come on. Companies are a lot more complicated than that. Their health is significantly represented by what accountants call goodwill, which in its basic sense means a company's intrinsic value beyond its tangible assets: the quality of its brands, its overall reputation in the marketplace, the depth of its culture, the commitment of its people, and so on.
But how to measure such things? Accountants have always had trouble when they have tried, as have stock-market analysts, investors and even potential purchasers of the company. (That's one of the reasons so many mergers fail.) No board of directors is going to have much luck finding that elusive measure, either.
This flawed assumption, though, does far more damage than simply distorting CEO compensation. All too often, financial measures are a convenient substitute used by disconnected executives who don't know what else to do—including how to manage more deeply.
Or worse, such measures encourage abuse from impatient CEOs, who can have a field day cashing in that goodwill by cutting back on maintenance and customer service, "downsizing" experienced employees while others are left to "burn out," trashing valued brands, and so on. Quickly the measured costs are reduced while slowly the institution deteriorates."
Author Henry Mintzberg makes an interesting argument about the importannce of goodwill, which is not easily measured, but likewise not easily manipulated like financial measures.
Excerpt:
"A company's health is represented by its financial measures alone—even better, by just the price of its stock.
Come on. Companies are a lot more complicated than that. Their health is significantly represented by what accountants call goodwill, which in its basic sense means a company's intrinsic value beyond its tangible assets: the quality of its brands, its overall reputation in the marketplace, the depth of its culture, the commitment of its people, and so on.
But how to measure such things? Accountants have always had trouble when they have tried, as have stock-market analysts, investors and even potential purchasers of the company. (That's one of the reasons so many mergers fail.) No board of directors is going to have much luck finding that elusive measure, either.
This flawed assumption, though, does far more damage than simply distorting CEO compensation. All too often, financial measures are a convenient substitute used by disconnected executives who don't know what else to do—including how to manage more deeply.
Or worse, such measures encourage abuse from impatient CEOs, who can have a field day cashing in that goodwill by cutting back on maintenance and customer service, "downsizing" experienced employees while others are left to "burn out," trashing valued brands, and so on. Quickly the measured costs are reduced while slowly the institution deteriorates."
Pittsburgh taxes college students to fund pensions
The Wall Street Journal reports:
"Facing big unfunded pension liabilities for city workers, Pittsburgh is proposing what appears to be a one-of-a-kind 1% tuition tax on local university and college students, who claim the tax is illegal and unfair...
The tuition tax, which would raise an estimated $16 million, threatens to drive a wedge between the city and its universities, which have been credited with fueling much of Pittsburgh's economic transformation from an industrial city to an education and medical-services center.
The cash-strapped city, which has 85,000 students at its 10 universities and colleges, including top-ranked engineering school Carnegie Mellon University, says it needs the tax to help cover a $600 million pension-fund shortfall and keep several branches of the Carnegie Library system open.
The "Post Secondary Education Privilege Tax" or "Fair Share Tax" is justified, the city argues, because the students use city services -- roads, police and fire protection -- and should pay for them. Moreover, the city contends that the tuition tax, which would range from $27 for students attending Community College of Allegheny County to $400 for those attending Carnegie Mellon, amounts to a small charge for services."
Read the article.
"Facing big unfunded pension liabilities for city workers, Pittsburgh is proposing what appears to be a one-of-a-kind 1% tuition tax on local university and college students, who claim the tax is illegal and unfair...
The tuition tax, which would raise an estimated $16 million, threatens to drive a wedge between the city and its universities, which have been credited with fueling much of Pittsburgh's economic transformation from an industrial city to an education and medical-services center.
The cash-strapped city, which has 85,000 students at its 10 universities and colleges, including top-ranked engineering school Carnegie Mellon University, says it needs the tax to help cover a $600 million pension-fund shortfall and keep several branches of the Carnegie Library system open.
The "Post Secondary Education Privilege Tax" or "Fair Share Tax" is justified, the city argues, because the students use city services -- roads, police and fire protection -- and should pay for them. Moreover, the city contends that the tuition tax, which would range from $27 for students attending Community College of Allegheny County to $400 for those attending Carnegie Mellon, amounts to a small charge for services."
Read the article.
11/28/09
Take Back Old 401(k) Accounts
Money magazine advises investors to consider transferring old 401(k) accounts into an IRA. The article begins by cautioning against the liquidation of one's 401(k) account.
"[L]iquidating a 401(k) can be tempting for many people, especially if money is tight in the wake of a job loss. A recent survey by consulting firm Hewitt Associates shows that, layoff or no, nearly half of people with 401(k)s who leave their job take the money and run.
But that's typically not a very good choice. Aside from the fact that such a move will trigger income taxes and possibly a 10% penalty, taking the cash now could seriously jeopardize your retirement security. If you've still got a ways to go before retirement, raiding your savings early means you'll have a much smaller nest egg when you eventually retire. And if you're close to your retirement date, cashing out makes it less likely your savings will last as long as you do."
"[L]iquidating a 401(k) can be tempting for many people, especially if money is tight in the wake of a job loss. A recent survey by consulting firm Hewitt Associates shows that, layoff or no, nearly half of people with 401(k)s who leave their job take the money and run.
But that's typically not a very good choice. Aside from the fact that such a move will trigger income taxes and possibly a 10% penalty, taking the cash now could seriously jeopardize your retirement security. If you've still got a ways to go before retirement, raiding your savings early means you'll have a much smaller nest egg when you eventually retire. And if you're close to your retirement date, cashing out makes it less likely your savings will last as long as you do."
Divorce and Social Security Benefits
The Wall Street Journal answers questions about the impact of divorce on Social Security benefits here.
"To review, here are the general requirements for collecting retirement benefits based on an ex-spouse's earnings: Your marriage had to have lasted at least 10 years; you can't be remarried; you have to be at least 62; and your ex-spouse has to be entitled to Social Security retirement or disability benefits. If you haven't yet reached your full retirement age, you would receive a percentage of the benefit you would be entitled to get at that date.
Also, the benefit you are entitled to based on your own work generally would have to be less than the benefits you would receive based on your husband's work. (However, if you wait until your full retirement age to file for Social Security, you can restrict the scope of your application to your ex-spouse's benefit only, and continue to accrue credits for delaying your own retirement benefit up to age 70.)
If your ex-spouse receives a benefit based on your earnings, your own Social Security benefit wouldn't be affected whatsoever. In fact, the rules are basically the same for married couples and divorced couples. Let's say Bob and Carol are married. And let's say Carol—who never worked outside the home—applies for benefits from Social Security based on Bob's earnings record. Bob's own benefit wouldn't be changed, reduced or penalized because of his wife's application."
"To review, here are the general requirements for collecting retirement benefits based on an ex-spouse's earnings: Your marriage had to have lasted at least 10 years; you can't be remarried; you have to be at least 62; and your ex-spouse has to be entitled to Social Security retirement or disability benefits. If you haven't yet reached your full retirement age, you would receive a percentage of the benefit you would be entitled to get at that date.
Also, the benefit you are entitled to based on your own work generally would have to be less than the benefits you would receive based on your husband's work. (However, if you wait until your full retirement age to file for Social Security, you can restrict the scope of your application to your ex-spouse's benefit only, and continue to accrue credits for delaying your own retirement benefit up to age 70.)
If your ex-spouse receives a benefit based on your earnings, your own Social Security benefit wouldn't be affected whatsoever. In fact, the rules are basically the same for married couples and divorced couples. Let's say Bob and Carol are married. And let's say Carol—who never worked outside the home—applies for benefits from Social Security based on Bob's earnings record. Bob's own benefit wouldn't be changed, reduced or penalized because of his wife's application."
11/27/09
Conkright v. Frommert
The Supreme Court case Conkright v. Frommert "which addresses whether a court must continue to give deference to a plan administrator's interpretation of a pension plan after the first interpretation has been found to be arbitrary and capricious under Firestone." See Workplace Prof Blog.
You can download an amicus caraie brief by a group of law professors who support the employees plaintiffs, here.
Note that one of the keywords is Mark DeBofsky, who teaches ERISA Litigation at Marshall.
Excerpt from the SSRN page:
"Amici curiae law professors filed this brief to urge the U.S. Supreme Court to affirm the decision of the Second Circuit Court of Appeals and not to import inappropriate administrative law deference principles into ERISA denial of benefit claims under Section 502(a)(1)(B).
The brief argues that the Court should reject Petitioners' effort to engage in serial attempts to reinterpret its pension plan and also reject Petitioners' attempt to introduce administrative law deference into the ERISA benefit claims process. Such an approach would be inconsistent with the language and intent of ERISA and Supreme Court precedent.
Keywords: ERISA, Section 502(a)(1)(B), deference, benefits, denial of benefits, reinterpretation, administrative law, Donald Bogan, Mark DeBofsky"
You can download an amicus caraie brief by a group of law professors who support the employees plaintiffs, here.
Note that one of the keywords is Mark DeBofsky, who teaches ERISA Litigation at Marshall.
Excerpt from the SSRN page:
"Amici curiae law professors filed this brief to urge the U.S. Supreme Court to affirm the decision of the Second Circuit Court of Appeals and not to import inappropriate administrative law deference principles into ERISA denial of benefit claims under Section 502(a)(1)(B).
The brief argues that the Court should reject Petitioners' effort to engage in serial attempts to reinterpret its pension plan and also reject Petitioners' attempt to introduce administrative law deference into the ERISA benefit claims process. Such an approach would be inconsistent with the language and intent of ERISA and Supreme Court precedent.
Keywords: ERISA, Section 502(a)(1)(B), deference, benefits, denial of benefits, reinterpretation, administrative law, Donald Bogan, Mark DeBofsky"
401(k) Investing Differences and Race
Read a study of 401(k) plan investing and race by Alicia Munnel and Christopher Sullivan at Boston College's Center for Retirement Research, here.
From the introduction:
"Many data sources show a disparity among racial and ethnic groups regarding participation in and contributions to 401(k) plans. White workers participate at a higher rate and contribute a higher percentage than African American and Hispanic workers. However, few studies have explored whether these differences persist once other factors expected to impact these decisions are taken into consideration. One recent study by Ariel/Hewitt using client data found lower participation and contributions rates in 401(k)plans for African Americans and Hispanics than for Whites, even after controlling for age, tenure, and earnings. The question is whether racial and ethnic differentials remain after controlling for a broader array of factors included in a nationally representative sample of households, the Federal Reserve’s Survey of Consumer Finances (SCF)."
From the introduction:
"Many data sources show a disparity among racial and ethnic groups regarding participation in and contributions to 401(k) plans. White workers participate at a higher rate and contribute a higher percentage than African American and Hispanic workers. However, few studies have explored whether these differences persist once other factors expected to impact these decisions are taken into consideration. One recent study by Ariel/Hewitt using client data found lower participation and contributions rates in 401(k)plans for African Americans and Hispanics than for Whites, even after controlling for age, tenure, and earnings. The question is whether racial and ethnic differentials remain after controlling for a broader array of factors included in a nationally representative sample of households, the Federal Reserve’s Survey of Consumer Finances (SCF)."
Fee Scandal at Calpers: Spot the ERISA Litigation Issues
More on the Calpers (California Pension Plan)scandal in the Wall Street Journal. Craig Kramin reported
"Calpers said it paid two hedge-fund advisers during a two-year period when the firms weren't under contract, the latest stumble by the nation's largest pension fund. The two firms, a unit of UBS AG and Pacific Alternative Asset Management Co., have worked for the California Public Employees' Retirement System since 2003.
But their contracts had lapsed even as they continued to advise Calpers on hedge-fund investments over the past two years.
They received a combined $36 million."
"Calpers said it paid two hedge-fund advisers during a two-year period when the firms weren't under contract, the latest stumble by the nation's largest pension fund. The two firms, a unit of UBS AG and Pacific Alternative Asset Management Co., have worked for the California Public Employees' Retirement System since 2003.
But their contracts had lapsed even as they continued to advise Calpers on hedge-fund investments over the past two years.
They received a combined $36 million."
11/13/09
401(k) Resource
401k.org has resources for learning about 401(k) plans. Among them are a series of articles, incuding this one on Plan Loans.
Excerpt:
"One of the benefits offered by most 401(k) plans is the ability to borrow against your retirement sav-
ings in times of need. Currently, about 25 percent of employees eligible for a plan loan have taken
advantage of the option, with an average outstanding loan balance of about $7,400. Loans provide two
special advantages:
1. If your plan has a loan program, you have the security of knowing that your money is
available "just in case." This means you can comfortably make the maximum contribution
commitment to your plan without worrying if you might need those funds later.
2. Loans help prevent you from depleting your retirement savings when financial crisis occurs.
If your plan offers loans, you will be required to take a loan first before you can take a
distribution because once money is taken as a distribution, it cannot be replaced.
Let's assume you have an unexpected crisis and you need your money. What should you know?
Loan Basics
• Plans typically allow you to borrow up to 50 percent of your vested plan assets, up to $50,000,
less the amount of any outstanding plan loans.
• Plan loans usually have a minimum amount requirement, which is typically $1,000.
• Loans may be taken from all vested funds, which includes your rollovers from other qualiplans.
• In nearly all cases, you must repay your loan in equal payments over a five-year period.
• In rare cases, your payment period may be longer when the loan is for your primary
residence."
Excerpt:
"One of the benefits offered by most 401(k) plans is the ability to borrow against your retirement sav-
ings in times of need. Currently, about 25 percent of employees eligible for a plan loan have taken
advantage of the option, with an average outstanding loan balance of about $7,400. Loans provide two
special advantages:
1. If your plan has a loan program, you have the security of knowing that your money is
available "just in case." This means you can comfortably make the maximum contribution
commitment to your plan without worrying if you might need those funds later.
2. Loans help prevent you from depleting your retirement savings when financial crisis occurs.
If your plan offers loans, you will be required to take a loan first before you can take a
distribution because once money is taken as a distribution, it cannot be replaced.
Let's assume you have an unexpected crisis and you need your money. What should you know?
Loan Basics
• Plans typically allow you to borrow up to 50 percent of your vested plan assets, up to $50,000,
less the amount of any outstanding plan loans.
• Plan loans usually have a minimum amount requirement, which is typically $1,000.
• Loans may be taken from all vested funds, which includes your rollovers from other qualiplans.
• In nearly all cases, you must repay your loan in equal payments over a five-year period.
• In rare cases, your payment period may be longer when the loan is for your primary
residence."
The New England Pension Assistance Project's Work on Protecting Women's Pensions
The Center for Tax Law and Employee Benefits sponsors an externship with theNew England Pension Assistance Project.
From their website:"Women are much less likely than men to receive private pensions. In 1994, according to the U.S. Department of Labor, 53% of men age 65 and older received private pension benefits, but only 33% of women 65 and older received such benefits, including those collecting survivor’s benefits.
The Massachusetts Pensions not Posies Coalition was formed in May 1994.It is made up of individuals and 25 non-profit agencies. Its goals are to:
1. Provide education and information to women which will enable them to better understand how pensions work, to protect their individual pension rights, and to plan for retirement.
2. Propose legislative changes which will protect individual retirement income and increase benefit levels and participation rates for women.
3. Increase public awareness of current pension policies and trends that jeopardize women’s retirement security and encourage development of private pension plans.
The coalition grew out of a national 'Pensions not Posies' campaign begun in 1994 by three national organizations: the Pension Rights Center, the Older Women’s League, and the National Senior Citizens Law Center."
From their website:"Women are much less likely than men to receive private pensions. In 1994, according to the U.S. Department of Labor, 53% of men age 65 and older received private pension benefits, but only 33% of women 65 and older received such benefits, including those collecting survivor’s benefits.
The Massachusetts Pensions not Posies Coalition was formed in May 1994.It is made up of individuals and 25 non-profit agencies. Its goals are to:
1. Provide education and information to women which will enable them to better understand how pensions work, to protect their individual pension rights, and to plan for retirement.
2. Propose legislative changes which will protect individual retirement income and increase benefit levels and participation rates for women.
3. Increase public awareness of current pension policies and trends that jeopardize women’s retirement security and encourage development of private pension plans.
The coalition grew out of a national 'Pensions not Posies' campaign begun in 1994 by three national organizations: the Pension Rights Center, the Older Women’s League, and the National Senior Citizens Law Center."
First Healthcare, then Retirement
Check out David Wray's blog post about United States policy decisions regarding benefits such as health care and retirement income. Mr. Wray is the president of The Profit Sharing/401(k) Council of America
From his blog posting:
"The US made a decision in the 1930s to limit government delivered “benefits" to Social Security-provided retirement income. Paying for other benefits was a personal responsibility, though in some cases employers were encouraged to help. Since then government-provided benefits in the US have expanded but mostly as part of the safety net.
European countries took a different direction. In Europe certain benefits were defined as a right, and the government provided them to everyone. Some here have been disappointed at our more limited approach and attempts to implement the European approach have been ongoing. For example, they were successful in getting Medicare adopted in the 1960’s. Saturday's vote in US House of Representatives on health care shows the current strength of those advocating this philosophy."
From his blog posting:
"The US made a decision in the 1930s to limit government delivered “benefits" to Social Security-provided retirement income. Paying for other benefits was a personal responsibility, though in some cases employers were encouraged to help. Since then government-provided benefits in the US have expanded but mostly as part of the safety net.
European countries took a different direction. In Europe certain benefits were defined as a right, and the government provided them to everyone. Some here have been disappointed at our more limited approach and attempts to implement the European approach have been ongoing. For example, they were successful in getting Medicare adopted in the 1960’s. Saturday's vote in US House of Representatives on health care shows the current strength of those advocating this philosophy."
11/4/09
Free ERISA
Marshall LL.M. in Employee Benefits alumna and founder and principal of Benefits Compliance Group, Tonya Wilkes Moore, recently taught an EB 361 class and suggested some great resources for benefits practice, including the website Free ERISA
"FreeERISA.com provides free access to Department of Labor Form 5500 disclosure filings on more than 1 million retirement and health benefits plans. Here's what you'll find: Complete plan details; Contact info.rmation for plan sponsors, carriers, and brokers; Commentary and advice from industry experts"
"FreeERISA.com provides free access to Department of Labor Form 5500 disclosure filings on more than 1 million retirement and health benefits plans. Here's what you'll find: Complete plan details; Contact info.rmation for plan sponsors, carriers, and brokers; Commentary and advice from industry experts"
10/31/09
Defined Benefit 401(k) Plans--Coming Soon
Expect the debut of Defined Benefit 401(k) Plans in 2010, as the applicable provision of the Pension Protection Act of 2006 comes into effect on January 1, 2010.
Some information from the above-listed source, accounting WEB:
"New option: Enter the DB/401(k). It is available for the 2010 plan year to employers with at least two employees and no more than 500 employees.
The DB/401(k) combines a defined benefit plan based on final average pay with a safe-harbor 401(k). Two requirements:
1. The defined benefit part of the plan must provide a benefit equal to 1% of the final average pay times years of service up to a maximum of 20% of final pay. (A more complex structure is required if a cash balance plan is used instead of a final average pay plan.)
2. The 401(k) part of the plan requires automatic enrollment with an employee deferral of 4% of compensation. Matching contributions for HCEs can’t exceed the matching contribution rate for non- HCEs. Employees must be immediately vested in their 401(k) accounts."
Benefits Link's New Retirement Plan Newsletter
Check out Benefits Link's New Retirement Plan Newsletter
It has articles on the new 403(b) Requirements,Amendments Required Before the End of 2009, several articles on funding, and much more.
It has articles on the new 403(b) Requirements,Amendments Required Before the End of 2009, several articles on funding, and much more.
10/28/09
IRS announces pension plan limitations for 2010
In advance of Eileen's presentation on the subject, here is a link to the IRS 2010 pension plan limitations. Another summary can be found here. Also read an IRS announcement that the economic downturn has had little effect on tax rates and benefits in 2010.
Making your nest egg last through your retirement
10/17/09
Fee Blindness Can be Expensive for Plan Participants
The Wall Street Journal's Jason Zweig reports that half of pension plans, endowments, fundations and other institutions had no plan to review the fees taht they pay to outside money managers, and that many never review fees. Read more here.
From the article: "In the mad dash to buy bond funds -- about $200 billion so far this year -- investors are overlooking fees. Most of the new bond money is going not into dirt-cheap index funds, but into far more expensive, actively managed portfolios."
See also the video interview discussing the need to monitor and evaluate fees.
"A new study shows even sophisticated investors don't pay attention to fees and with the Dow reaching above 10000, WSJ's Personal Finance columnist Jason Zweig says, now more than ever, people are blinded to them. He speaks with Kelsey Hubbard.
.The average annual cost of owning a taxable bond fund, according to Morningstar, is 1.03% of invested assets, with a maximum of 2.98%. In a world of 3% to 4% Treasury yields, with the risk of losses if interest rates rise, those fees loom large."
From the article: "In the mad dash to buy bond funds -- about $200 billion so far this year -- investors are overlooking fees. Most of the new bond money is going not into dirt-cheap index funds, but into far more expensive, actively managed portfolios."
See also the video interview discussing the need to monitor and evaluate fees.
"A new study shows even sophisticated investors don't pay attention to fees and with the Dow reaching above 10000, WSJ's Personal Finance columnist Jason Zweig says, now more than ever, people are blinded to them. He speaks with Kelsey Hubbard.
.The average annual cost of owning a taxable bond fund, according to Morningstar, is 1.03% of invested assets, with a maximum of 2.98%. In a world of 3% to 4% Treasury yields, with the risk of losses if interest rates rise, those fees loom large."
10/15/09
More articles on the weaknesses of the 401(k) model
Following 2008's global financial markets' meltdown, many have voiced concern that 401(k) plans should be (and should have been) a component of retirement savings, but not the only one. Everyone agrees that the "diversity" of a plan's investments is difficult to measure, and that stock investments carry too much risk for those who have short retirement horizons. However, what may replace or supplement the 401(k)?
In October, The New York Times weighs in on target date funds in light of market cycles, some more severe (2007-present) than others.
See video, from a September interview on Fox News, discussing trends in 401(k) investment during the recession. Ms. Barrie Christman, of Principal Financial Group, reported that people continue to invest in 401(k)s. Note the contrast between Christman's assertions and the news anchors' quotes. While Christman insists that 401(k)s are a smart investment and that many people have increased their 401(k) contributions, the news anchors try to regroup the conversation to the extreme swings in the markets over the past ten years. Somewhat disturbing is Christman's quote that "it is smart to go on auto-pilot" with regards to investing for retirement.
From August, Pension News writes how 401(k)s fail minority investors, i.e. african-americans and latinos.
From January, in the L.A. Times.
In October, The New York Times weighs in on target date funds in light of market cycles, some more severe (2007-present) than others.
See video, from a September interview on Fox News, discussing trends in 401(k) investment during the recession. Ms. Barrie Christman, of Principal Financial Group, reported that people continue to invest in 401(k)s. Note the contrast between Christman's assertions and the news anchors' quotes. While Christman insists that 401(k)s are a smart investment and that many people have increased their 401(k) contributions, the news anchors try to regroup the conversation to the extreme swings in the markets over the past ten years. Somewhat disturbing is Christman's quote that "it is smart to go on auto-pilot" with regards to investing for retirement.
From August, Pension News writes how 401(k)s fail minority investors, i.e. african-americans and latinos.
From January, in the L.A. Times.
Calpers Fee Scandal
The nation's largest public-pension fund, Calpers, revealed that a former board member made more than $50 million in fees arranging for investments that could leave state taxpayers with hundeds of millions in losses.
"The disclosure deepens concerns that alleged conflicts of interest are undermining state retirement funds.
The California Public Employees' Retirement System said it is launching a "special review" into payments by money managers -- including billionaire Leon Black's Apollo Management LP -- to firms including Arvco Financial Ventures LLC. Arvco is headed by Al Villalobos, who served on Calpers's board from 1993 to 1995."
Read the Wall Street Journal article.
"The disclosure deepens concerns that alleged conflicts of interest are undermining state retirement funds.
The California Public Employees' Retirement System said it is launching a "special review" into payments by money managers -- including billionaire Leon Black's Apollo Management LP -- to firms including Arvco Financial Ventures LLC. Arvco is headed by Al Villalobos, who served on Calpers's board from 1993 to 1995."
Read the Wall Street Journal article.
10/12/09
Options Grants in Corporate Acquisitions Yield Big Payouts for Executives
Today's Wall Street Journal leads with a
story on stock options packages awarded to executives in acquired companies that yield big payouts. For shareholders, the grants of additional stock dilute the value of existing stock. But stock option grants may encourage executives to cooperate in takeover bids that benefit shareholders.
The acquisitions tied options grants appear to be legal under existing federal law.
10/10/09
Fiduciaries defeat ERISA stock claims
In recent years, stock drop cases have ended in large settelements. Substantial settlements have included those with Merrill Lynch ($75 million), Tyco ($70.5 million) and Countrywide Financial ($55 million). However, in June,2009, Tellabs' fiduciaries prevailed in Breiger v. Tellabs. Read the June 1, 2009 decision in the Northern District of Illinois Inc., 2009 WL 1835930 (N.D. Ill. 2009. )
From Morgan, Lewis, Bockius's article on its Tellabs victory.
Read more on the Tellabs case on the D& O Diary.
From Morgan, Lewis, Bockius's article on its Tellabs victory.
Read more on the Tellabs case on the D& O Diary.
Demanding that Uncle Sam Stay Away from Executive Pay Regulation
The Wall Street Journal's weekend journal devotes its front page to an article and large graphic on keeping the federal government out of executive compensation regulation.
What are your responses to the argument that executive compensation should not be a priority for regulation and that executive compensation is generally rational and effective? See below.
"Executive compensation ranks far down the list of our society's economic challenges, which include unemployment, scarce credit and protectionism. Reform proposals from Congress, the White House and the Federal Reserve are unworkable and, in some key areas, conflict with one another.
People have lost all sense of perspective. In most companies executive pay works rationally and effectively. No evidence whatsoever indicates that errant executive compensation "caused" the financial crisis of 2008, or that its reduction would prevent similar events in the future."
The end of the 401(k)?
This week's Time magazine has a cover story on "retiring the 401(k)." Inside, you find an article on the failures of the 401(k) as a retirement savings tool.
"The tax-deferred 401(k) plan, and others like it, such as the 403(b) and the IRA, have become our nation's go-to retirement piggy bank. Invented nearly 30 years ago as an executive perk — one more way to dodge Uncle Sam — the 401(k) was never meant to replace the employer-guaranteed pension fund, supplemented by Social Security, as the cornerstone of our nation's retirement system. But propelled by a combination of companies looking to cut costs and consumers who wanted control of their retirement destiny, that's exactly what happened.
The ugly truth, though, is that the 401(k) is a lousy idea, a financial flop, a rotten repository for our retirement reserves. In the past two years, that has become all too clear. From the end of 2007 to the end of March 2009, the average 401(k) balance fell 31%, according to Fidelity."
See also, an article encouraging people to maintain a 401(k) as one of their retirement savings tools, with some pragmatic advice on how to save more.
"The tax-deferred 401(k) plan, and others like it, such as the 403(b) and the IRA, have become our nation's go-to retirement piggy bank. Invented nearly 30 years ago as an executive perk — one more way to dodge Uncle Sam — the 401(k) was never meant to replace the employer-guaranteed pension fund, supplemented by Social Security, as the cornerstone of our nation's retirement system. But propelled by a combination of companies looking to cut costs and consumers who wanted control of their retirement destiny, that's exactly what happened.
The ugly truth, though, is that the 401(k) is a lousy idea, a financial flop, a rotten repository for our retirement reserves. In the past two years, that has become all too clear. From the end of 2007 to the end of March 2009, the average 401(k) balance fell 31%, according to Fidelity."
See also, an article encouraging people to maintain a 401(k) as one of their retirement savings tools, with some pragmatic advice on how to save more.
10/7/09
Freelancers' Union 401(k)
The Freelancers' Union has set up a new 401 (k) plan for independent workers. You can download their 25 page summary plan description on the website.
From the website,
"There’s a calculator available on our website to help you decide how much money to start contributing. Here are other important features of our 401(k) that you may want to take into consideration:
Regular savings with irregular income
You’ll be able to increase, decrease, or stop your contribution each month based on your immediate finances and comfort level. You can play it safe when work is slow and make bigger contributions when you’re feeling flush.
Two kinds of tax advantage
When you invest pre-tax, you’re not paying taxes on the income that goes into the 401(k). Splendid! But you will pay taxes on the money ("payouts") you later take out from the plan—like when you retire.
If you make Roth after-tax contributions, you pay taxes on your full income as usual, but your 401(k)'s earnings won’t be taxed, and you won’t have to pay taxes on the money ("payouts") you take from the plan later.
Share the wealth . . . with yourself
A 401(k) has higher contribution limits than your SEP or IRA option, so you can sock away even more for retirement. And if you’re a business owner you may also be able to make profit-sharing contributions to the Retirement Savings Plan in addition to contributions of your income.
Baby, rollover!
Do you have a neglected savings plan from your past employer, languishing like the bamboo plant you kept in your cubicle? Roll that money into a new 401(k) to simplify your finances. You may be paying lower fees if you roll over, too.
Send money by snail mail or bank debits
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Staying involved with your money
In addition to using our planning calculators, you’ll be able to change how much you’re contributing, and to which specific funds. And of course, you can view your balance and request loans or withdrawals. (All the IRS rules, process details, and fees for loans and withdrawals are in the Summary Plan Description"
Retirement Planning Advice for Laymen
Kiplinger's devotes a section of its website and print magazine to retirement planning.
This week's stories cover Social Security, Roth rollovers, and required minimum distributions (RMDs)for individual retirement accounts(IRAs).
If you are unfamiliar with RMDs, Gregory Kolojeski's article provides a summary of RMDs for traditional and Roth IRAs.
This week's stories cover Social Security, Roth rollovers, and required minimum distributions (RMDs)for individual retirement accounts(IRAs).
If you are unfamiliar with RMDs, Gregory Kolojeski's article provides a summary of RMDs for traditional and Roth IRAs.
Higher Costs of Dependant Health Coverage
Kiplinger's discusses employee options to reduce health inusrance costs for dependants.
The article advises that employees review their open enrollemnt packets with care.
"What you can do.
If your employer gives you several health-plan options, compare the out-of-pocket costs for the types of doctor visits and drugs you typically pay for as well as the premiums -- the plan with the lowest premium could actually cost you more, especially if you take expensive brand-name drugs that have no generic alternative (some employers have calculators on their intranet Web sites to help with the math). Also compare the bottom line -- your maximum out-of-pocket expenses. No matter how many medications you take or doctor visits you make, this is the most you will have to pay for the year. The ceiling is typically $2,000 to $5,000, says Sam Gibbs, senior vice-president of eHealthInsurance.com.
Also keep your ultimate liability in mind when calculating how much money to set aside in a flexible spending account for 2010. Because your FSA contributions avoid income and Social Security taxes, you can save 35% or more compared with spending after-tax money on these medical expenses."
The article advises that employees review their open enrollemnt packets with care.
"What you can do.
If your employer gives you several health-plan options, compare the out-of-pocket costs for the types of doctor visits and drugs you typically pay for as well as the premiums -- the plan with the lowest premium could actually cost you more, especially if you take expensive brand-name drugs that have no generic alternative (some employers have calculators on their intranet Web sites to help with the math). Also compare the bottom line -- your maximum out-of-pocket expenses. No matter how many medications you take or doctor visits you make, this is the most you will have to pay for the year. The ceiling is typically $2,000 to $5,000, says Sam Gibbs, senior vice-president of eHealthInsurance.com.
Also keep your ultimate liability in mind when calculating how much money to set aside in a flexible spending account for 2010. Because your FSA contributions avoid income and Social Security taxes, you can save 35% or more compared with spending after-tax money on these medical expenses."
State Run Health Plans
Today's Wall Street Journal has an article on the growing Senate support for health insurance plans run by the states. An option under consideration would involve states opening their workers' employee benefit plans to the general public.
In the opinion editorials, Peter Suderman, reviews state government health care schemes and asserts that they have been failures. Suderman discusses satte run plans in New York, Massachusetts, and Tennessee.
In the opinion editorials, Peter Suderman, reviews state government health care schemes and asserts that they have been failures. Suderman discusses satte run plans in New York, Massachusetts, and Tennessee.
10/2/09
Health Bills Curbed Insurance Executive Pay
The Senate Finance Committee responded to allegations that expanding health coverage would further enrich insurance companies by voting to limit insurance executives' compensation. An executive pay amendment to the health bill would limit the tax deductibility of compensation for insurance exceutives to $500,000 a year.
Read more in a Wall Street Journal article.
Read more in a Wall Street Journal article.
9/27/09
Unused Vacation may soon be banked in retirement savings
The Obama administration recently approved transfers of unused vacation pay to retirement savings. Read more in a Wall Street Journal article .
"The techniques are available for use with all qualified plans, which include 401(k), Keogh and profit-sharing plans but not individual retirement accounts or SEP-IRAs. While the rules don't currently extend to the 403(b) plans used by nonprofit organizations, the Treasury is willing to consider expanding them to include such plans, Mr. Iwry says.
The rules apply to "cash-outs" of unused vacation, sick leave or personal days that occur either annually or when an employee leaves a job. If an employer pays for such leave either in whole or in part, the worker could contribute the entire payment to the company's plan, unless he or she has already maxed out the annual contribution limit. This year the limit for most workers is $16,500, or $22,000 for those over 50.
Employers that don't currently pay workers for unused leave may want to reconsider their policies. The transfers compensate workers and encourage savings but don't increase base pay.
Companies can opt to pay workers for unused leave only if they bank the money in a 401(k) or other qualified plan -- in effect requiring employees to save or else forgo the money. A firm also may let employees decide whether to save or spend."
"The techniques are available for use with all qualified plans, which include 401(k), Keogh and profit-sharing plans but not individual retirement accounts or SEP-IRAs. While the rules don't currently extend to the 403(b) plans used by nonprofit organizations, the Treasury is willing to consider expanding them to include such plans, Mr. Iwry says.
The rules apply to "cash-outs" of unused vacation, sick leave or personal days that occur either annually or when an employee leaves a job. If an employer pays for such leave either in whole or in part, the worker could contribute the entire payment to the company's plan, unless he or she has already maxed out the annual contribution limit. This year the limit for most workers is $16,500, or $22,000 for those over 50.
Employers that don't currently pay workers for unused leave may want to reconsider their policies. The transfers compensate workers and encourage savings but don't increase base pay.
Companies can opt to pay workers for unused leave only if they bank the money in a 401(k) or other qualified plan -- in effect requiring employees to save or else forgo the money. A firm also may let employees decide whether to save or spend."
9/23/09
Lecture this Thursday on Health Insurance Regulation
Thursday, September 24, 2009 | 12:15 – 2:00 p.m. |Room 503
The Distinguished Lecture Series in Employee Benefits Law was created as a forum for the John Marshall faculty to learn about cutting-edge employee benefits issues from some of the top academics in the field.
Amy B. Monahan, Associate Professor of Law, University of Minnesota Law School
The lecture will include:
* A thorough examination of the permissible justifications for regulating the substance of health insurance contracts through mandated benefit laws
* A proposal to make mandated benefit laws efficient and value-based
* Case studies of mandates for infertility treatment, diabetes care, and autologous bone marrow transplant to illustrate the value-based process
* A discussion of the role an efficient, value-based process should play in broader health care reform
Food will be served.
Please register online at www.jmls.edu/events/092409EB.asp
Questions? Contact Steven Szydelko, program coordinator,
At 6szydelko@jmls.edu
ABA Tax Section CLE in Chicago
The Fall ABA Tax Section CLE meets this Thursday, September 24 through Saturday,September 26, at the Hyatt, 151 E. Wacker. Check out the program.
ABA Tax Section Chair for 2009-10 is a Benefits Attorney
Stuart M. Lewis, a Washington D.C. Benefits attorney is the ABA's Tax Section chair for 2009-10.
More on Regulation of Bank Executives' Pay
Looking for a hot topic in employee benefits law for a law review article or LL.M. publishable paper? Regulation of bank executives' pay has been grabbing headlines. Further regulation of executive compensation practices will yield greater opportunities for attorneys in this area. For current reading on regulation of bank executives' pay, see the The New York Times and again.
The Wall Street Journall has an op-ed today, and articles on global executive pay issues, such as this article on exec comp in Hungary. And check out this Fortune article from the beginning of September.
The Wall Street Journall has an op-ed today, and articles on global executive pay issues, such as this article on exec comp in Hungary. And check out this Fortune article from the beginning of September.
9/19/09
Global Regulation of Bank Executives' Compensation
In the wake of a global financial crisis (or during it, depending on your faith in Bernanke's assessments)world leaders have turned their attention to oregulation of bank executives' pay, including the compensation of traders. The Wall Street Journal's weekend edition for 9/19-9/20/2009 has several articles on the subject, including one on the expanded responsibilities of members of a corporate board's compensation committee.
Interestingly, a WSJ website search on fed reserve chairman yielded a list of articles mostly devoted to bank executives' compensation.
Fed's Plan on Pay Divides Industry
Boards Face Expanded Responsibilities
Restraining Bankers' Pay: Easy to Promise, Hard to Do
Interestingly, a WSJ website search on fed reserve chairman yielded a list of articles mostly devoted to bank executives' compensation.
Fed's Plan on Pay Divides Industry
Boards Face Expanded Responsibilities
Restraining Bankers' Pay: Easy to Promise, Hard to Do
Review of new Roth IRA rules
Wall Street Journal, 9/19-9/20/2009 weekend edition
Effective Jan. 1, 2010, the federal government is permanently dropping the income limit for transferring savings to a Roth IRA from a traditional individual retirement account or employer- sponsored retirement plan. Although the conversion is subject to income tax, future withdrawals (that meet holding requirements) would be tax-free.
This article reviews some common questions about the changes.
Q: I opened a traditional IRA several years ago in anticipation of the 2010 rule changes. None of my IRA contributions were tax-deductible, because my income is too high. And the market meltdown has left the value of my IRA below the amount invested. I assume that for me—and many others—a conversion would involve no tax bite whatsoever. True?
A: As long as none of your original IRA contributions were tax-deductible, and as long as your account value is worth the same or less than your original contribution amount at the time you convert, you would owe no tax if you convert the remaining assets to a Roth. In addition, you might be able to claim a miscellaneous itemized deduction for the loss, possibly allowing you to actually make money on the Roth conversion, says Ed Slott, an IRA consultant in Rockville Centre, N.Y.
Normally, losses within an IRA aren't deductible. But you may be able to deduct a loss if you convert your entire traditional retirement account to a Roth and the account contains only nondeductible, or after-tax, contributions. If you have multiple traditional IRA, Simplified Employee Pension (SEP) IRA and Simple IRA accounts, you have to convert all of them, and the total converted would have to be less than your basis—the value of the nondeductible contributions—to possibly claim a deduction.
Read the article.
Small Businesses Worry about Large Fines for Pension Fund Violations
From the Wall Street Journal, 9/19-9/20/2009 weekend journal
Five years ago, car-wash owner Orman Wilson set up a pension plan for himself and six employees. For that, he may owe the IRS a $1.2 million tax penalty.
Mr. Wilson, the owner of 19 coin-operated car washes in Houston, says he relied on four advisers, including a certified public accountant, to set up a plan that received approval from the Internal Revenue Service. Then, in late 2007, the IRS found fault with the plan and assessed it $250,000 -- plus special penalties of $1.2 million.
The penalties "would wipe us out," Mr. Wilson says.
Read the whole article.
9/12/09
The PBGC
The Pension Benefit Guaranty Corporation. Check out ERISA Title IV's affiliated organization's website.
Also, Prof. Kennedy could approve your externship with the PBGC. As long as you meet the required prerequisites.
Also, Prof. Kennedy could approve your externship with the PBGC. As long as you meet the required prerequisites.
Employment based health insurence is in trouble?
From Newsweek,
"Americans who have health insurance, we are told, are largely satisfied with it and terrified of losing it. Many of them assume that employment-based insurance—for all its flaws—is preferable to any other system. President Obama has gone out of his way to tell people who get their insurance from employers that they had nothing to fear:
If you are among the hundreds of millions of Americans who already have health insurance through your job, Medicare, Medicaid, or the VA, nothing in this plan will require you or your employer to change the coverage or the doctor you have. Let me repeat this: Nothing in our plan requires you to change what you have.
That's true. But powerful trends in the broader economy will. Even without reform, lots of people with employer-provided insurance are losing it. And those who still have it may find they'll be less satisfied with it in the future.
The latest report from the Census Bureau on income, poverty, and health insurance is full of interesting data. (For example, median household family income in 2008, at $50,303, was below where it was in 1998. Heckuva job, Bushie, Greenie, and the whole economic team!) Perhaps the most surprising census data are the significant evidence that, even absent a reform bill, the United States is slowly nationalizing health care. In 2008, enrollment in Medicare and Medicaid rose from a combined 81 million to a combined 85.6 million. Add in military health care, and some 87.4 million Americans in 2008 got health insurance directly from a government source—about 29 percent of the total. Meanwhile, health insurance became less tethered to work. The percentage of people covered by employment-based health insurance fell from 59.3 percent in 2007 to 58.5 percent 2008, and the percentage of those working full-time and part-time who lacked health insurance rose in 2008. The ranks of those getting insurance from employers include a substantial number of public employees—teachers, state workers, etc. (In August, government accounted for about 17 percent of payroll jobs.) Add those folks to the people receiving coverage from Medicare, Medicaid, and the military, and, as Jon Bon Jovi once put it, "we're half way there." Most of the Americans who have insurance may already be getting it through the government, one way or another."
Read the article here.
Thank you for the article, Jon Armstrong at blurbomat.com
"Americans who have health insurance, we are told, are largely satisfied with it and terrified of losing it. Many of them assume that employment-based insurance—for all its flaws—is preferable to any other system. President Obama has gone out of his way to tell people who get their insurance from employers that they had nothing to fear:
If you are among the hundreds of millions of Americans who already have health insurance through your job, Medicare, Medicaid, or the VA, nothing in this plan will require you or your employer to change the coverage or the doctor you have. Let me repeat this: Nothing in our plan requires you to change what you have.
That's true. But powerful trends in the broader economy will. Even without reform, lots of people with employer-provided insurance are losing it. And those who still have it may find they'll be less satisfied with it in the future.
The latest report from the Census Bureau on income, poverty, and health insurance is full of interesting data. (For example, median household family income in 2008, at $50,303, was below where it was in 1998. Heckuva job, Bushie, Greenie, and the whole economic team!) Perhaps the most surprising census data are the significant evidence that, even absent a reform bill, the United States is slowly nationalizing health care. In 2008, enrollment in Medicare and Medicaid rose from a combined 81 million to a combined 85.6 million. Add in military health care, and some 87.4 million Americans in 2008 got health insurance directly from a government source—about 29 percent of the total. Meanwhile, health insurance became less tethered to work. The percentage of people covered by employment-based health insurance fell from 59.3 percent in 2007 to 58.5 percent 2008, and the percentage of those working full-time and part-time who lacked health insurance rose in 2008. The ranks of those getting insurance from employers include a substantial number of public employees—teachers, state workers, etc. (In August, government accounted for about 17 percent of payroll jobs.) Add those folks to the people receiving coverage from Medicare, Medicaid, and the military, and, as Jon Bon Jovi once put it, "we're half way there." Most of the Americans who have insurance may already be getting it through the government, one way or another."
Read the article here.
Thank you for the article, Jon Armstrong at blurbomat.com
9/11/09
Seniors who cannot afford to retire
The AARP Bulletin for September 2009 has an article on seniors who feel that they cannot afford to retire.
"Erma Paliani had worked a lot longer than she planned. But at age 92, Paliani finally called it quits this summer.
“I didn’t expect to work this long,” says the soft-spoken Paliani, who became a secretary for the federal government 67 years ago when Franklin D. Roosevelt was president, and eventually worked longer than nearly any other federal employee. For most of those years, the fear of not having enough money to live comfortably, a worry rooted in her experience of the Great Depression, compelled her to stay on the job.
Money worries also drive Jeanne Phillips, 85, who plans to keep working as long as she can, even after two heart attacks in the past five years, including one just eight months ago.
Without her job at a senior center in St. Louis, which supplements her Social Security, Phillips says she’d barely be able to afford the basics. So three days a week, she packs her nitroglycerin in her purse and heads off to work.
“I’ve never retired,” says Phillips, who was divorced some 40 years ago and never remarried. “If I could’ve retired comfortably, I would have. It would’ve been wonderful to be able to play golf and bowl and go to the art museum and theater. But I don’t have the money to do that.”
Phillips, Paliani and millions of others in their 60s, 70s, 80s—and even 90s—are changing the picture of retirement. Social Security records show that the average age for Americans to claim benefits is 63.9. But they are working longer than that—many need the money. In fact, the percentage of workers over 65 is increasing faster than any other age group, according to the Bureau of Labor Statistics.
Read the whole article.
Illinois' Millionaire Pension Club
The Chicago Sun Times is doing a four part series on the state pensions system.
The first part is excerpted below, The Millionaire Pension Club.
Sunday: Double-dippers -- collecting a pension and a paycheck from the taxpayers.
Monday: Fat pensions for union bosses -- and you pay for those, too.
Tuesday: Can this mess be fixed?
The Millionaire Pension Club
Tim Novak, et al.
Nearly 4,000 retired government workers have pensions that pay them at least $100,000 a year. They include politicians, judges, doctors and school administrators, as well as top cops, firefighters and park officials.
Thanks to cost-of-living increases, former Gov. James R. Thompson (left) has seen his pension rise 50 percent since he retired. U.S. Sen. Roland Burris, who had served as attorney general and comptroller before retiring, has seen his pension rise nearly 50 percent.
More than half have collected more than $1 million each since they retired. A few have topped $2 million. And five have gotten more than $3 million each, a Chicago Sun-Times investigation found.
And these numbers are soaring faster than taxpayers can afford.
Consider:
• 3,958 retirees have pensions paying $100,000 or more a year.
• 2,255 of those retirees have each collected more than $1 million in pension benefits. They include two doctors who have each gotten more than $3 million over the last 10 years.
• 14,280 retirees have pensions that pay them more than their final salaries. That's largely because all government pensions in Illinois automatically increase 3 percent every year.
• 11,521 retirees get checks from two or more government pension plans.
• 23 widows each get more than $100,000 a year, every year, in survivor benefits.
• 16 judges' widows have each gotten more than $1 million since their husbands died.
..................................................................................
Even as the economy has forced governments to cut services and jobs, they've had to borrow money or raise taxes to meet their soaring pension costs.
And the problem has lingered for decades, as elected officials continually postpone dealing with it, much like a homeowner putting off needed repairs. In fact, they've kept sweetening retirement benefits for themselves and others, even as they shortchanged the pension funds, diverting money to other programs and services. And early retirement programs have made things worse.
Read the whole article.
The first part is excerpted below, The Millionaire Pension Club.
Sunday: Double-dippers -- collecting a pension and a paycheck from the taxpayers.
Monday: Fat pensions for union bosses -- and you pay for those, too.
Tuesday: Can this mess be fixed?
The Millionaire Pension Club
Tim Novak, et al.
Nearly 4,000 retired government workers have pensions that pay them at least $100,000 a year. They include politicians, judges, doctors and school administrators, as well as top cops, firefighters and park officials.
Thanks to cost-of-living increases, former Gov. James R. Thompson (left) has seen his pension rise 50 percent since he retired. U.S. Sen. Roland Burris, who had served as attorney general and comptroller before retiring, has seen his pension rise nearly 50 percent.
More than half have collected more than $1 million each since they retired. A few have topped $2 million. And five have gotten more than $3 million each, a Chicago Sun-Times investigation found.
And these numbers are soaring faster than taxpayers can afford.
Consider:
• 3,958 retirees have pensions paying $100,000 or more a year.
• 2,255 of those retirees have each collected more than $1 million in pension benefits. They include two doctors who have each gotten more than $3 million over the last 10 years.
• 14,280 retirees have pensions that pay them more than their final salaries. That's largely because all government pensions in Illinois automatically increase 3 percent every year.
• 11,521 retirees get checks from two or more government pension plans.
• 23 widows each get more than $100,000 a year, every year, in survivor benefits.
• 16 judges' widows have each gotten more than $1 million since their husbands died.
..................................................................................
Even as the economy has forced governments to cut services and jobs, they've had to borrow money or raise taxes to meet their soaring pension costs.
And the problem has lingered for decades, as elected officials continually postpone dealing with it, much like a homeowner putting off needed repairs. In fact, they've kept sweetening retirement benefits for themselves and others, even as they shortchanged the pension funds, diverting money to other programs and services. And early retirement programs have made things worse.
Read the whole article.
9/8/09
French Restrictions on Executive Compensation
Blogger Urbanomics recently posted on France's restrictions of executive compensation.
"It is now well acknowledged that incentive arrangements skewed towards short-term returns that faced bankers, fund managers and traders played a critical role in inflating the sub-prime bubble and causing the deepest economic recession since the Great Depression. Accordingly, all recent efforts at regulatory reforms to impose greater oversight on the financial markets have sought to place curbs on executive compensation.
However, nothing substantial has till date been legislated or decreed into action. In the circumstances, the French government has taken the lead by concluding an agreement with the leading banks to limit executive compensation. It was agreed that up to two-thirds of bonus payments should be deferred for three years, while a third should be paid in shares of the bank. It was also agreed that the bonuses would be paid out based on the performances of the bank as a whole and not that of particular trading desks."
Read the whole post.
Also see this New York Times article:
French Bankers Accept Restrictions on Bonuses
The Precarious Promise of Post-Employment Health Benefits
From the The Tax Prof Blog's August 10, 2009 post.
Richard L. Kaplan (Illinois), Jordan Zucker (DLA Piper) & Nicholas J. Powers have posted Retirees at Risk: The Precarious Promise of Post-Employment Health Benefits, 9 Yale J. Health Pol'y, L. & Ethics ___ (2009), on SSRN. Here is the abstract
This article examines the increasingly troubled state of employer-provided health benefits for retirees. The availability of such benefits is a major determinant of both the timing of retirement and the financial security of those who retire. Despite the signal importance of these benefits to current and prospective retirees, employers have been steadily eroding their value and in many cases, eliminating these benefits outright. Such actions are often catastrophic for the retirees affected, especially if they are not yet eligible for Medicare.
This article begins by explaining the economic pressures that have precipitated this unfortunate development, including the increasing cost of health care generally. But much of the decline in retiree health benefits is attributable to financial accounting requirements that required employers to disclose the projected costs of these benefits. These accounting requirements have recently been extended to state and local government employers, and another wave of broken promises may lie just ahead.
The article next examines the extensive litigation regarding the erosion and/or termination of retiree health benefits, focusing on the Employee Retirement Income Security Act (ERISA). Claims that retirees have 'vested' rights to such benefits are analyzed in both the unionized and nonunionized employment contents, as well as claims of breach of fiduciary duty and estoppel. In short, ERISA has largely failed to protect the reasonable expectations of retirees concerning their post-employment health benefits.
The article then turns to alternative approaches that retirees might consider, including continuation coverage from their former employer, individually obtained health insurance, and health savings accounts. Finding serious problems with each of these approaches, the article considers recent legislative proposals to extend Medicare to early retirees, noting the impact of such an extension on existing employer health benefit programs for retirees and on individuals’ retirement timing decisions.
Richard L. Kaplan (Illinois), Jordan Zucker (DLA Piper) & Nicholas J. Powers have posted Retirees at Risk: The Precarious Promise of Post-Employment Health Benefits, 9 Yale J. Health Pol'y, L. & Ethics ___ (2009), on SSRN. Here is the abstract
This article examines the increasingly troubled state of employer-provided health benefits for retirees. The availability of such benefits is a major determinant of both the timing of retirement and the financial security of those who retire. Despite the signal importance of these benefits to current and prospective retirees, employers have been steadily eroding their value and in many cases, eliminating these benefits outright. Such actions are often catastrophic for the retirees affected, especially if they are not yet eligible for Medicare.
This article begins by explaining the economic pressures that have precipitated this unfortunate development, including the increasing cost of health care generally. But much of the decline in retiree health benefits is attributable to financial accounting requirements that required employers to disclose the projected costs of these benefits. These accounting requirements have recently been extended to state and local government employers, and another wave of broken promises may lie just ahead.
The article next examines the extensive litigation regarding the erosion and/or termination of retiree health benefits, focusing on the Employee Retirement Income Security Act (ERISA). Claims that retirees have 'vested' rights to such benefits are analyzed in both the unionized and nonunionized employment contents, as well as claims of breach of fiduciary duty and estoppel. In short, ERISA has largely failed to protect the reasonable expectations of retirees concerning their post-employment health benefits.
The article then turns to alternative approaches that retirees might consider, including continuation coverage from their former employer, individually obtained health insurance, and health savings accounts. Finding serious problems with each of these approaches, the article considers recent legislative proposals to extend Medicare to early retirees, noting the impact of such an extension on existing employer health benefit programs for retirees and on individuals’ retirement timing decisions.
9/1/09
A Special Report on Retirement Plans: Reducing or Eliminating Employer Contributions
Reducing or Eliminating Employer Contributions
Due to the economic downturn, many employers are seeking ways to control expenses. To that end, employers are looking more closely at reducing or eliminating contributions to their retirement plans. Reducing or eliminating an employer contribution can be done; but needs to be done correctly and with an understanding of the consequences of such reduction or elimination. Furthermore, special rules apply if the employer is a party to a collective bargaining agreement.
The Correct Approach
401(k) Plans Matching Contributions
Many employers have already implemented or are planning to reduce or eliminate the matching contribution they have been making on employee salary deferral contributions to their 401(k) plans. If the 401(k) plan is drafted such that the matching contribution is discretionary, both in terms of the amount the employer will contribute and whether the employer will make a contribution, then no amendment is needed to the 401(k) plan document. If the employer has previously announced that it will be making a contribution, or historically the employer has been making such contributions, the employer should announce in advance that it will be reducing or eliminating the match. Employees should also be given the opportunity to change their salary deferral contributions.
If the matching contribution is not discretionary, then the 401(k) plan document needs to be amended to permit a reduction or elimination of the match. Such amendment will only have prospective impact. Rather than eliminating the ability to make a matching contribution, it is preferable to amend the plan document to make the match discretionary in order to provide the employer with the greatest flexibility with respect to matching
contributions going forward.
Key point: employees should be given advance notice and the opportunity to change their salary deferral contributions. Please note that the document should be reviewed to be sure employees can change the salary election contributions.
Safe Harbor 401(k) Plans
Many employers utilize a 401(k) plan design, which includes what is commonly referred to as a “Safe Harbor” contribution. A Safe Harbor contribution permits the plan to automatically pass the specialized non-discrimination testing required of 401(k) plans. There are two types of Safe Harbor contributions. The elimination or reduction of either of these contributions must be done in strict accord with the Internal Revenue Service (IRS) rules. Because Safe Harbor contributions are mandatory, any changes to a Safe Harbor contribution require a plan amendment.
Read the entire article.
Special thanks to Malaika C. and Mary C., who provided this article and the Plansponsor.com article as supplements to EB 361.
Due to the economic downturn, many employers are seeking ways to control expenses. To that end, employers are looking more closely at reducing or eliminating contributions to their retirement plans. Reducing or eliminating an employer contribution can be done; but needs to be done correctly and with an understanding of the consequences of such reduction or elimination. Furthermore, special rules apply if the employer is a party to a collective bargaining agreement.
The Correct Approach
401(k) Plans Matching Contributions
Many employers have already implemented or are planning to reduce or eliminate the matching contribution they have been making on employee salary deferral contributions to their 401(k) plans. If the 401(k) plan is drafted such that the matching contribution is discretionary, both in terms of the amount the employer will contribute and whether the employer will make a contribution, then no amendment is needed to the 401(k) plan document. If the employer has previously announced that it will be making a contribution, or historically the employer has been making such contributions, the employer should announce in advance that it will be reducing or eliminating the match. Employees should also be given the opportunity to change their salary deferral contributions.
If the matching contribution is not discretionary, then the 401(k) plan document needs to be amended to permit a reduction or elimination of the match. Such amendment will only have prospective impact. Rather than eliminating the ability to make a matching contribution, it is preferable to amend the plan document to make the match discretionary in order to provide the employer with the greatest flexibility with respect to matching
contributions going forward.
Key point: employees should be given advance notice and the opportunity to change their salary deferral contributions. Please note that the document should be reviewed to be sure employees can change the salary election contributions.
Safe Harbor 401(k) Plans
Many employers utilize a 401(k) plan design, which includes what is commonly referred to as a “Safe Harbor” contribution. A Safe Harbor contribution permits the plan to automatically pass the specialized non-discrimination testing required of 401(k) plans. There are two types of Safe Harbor contributions. The elimination or reduction of either of these contributions must be done in strict accord with the Internal Revenue Service (IRS) rules. Because Safe Harbor contributions are mandatory, any changes to a Safe Harbor contribution require a plan amendment.
Read the entire article.
Special thanks to Malaika C. and Mary C., who provided this article and the Plansponsor.com article as supplements to EB 361.
Mercer Suggests Sponsors Prepare in Case Plan Limits Drop
In a new GRIST report, Mercer points out that depending on inflation levels for August and September 2009, the statutory formula used for calculating limits on elective deferrals, catch-up contributions, plan compensation, Code Section 415 annual additions and maximum defined benefit (DB) annuities, and compensation amounts for identifying highly compensated and key employees could produce lower figures in 2010 relative to 2009.
Employers may want to prepare now by assessing the implications for participant communications (including whether a 204(h) notice might be required for pension plans), financial planning tools, benefit calculation systems, and discrimination testing (including ADP/ACP testing for 401(k) plans), Mercer suggests.
The code is unclear what happens when the rounded value under the statutory formula goes down. Mercer said one interpretation is that the prior year's limit remains in effect, and another possibility is that the limit goes down, but not below the base amount ($15,000 for the elective deferral limit and $200,000 for the compensation limit).
The second interpretation, if adopted, also could adversely affect ADP/ACP nondiscrimination testing for 401(k) plans, as some limits could go down while others remain unchanged under the statutory formula, Mercer warns.
Read the full article.
Employers may want to prepare now by assessing the implications for participant communications (including whether a 204(h) notice might be required for pension plans), financial planning tools, benefit calculation systems, and discrimination testing (including ADP/ACP testing for 401(k) plans), Mercer suggests.
The code is unclear what happens when the rounded value under the statutory formula goes down. Mercer said one interpretation is that the prior year's limit remains in effect, and another possibility is that the limit goes down, but not below the base amount ($15,000 for the elective deferral limit and $200,000 for the compensation limit).
The second interpretation, if adopted, also could adversely affect ADP/ACP nondiscrimination testing for 401(k) plans, as some limits could go down while others remain unchanged under the statutory formula, Mercer warns.
Read the full article.
8/27/09
Illinois State Pension Plans: Do Participants Have Standing to Demand a Minimum Funding Ratio?
Abstract
The Illinois Constitution of 1970, Article XIII, section 5, provides a contractual protection for state employees from their pension benefits being diminished or impaired. The courts have interpreted this pension protection clause as a protection for employees to receive the benefits that they have been promised. However, the courts have not held that the Illinois Constitution provides a protection for state employees that secures actuarially sound funding of those pension funds. The courts have also held that the Illinois Constitution does not provide for a cause of action requiring the pension funds be maintained at the required statutory level of 90%. The Illinois state pension funds have historically, and are currently, funded at an actuarially unsound level, 62.6%. The courts have held that only if the funds are on the verge of default or bankruptcy, do the participants and beneficiaries of these pensions have an actionable right to mandate funding from the courts.
This article provides the history and structure of the Illinois Pension System, bifurcating the legal environment into the period before the 1970 State Constitution and the period after its ratification. It provides the basic issues with funding a pension plan, starting with a general primer on how any employer would fund a plan, and then illustrating how well funded the Illinois State plans were as of 2007. The main emphasis of the article is an exploration of how the Illinois State Courts have interpreted issues arising from the benefits promised and funding levels maintained by the State in regards to Illinois State Supreme Court decisions that have looked at a plan participant’s standing to sue to force the pension plans to be funded at a certain level. The article concludes that the three Illinois State Supreme Court holdings, collectively, leave an ambiguity as to when exactly a plan participant (i.e., a current state worker or retiree expecting a pension) has standing to sue and, even with proper standing, there is uncertainty as to what remedies are available to the plaintiffs. In the conclusion, a bright line test is offered for the Illinois State Supreme Court to adopt in its next review of these issues or for the Illinois General Assembly to craft into an amendment to the pension protection provision, either through an ad hoc amendment of the State Constitution or upon the voters calling for a complete Constitutional Convention.
You can download the entire unpublished article by Barry Kozak, the Associate Director of John Marshall's Graduate Employee Benefits Programs, and Jeremy Brunner, JMLS J.D./LL.M. Employee Benefits.
Benefits Link
Benefits Link is a great resource for employee benefits students and professionals. Check out its retirement plans newsletter for August, 2009.
8/23/09
Stocking Up Pensions, Literally
By LYNN COWAN
Some corporations, facing the need to make higher contributions to their pension plans, are turning to a little-used financing strategy: Pouring their own newly issued stock into defined-benefit plans.
The tactic, used by about a half-dozen companies since May, allows them to preserve cash for other uses at a time when balance sheets are stretched thin and the value of their pension assets has been reduced by the market decline in 2008.
It also results in tax benefits and an earnings boost, according to Caitlin Long, head of the pensions-solutions group at Morgan Stanley.
"It's not brand new, but in years past, companies did not need to contribute as much" to their pension plans, largely because pension funding status was much healthier and companies had more cash-flow flexibility, says Ms. Long, who believes more companies will take this route in the months ahead. "Many companies may not realize this option exists, and it may be attractive under the right circumstances."
Stock contributions don't come without complications. Because company pensions owe a fiduciary responsibility to employees, an unaffiliated third party -- usually a trust company -- must be hired to properly manage the shares to benefit retirees. Often, that means quickly selling them to convert to cash so that the pension isn't weighted down with its own sponsor's stock.
Read the entire article at Stocking Up Pensions, Literally
Welcome to Law 216/EB 360
Here is the preliminary syllabus for the course. It is available in Word form on LegalEase. Prof. Minc's and Ms. Kucia's email addresses are listed on the syllabus, but not here on the public class blog.
SYLLABUS FOR LAW 216/EB 360
Fall 2009
This course will survey provisions of applicable federal law relating to employee benefit plans, especially those concerning tax-qualified employee pension and profit sharing plans. By providing an overview of the framework of rules governing such plans, students will learn basic tax, labor and other laws that affect employee benefit plans, and the rights and obligations of employers and employees under such plans.
Professor: Gabriel J. Minc
Academic Fellow: Audrey Kucia
Required text: Employee Benefits Law: Qualification and ERISA Requirements, Kennedy and Shultz III (chapters will be distributed in class)
Class blog: eb360survey@blogspot.com
Grading: 35% Midterm; 45% Final; 20% class presentations and participation
LAW 216/EB 360
Guest Speaker: GP
Student Presentations: SP
Unless otherwise noted, plan for guest speakers and student presentations to start the classes for which they are scheduled.
August 26, 2009 Introduction
September 2, 2009 Chapters 1 and 2
Introduction to ERISA
Introduction to the Code’s Qualification Rules
September 9, 2009 Chapters 3 and 4
Minimum Participation Requirements
Overall Coverage Tests
SP: What plans are covered by ERISA?
September 16, 2009 Chapters 4 and 5
Overall Coverage Tests
Minimum Vesting Requirements
401(k) Plans
SP: Anti-cutback provisions of ERISA (Code sections 411(d)(6) and 4980F and ERISA sections 204(g) and (h))
September 23, 2009 Chapters 6 and 7
Accrued Benefits Requirements
Limitations on Benefits/Contributions under Qualified Plans
Cash Balance Plans
GS: ESOPs
SP: Update on ERISA litigation relating to “stock drop” cases
September 30, 2009 Chapters 8 and 9
Non-Discrimination Requirements Regarding Benefits/Allocations for Qualified Plans
Minimum Funding Standards
SP: ERISA Section 404(c )
Review for Midterm Exam
Midterm Exam Distributed
October 7, 2009 Midterm Exam Due
Chapters 10 and 11
Deductibility of Employer Contributions
Related Employers for Purposes of Applying the Qualification Rules
GS: 401(k) Plans
SP: Automatic Enrollment Under 401(k) Plans
October 14, 2009 Chapters 12 and 13
Distributions of Benefits, Loans and QDROs
Single Employer Plan Terminations Under Title IV of ERISA and the Code
SP: Prohibited Transactions (Code section 4975 and ERISA sections 406 and 408
October 21, 2009 Chapters 14 and 15
Taxation on Qualified Distributions from Qualified Plans and IRAs
Determination Letters
Plan Disqualifications and Correction Programs
GS: Social Security Administration
SP: Analysis of most recent Cumulative List of Changes in Plan Qualification Requirements
October 28, 2009 Chapters 18 and 19
Fiduciary Rules
Reporting and Disclosure Requirements
Administrative Review
Civil Litigation Under ERISA
SP: Remedies provided by the courts for breaches of ERISA fiduciary duties.
November 4, 2009 Chapter 16
Tax Rules Applicable to Welfare Benefits
COBRA
HIPAA
SP: Prohibition against discrimination against persons with certain health conditions under ERISA
November 11, 2009 Chapter 17
Non Qualified Deferred Compensation Plans
SP: Update on “top-hat” plan litigation
November 18, 2009 Review for the Final Exam
Final Exam Distributed
ERISA Reporting and Disclosure
Multiemployer Plans
SP: What is “withdrawal liability” with respect to a multiemployer plan?
November 25, 2009 Final Exam Due
No class Thanksgiving Break
December 2, 2009 TBA
SYLLABUS FOR LAW 216/EB 360
Fall 2009
This course will survey provisions of applicable federal law relating to employee benefit plans, especially those concerning tax-qualified employee pension and profit sharing plans. By providing an overview of the framework of rules governing such plans, students will learn basic tax, labor and other laws that affect employee benefit plans, and the rights and obligations of employers and employees under such plans.
Professor: Gabriel J. Minc
Academic Fellow: Audrey Kucia
Required text: Employee Benefits Law: Qualification and ERISA Requirements, Kennedy and Shultz III (chapters will be distributed in class)
Class blog: eb360survey@blogspot.com
Grading: 35% Midterm; 45% Final; 20% class presentations and participation
LAW 216/EB 360
Guest Speaker: GP
Student Presentations: SP
Unless otherwise noted, plan for guest speakers and student presentations to start the classes for which they are scheduled.
August 26, 2009 Introduction
September 2, 2009 Chapters 1 and 2
Introduction to ERISA
Introduction to the Code’s Qualification Rules
September 9, 2009 Chapters 3 and 4
Minimum Participation Requirements
Overall Coverage Tests
SP: What plans are covered by ERISA?
September 16, 2009 Chapters 4 and 5
Overall Coverage Tests
Minimum Vesting Requirements
401(k) Plans
SP: Anti-cutback provisions of ERISA (Code sections 411(d)(6) and 4980F and ERISA sections 204(g) and (h))
September 23, 2009 Chapters 6 and 7
Accrued Benefits Requirements
Limitations on Benefits/Contributions under Qualified Plans
Cash Balance Plans
GS: ESOPs
SP: Update on ERISA litigation relating to “stock drop” cases
September 30, 2009 Chapters 8 and 9
Non-Discrimination Requirements Regarding Benefits/Allocations for Qualified Plans
Minimum Funding Standards
SP: ERISA Section 404(c )
Review for Midterm Exam
Midterm Exam Distributed
October 7, 2009 Midterm Exam Due
Chapters 10 and 11
Deductibility of Employer Contributions
Related Employers for Purposes of Applying the Qualification Rules
GS: 401(k) Plans
SP: Automatic Enrollment Under 401(k) Plans
October 14, 2009 Chapters 12 and 13
Distributions of Benefits, Loans and QDROs
Single Employer Plan Terminations Under Title IV of ERISA and the Code
SP: Prohibited Transactions (Code section 4975 and ERISA sections 406 and 408
October 21, 2009 Chapters 14 and 15
Taxation on Qualified Distributions from Qualified Plans and IRAs
Determination Letters
Plan Disqualifications and Correction Programs
GS: Social Security Administration
SP: Analysis of most recent Cumulative List of Changes in Plan Qualification Requirements
October 28, 2009 Chapters 18 and 19
Fiduciary Rules
Reporting and Disclosure Requirements
Administrative Review
Civil Litigation Under ERISA
SP: Remedies provided by the courts for breaches of ERISA fiduciary duties.
November 4, 2009 Chapter 16
Tax Rules Applicable to Welfare Benefits
COBRA
HIPAA
SP: Prohibition against discrimination against persons with certain health conditions under ERISA
November 11, 2009 Chapter 17
Non Qualified Deferred Compensation Plans
SP: Update on “top-hat” plan litigation
November 18, 2009 Review for the Final Exam
Final Exam Distributed
ERISA Reporting and Disclosure
Multiemployer Plans
SP: What is “withdrawal liability” with respect to a multiemployer plan?
November 25, 2009 Final Exam Due
No class Thanksgiving Break
December 2, 2009 TBA
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