Fortune's first issue of 2010 delivers plenty of material on benefits and tax concerns.
Among the topics covered: board member pay, a challenge to the concept of cadillac health care plans, and for those who remember Enron's Jeff Skilling an article on honest services fraud. Chicagoans may have already read the Chicago Reader's December 2009 article on honest services fraud.
Also featured is an estate settlement battle between a Revlon exec and his father in law
1/10/10
12/30/09
Hiatus for Exams but back with More Benefits Reading
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
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.
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