Benefitsblog

Impact of Massachusetts' Health Care Reform

Now that Massachusetts requires state residents to be covered by health insurance, apparently there are not enough primary care physicians to go around. From this NPR article:

The law, passed in 2006, requires most state residents to be covered either through a state-subsidized plan, an employer-sponsored plan or an individual policy. Jacqueline Spain, medical director for Holyoke Health Center, said, "It's entirely reasonable for somebody who's now got insurance and maybe has a whole list of things that's worried them and troubled them" to "expect that they should be able to go out in the market and get all of that care. There just aren't enough [primary care physicians] to give it to them." She said about 1,600 people currently are on the facility's waiting list and patients must wait an average of four months to be seen.

Some Year-End Deadlines

In its Fall 2008 Retirement News for Employers, the IRS reminds employers of the following deadlines:

Dec. 2: Deadline to provide safe harbor notice for Safe Harbor 401(k) plans for 2009 plan year.

Dec. 2: Deadline to give eligible employees Automatic Enrollment Notice.

Dec. 31: Deadline for: making 2008 required minimum distributions; and distributing 2007 401(k) excess contributions (including income or losses) without jeopardizing a plan’s tax-qualified status.

In Cutting Costs, Employers, Beware of ERISA Section 510

This article from Wharton--"As Layoffs Spread, Innovative Alternatives May Soften the Blow"--indicates companies are looking at creative alternatives to layoffs "such as voluntary retirements or salary cuts, hiring freezes, reductions in hours, or the cancellation of business trips and/or costly perquisites." The article also notes the trend of cutting "benefit packages and matching contributions to 401(k) plans."

Whatever the alternatives contemplated, employers need to beware of the minefield of Section 510 of ERISA. For those not familiar with ERISA section 510, it provides as follows:

It shall be unlawful for any person to discharge, fine, suspend, expel, discipline, or discriminate against a participant or beneficiary for exercising any right to which he is entitled under the provisions of an employee benefit plan. . . or for the purpose of interfering with the attainment of any right to which such participant may become entitled under the plan. . .

For instance, targeting for layoff those employees who are costing the company more when it comes to health care costs or pension costs is unlawful under Section 510. Some may recall the well-known Millsap et al. v. McDonnell Douglas Corporation case in which the company was accused of seeking to maximize their pension plan's surplus by selecting for layoff or plant closing its older, more senior employees. You can read about the millions that were recovered in that case by the plaintiffs here, here, and here.

Also, outsourcing or reclassifying employees to cut benefits costs can give rise to ERISA Section 510 claims. Read more about that topic here, here, and here.

Memo to Lawyers: How Not to "Retire and Teach"

For anyone considering a career jump from legal practitioner to law professor, I highly recommend Jeffrey Lipshaw's piece entitled "Memo to Lawyers: How Not to "Retire and Teach." Abstract:

Many long-time practitioners muse about what it might be like to retire and teach, not realizing there is no more galvanizing phrase to their counterparts who have long toiled in the academy, nor one less likely to enhance the prospects of the unfortunate seasoned applicant who utters the phrase. I intend this essay not for law professors (though it may either amuse or irritate them), but for those in the practice who aspire, after all these years, to return to the academy. With a good deal of humility acquired along the way, I offer some realistic advice to job seekers, concluding that wistful phrase is precisely the opposite of the true sine qua non of success: demonstrating the capability of, and commitment to, being a productive scholar

While I enjoyed the article, I found it humorous that Professor Lipshaw considers employee benefits to be "mundane":

It seems like the vast majority of young law professors want to talk and write about the burning constitutional, political, and rights issues of the day. It's an advantage to want to teach and write in a niche that may be considered more mundane (somebody has to think about employee benefits, for example). But merely writing in the niche is not enough; you need to have something scholarly to say about it.

Apparently, he hasn't been reading Benefitsblog. Who could possibly think this is mundane? Or even this?

IRS Issues 2008 Cumulative List

The IRS has published its 2008 Cumulative List. The 2008 Cumulative List informs plan sponsors of issues the Service has specifically identified for review in determining whether a plan filing in Cycle D has been properly updated. It also acts as an attorney's legal checklist for updating an individually designed plan that falls into the Cycle D Remedial Amendment Period.

In accordance with Rev. Proc. 2007-44, the Service will start accepting determination letter applications for Cycle D plans beginning on February 1, 2009. The 12-month submission period for Cycle D plans will end January 31, 2010.

Proposition 101 Likely Defeated in Arizona

It sounds like they might still be counting votes. However, the most recent report indicates that Proposition 101 in Arizona which would have attempted to block any government-run universal health plan in Arizona will be defeated. From The Arizona Republic: Health-care debate will rage on; However, universal plan in state appears unlikely. Excerpt:

The most recent count shows that 50.3 percent voted against the measure that backers said would prevent a government-run universal health plan in Arizona.

Dr. Eric Novack, chairman of Medical Choice for Arizona, said the close vote showed that Arizona voters are interested in blocking government-run health plans.

Read about the proposed legislation in previous posts here.

(The New York Times is gloating over the result.)

Impact of Economic Crisis on 401(k) Participants

From CFO.com: "Study Shows Workers Sticking with Retirement Plans." Excerpt:

U.S. employees seem to be resisting the temptation to save less in their retirement accounts, a Hewitt Associates survey shows.

Savings rates have barely dropped, from 8 percent in 2007 to 7.8 percent in 2008, although there is a predictably aggressive shifting of assets from equities to more other investments. What's more, just 4 percent of employees have terminated their 401(k) plan contributions altogether this year, according to the analysis by Hewitt, a global human resources consulting company.

So, how bad does the survey show 401(k) investors being hit? The analysis of 2.7 million U.S. employees measured the average 401(k) plan balance as falling 14 percent through 2008, to $68,000 from $79,000 in 2007. In the past two months alone, employees on average have lost nearly 18 percent of their 401(k) plan savings. Some have lost more than 30 percent.

The Worker, Retiree, and Employer Recovery Act of 2008

Senators Baucus, Grassley, Kennedy, and Enzi have joined together in proposing some year-end pension legislation. The name of the proposed legislation is : The Worker, Retiree, and Employer Recovery Act of 2008. Some links:

Press Release here.
Text of the Worker, Retiree, and Employer Recovery Act of 2008 ("WRERA?")
Staff Summary here.

Announcement from the SEC Regarding Mutual Fund Disclosures

SEC Improves Disclosure for Mutual Fund Investors:

The Securities and Exchange Commission today voted unanimously to improve mutual fund disclosure by requiring that funds provide investors with a concise summary — in plain English — of the key information they need to make informed investment decisions. The new summary prospectus will appear at the front of a fund’s prospectus.

The Commission also approved amendments to encourage funds to make greater use of the Internet so investors can receive more detailed information in a way that best suits their needs.

More on the change from Reuters--"U.S. SEC adopts rules to improve fund disclosures." Excerpt:

Almost half of the households in the United States use mutual funds to save for retirement or college tuition. But many consumers cannot understand the documents that fund firms such as Fidelity Investments or Vanguard are required to publish, detailing what will be done with their money.

Nor do retail investors generally take the time to wade through the prospectuses, which often run hundreds of pages long.

The SEC's rule requires mutual funds to include key information at the front of its statutory prospectus such as the fund's investment objectives, strategies, risks and costs.

The summary prospectus also needs to include brief information about the investment advisers and portfolio managers, as well as the fund's purchase and sale procedures and tax consequences.

The new SEC rules, which do not go into effect until 2010, will allow investors to access more detailed information via the Internet or from the traditional paper prospectus.

Episodic Employment Patterns These Days Adding to Mortgage Crisis

Great article from Professor Katherine V.W. Stone of UCLA: The deeper roots of the mortgage crisis: employment instability:

In the 1980s, adjustable mortgages became commonplace and most mortgages ceased imposing prepayment fees, so that homeowners gained flexibility to adjust their debt level as interest rates changed. But that flexibility did not address the deeper source of instability – the danger of joblessness.

The problem now is that few people have the kind of long-term job security that our housing policies take for granted. According to the Bureau of Labor Statistics, the median length of time a worker spends with a particular employer has decreased in every age group.Today people have a more episodic experience in the labor market, moving from employer to employer, with periods of employment often followed by periods of unemployment and transition. When unemployment strikes, mortgage payments that once had been manageable become impossible.

These episodic employment patterns can also impact benefits negatively as well: people may lose their health insurance, or never build up a very big retirement nest egg because they are always leaving an employer before vesting in the employer's retirement plan, etc.

Benefits-Related Provisions in the Final FMLA Regulations

Regarding the recently issued final FMLA Regulations issued by the DOL yesterday, here are the benefits-related sections of the regulations:

825.209 Maintenance of employee benefits.
825.210 Employee payment of group health benefit premiums.
825.211 Maintenance of benefits under multi-employer health plans.
825.212 Employee failure to pay health plan premium payments.
825.213 Employer recovery of benefit costs.

Besides these provisions, the final regulations also:

(1) Provide guidance regarding when PEOs will be considered joint employers for purposes of FMLA.

(2) Allow the employer and employee to agree to run paid leave concurrently with FMLA leave to supplement disability benefits.

(3) Allow an employer to deny an employee the payment of a bonus or other payment based on achievement of a specified job-related performance goal (such as attendance) where the employee has not met the goal due to being on FMLA leave, so long as this is done in a nondiscriminatory manner.

These final regulations have an effective date of January 16, 2009. For those employers who haven't updated their benefits booklets or plan documents to reflect these new rules, it is time to do so.

Also, here is what the DOL has to say in the preamble as to what, if any changes, were made to the benefits-related provisions in these final regulations:

Increase in the Use of Health Savings Accounts

The New York Tmes reports here an increase in the use of HSAs:

But this year, at more than 100 large companies and hundreds of smaller ones, the high-deductible plans are the employee’s single take-it-or-leave-it option.

One of those companies is the automaker Nissan, which is offering only high-deductible plans to its 15,000 United States employees for the coming year. Another is Delta Airlines.

Most large companies still do offer a choice between high-deductible plans and more conventional insurance, which means workers must try to decide which approach is best for them.

Regarding whether HSAs will survive the next administration, the article states that "the plans may not have a White House advocate." The article quotes an advisor to the President-elect as saying that "medical benefits that shift costs to employees" would not be consistent with the upcoming President's position on health care.

Update: The Tax Update Blog has a response to the comments quoted in the article. (Great benefits quote, by the way: "Benefits don't grow on magical benefits trees grown in HR Departments.")

Benefits in the News

You can access the complete text of Senator Baucus's health care proposals here. (Click on "Call to Action" Complete Text for the 98-pg White Paper.)

Plan Sponsor has a good summary of the proposal here. Excerpt:

According to the "Call to Action" report, the foundation of Baucus’ plan is the creation of a nationwide insurance pool called the Health Insurance Exchange - a marketplace where Americans could easily compare and purchase the plans of their choice. Private insurers offering coverage through the Exchange would be precluded from discrimination based on pre-existing conditions.

Premium subsidies would be available to qualifying families and small businesses. Baucus expects that the vast majority of American employers would continue to provide coverage as a competitive benefit to attract employees, so those who already have health coverage could choose to keep what they have.

Also, on the retirement plan front, the Wall Street Journal has this op-ed: "It's Time to Rethink Our Retirement Plans."

Tax Court: Deductions are a matter of "legislative grace"

"Deductions are a matter of 'legislative grace'", according to the Tax Court. Such grace was not extended to a piano teacher's claim for deductions in this Tax Court case: Langer v. Commissioner. Thanks to the Tax Update Blog for the link.

An Update on TARP

Remarks by Secretary Henry M. Paulson, Jr. on Financial Rescue Package and Economic Update, November 12, 2008

Professor Zelinksy Critiques the Ninth Circuit on Their ERISA Preemption Analysis

Professor Ed Zelinksy has posted this interesting piece on SSRN entitled "Employer Mandates and ERISA Preemption: A Critique of Golden Gate Restaurant Association v. San Francisco." In the paper, he predicts that, if the Ninth Circuit maintains its position in the case (which you can read about in a previous post here) the Supreme Court will likely overturn the decision. The Golden Gate Restaurant Association has filed a Petition for Rehearing En Banc asking the Ninth Circuit to consider an en banc review of the decision.

One of Zelinksy's arguments is as follows:

In sum, Golden Gate II concludes that an employer’s ongoing payments under the San Francisco ordinance do not give rise to an ERISA plan because the employer has neither significant administrative tasks nor discretion in connection with those payments. If so, an employer’s ongoing payments to a traditional insurer, HMO, PPO or HSA provider do not constitute an ERISA plan either, since those payments also entail the same, quite minimal administrative burdens and discretion for the employer. These providers, like San Francisco, perform the administrative tasks and execute the discretionary functions necessary to furnish medical care to employees.

The Ninth Circuit’s ERISA analysis of employers’ payments to San Francisco disregards the language of the statute and is a classic argument that proves too much. If correct, the Ninth Circuit’s analysis would radically reconfigure our understanding of ERISA by exempting from its coverage the many programs by which employers finance medical care for their employees through payments to insurers, HMOs and PPOs. It is more convincing to recognize that San Francisco under the ordinance acts like any other health care provider, including the exercise of administrative responsibilities and discretionary functions. Consequently, all ongoing payments to these equivalent health care providers, including the City of San Francisco, constitute employee benefit plans for ERISA purposes.

Please note that the DOL makes this same argument in their Amicus Brief filed in support of the Petition for Rehearing. Excerpt:

The Secretary [has] explained that when an employer chooses to fund health benefits for its employees by making payments to the City under the HAP program, the employer establishes an ERISA-covered plan for its employees, just as an employer establishes an ERISA-covered plan when it provides health benefits for its employees through the purchase of insurance. Id. at 13-14 (citing Qualls v. Blue Cross of Cal., 22 F.3d 839, 843 (9th Cir, 1994) (holding that an employer's purchase of insurance for its employees creates a plan because of the "complex ongoing relationship between the insureds and the insurer which require[s] the constant administrative attention by the insurer").

There is no relevant difference between an employer's decision to provide benefits through HAP or to provide benefits through the purchase of insurance – in both cases, the employees receive their benefits from a third party and the program is substantially administered by a third party. Nothing in the statute or the case law turns on whether the particular benefit arrangement relies upon a private insurer for the administration of benefits, rather than public employees or contractors hired by the City. Whether the employer provides benefits through private insurance or HAP, it has elected an arrangement for providing ERISA-covered benefits to its employees that meets the established test for determining whether a plan exists.

Great Link for Veterans Day

Here is a great link for those interested in the history of Veterans Day: "The History of Veterans Day." View a timeline of America's wars, examine conflict maps, and watch videos of veterans' experiences.

There are many veterans in my family to honor on this day:

Remarks of Douglas Shulman, Commissioner of Internal Revenue, before Independent Sector, Nov. 10, 2008

Excerpt from his speech:

I’m now seven months into my five-year term. It’s an honor and privilege to lead the IRS. And for each day I’ve been in office, I’ve been amazed by what an incredible organization the IRS is.

Just think about it for a minute. The IRS not only collects the approximately $3 trillion it takes to run the federal government but interacts every year with practically every American adult and business. We’re the face of government. And contrary to some opinion, it can be a most welcome face. This year, as of October 24th, we issued 106 million tax refund checks totaling $254 billion.

And, as you know, we work very closely with the non-profit community — whether it’s processing over 70,000 determination applications per year or applying oversight or audits when we detect a problem.

Now, in addition to the filing season, a lot has happened in these seven months. It’s not a time in my life I will easily forget. . .

More:

We’ve also began conducting studies of several of the largest taxpayer segments within the tax-exempt community by sending out comprehensive questionnaires that focus on an area of interest and then analyzing the responses. If necessary, we can follow up with an examination.

In fact, we’re about to release the hospital study report. Stay tuned, but I can say this much. I’m confident that the new hospital schedule for the Form 990 — the Schedule H — is the right tool to allow nonprofit hospitals, of all types and sizes, to report how they promote the health of their communities and to justify their tax exemption. And the Schedule H will give the IRS and the public better transparency into these important institutions.

We also recently launched a study of colleges and universities. In the spirit of collaboration and the recognition that we must be in dialogue with sectors with whom we engage, we did advance work with colleges and universities on the questionnaire. We wanted to understand how they talk about themselves, what kind of measures they use, and so forth. When we have agreement about what data means, we eliminate a lot of friction. I want to apply this lesson throughout the IRS, not just in Exempt Organizations.

House Ways and Means Contemplating Corporate Tax Cut Plan

From the Dow Jones Newswire: "House Ways and Means Re-Tool Corporate Tax Cut Plan." Excerpt:

House Ways and Means Committee Democrats and staff are retooling a proposal to overhaul the corporate tax code, with an eye toward introducing a new bill early next year.

The new legislation in the U.S. House of Representatives will be an updated version of a corporate tax code blueprint introduced by House Ways and Means Chairman Charles Rangel, D-N.Y., late last year, according to a Democratic House aide.

That bill would have cut the corporate rate from 35% to 30.5%. However, the new version will push that rate lower, people familiar with the effort told Dow Jones Newswires.

(From the Tax Prof Blog)

IRS Says: Beware of ROBS

With a lot of baby boomers nearing retirement, some may be looking for alternatives to the stock market for investing their accumulated retirement plan assets. Some may even be approached by promoters promising that they can use their funds in their 401K, IRA, profit-sharing, or annuity plans to open a business without paying taxes on the distribution. In its most recent newsletter here, the IRS has provided a lot of helpful information on the legal pitfalls pertaining to the design of these programs. The IRS is calling these programs "ROBS" which stands for "Rollovers as Business Startups."

The IRS outlines in this Memorandum issued October 1, 2008 how the programs typically work:

An individual establishes a shell corporation sponsoring an associated and purportedly qualified retirement plan. At this point, the corporation has no employees, assets or business operations, and may not even have a contribution to capital to create shareholder equity.

The plan document provides that all participants may invest the entirety of their account balances in employer stock. The individual becomes the only employee of the shell corporation and the only participant in the plan. Note that at this point there is still no ownership or shareholder equity interest.

The individual then executes a rollover or direct trustee-to-trustee transfer of available funds from a prior qualified plan or personal IRA into the newly created qualified plan. These available funds might be any assets previously accumulated under the individual's prior employer's qualified plan, or under a conduit IRA which itself was created from these amounts. Note that at this point, because assets have been moved from one tax-exempt accumulation vehicle to another, all assessable income or excise taxes otherwise applicable to the distribution have been avoided.

The sole participant in the plan then directs investment of his or her account balance into a purchase of employer stock. The employer stock is valued to reflect the amount of plan assets that the taxpayer wishes to access.

The individual then uses the transferred funds to purchase a franchise or begin some other form of business enterprise. Note that all otherwise assessable taxes on a distribution from the prior tax-deferred accumulation account are avoided.

After the business is established, the plan may be amended to prohibit further investments in employer stock. This amendment may be unnecessary, because all stock is fully allocated. As a result, only the original individual benefits from this investment option. Future employees and plan participants will not be entitled to invest in employer stock.

A portion of the proceeds of the stock transaction may be remitted back to the promoter, in the form of a professional fee. This may be either a direct payment from plan to promoter, or an indirect payment, where gross proceeds are transferred to the individual and some amount of his gross wealth is then returned to promoter.

The IRS notes that it has identified 9 promoters of these programs. Here are the main legal deficiencies being identified in the programs, according to the Memorandum:

We have examined a number of these plans - having opened a specific examination project on them based off referrals from our determination letter program - and found significant disqualifying operational defects in most. For example, employees in some arrangements have not been notified of the existence of the plan, do not enter the plan or receive contributions or allocable shares of employer stock. Additionally, we have identified that plan assets are either not valued or are valued with threadbare appraisals. Required annual reports for some plans have not been filed. In several situations, we have also found that the business entity created from the ROBS exchange has either not survived, or used the resultant assets on personal, nonbusiness purchases.

The IRS states that there are "two primary issues raised by ROBS arrangements": (1) violations of nondiscrimination requirements, in that benefits may not satisfy the benefits, rights and features test of Treas. Reg. § 1.401 (a)(4 )-4. and (2) prohibited transactions, due to deficient valuations of stock.

Many promoters will claim that they have IRS approval for their program, when in fact the IRS has only approved the form of the Plan document. The Memorandum notes that the violations that occur are typically operational and not document failures.

In the past, I have had clients ask me about these programs after being approached by promoters. It will be nice to be able to point folks to these resources as a "starting point" for further discussions.

UPDATE: More on this from Joe Kristan: "The dangers of ROBS-ing your retirement plan."

Status of Proposition 101 in Arizona?

What is happening with Proposition 101 in Arizona? One news report:

A scant 20 voting precincts remain unaccounted for out of 2,239 statewide, yet those votes could make the difference between whether or not Proposition 101 passes.

With the tallies at 50.1 percent against the proposition and 49.9 percent voting yes, the two sides are deadlocked until more ballots are counted.

Currently, votes in favor and opposed are separated by a margin of 2,124 out of over 1.7 million ballots cast.

The ballot initiative, backed by Medical Choice for Arizona, would guarantee that citizens would always have the right to choose and possibly pay for whichever health plan they wished, without interference, and that no law could incur a fine for opting out of or obtaining health care coverage.

Previous post here and here.

Update: More from the WSJ Health Blog here.

Sample of TARP/Executive Compensation Agreement

Footnoted.org has a link to this letter agreement provided to a TARP participant's executives by the participant/company's chief human resources officer under which the executive is to forego golden parachutes and other executive comp pursuant to the requirements of the TARP program. The Letter Agreement contains this language:

In addition, the Company is required to review its Benefit Plans to ensure that they do not encourage senior executive officers to take unnecessary and excessive risks that threaten the value of the Company. To the extent any such review requires revisions to any Benefit Plan with respect to you, you and the Company agree to negotiate such changes promptly and in good faith.

All of this is agreed to "in consideration of the benefits" that the executive will receive as a result of the Company’s participation in the government's Capital Purchase Program.

More on TARP in previous posts here.

60 Minutes Video on USERRA

Reservists' Rocky Return To Job Market. Excerpt:

With the Pentagon relying so heavily on the National Guard and Reserve to fight in Iraq and Afghanistan - 650,000 have been called for active duty since 9/11 - the least you'd expect is that after they serve, they get their old civilian jobs back.

There's a law, called USERRA (Uniformed Services Employment and Reemployment Rights Act), that says their employers have to take them back at the same pay.

But what 60 Minutes correspondent Lesley Stahl found is that despite the law, thousands of guards and reservists come home to find themselves demoted or penalized, or out of a job completely.

The Workforce Prof Blog has comments on the video:

A primary focus was on USERRA's costs to employers given the frequent and long tours of active duty that many Reservists now face in Iraq. There's the normal share of simply bad employers, but also an example of an employer that continually went beyond the call of duty in supporting its employees who were called up. That employer, while continuing that support, was frank about the growing burdens on losing its employees so frequently and for unknown periods of time. The employer argued that if the military wanted to ensure its personnel enjoyed employment benefits, it should help pay the costs. An interesting idea that would normally seem to be a stretch, but sounds more reasonable given what employers have had to face the last several years.

The story also emphasized that these costs to employers hurt military employees' opportunities. One commentator quoted a senior HR official who said point-blank that he wouldn't hire an active Reservist. When pointed out that such an action was illegal, the official said that he could also find a reason not to hire someone.

Supreme Court Justice Alito's Love for the Phillies

Being a Phillies fan myself, I enjoyed this story from Law.com about Supreme Court Justice Samuel AlitoJr.: "Sitting Down With Justice Alito, the Supreme Phillies Fan." Excerpt:

Supreme Court Justice Samuel Alito Jr. has turned his desk at the Court into a mini-shrine to the Philadelphia Phillies.

There's a Phillies towel, the front page of Thursday's Philadelphia Inquirer with a headline proclaiming "CHAMPS!" and a baseball hat marking the team's playoff win. The World Series hat, he says, "is on the way." . . .

He watched the Series games on television, but was "living and dying with every pitch." Does he yell at the television? "There's a lot of emotion, but I'm very quiet."

The Importance of the Health-Care Debate in Arizona

From the Wall Street Journal, "As Arizona Goes: A Proposition that could change the health-care debate." Excerpt:

On Tuesday Arizonans will vote on a ballot initiative that could resonate in the national debate over the future of health care. Proposition 101, the Freedom of Choice in Health Care Act, has set off a storm of opposition, though its language hardly seems controversial. It reads that "no law shall be passed that restricts a person's freedom of choice of private heath care systems or private plans of any type." Also: "No law shall interfere with a person's right to pay directly for lawful medical services . . ."

Proposition 101's fate is up in the air because its opponents, led by the Governor, are spending about four times more than supporters. They are doing so in the belief that if health-care choice passes in Arizona, it will spread to other states. It is ironic the groups opposing the rights of Arizona citizens to choose their own health care purport to back a "patient bill of rights." In what way is the freedom to choose one's care not a fundamental patient right?

More 401(k) Discussion

From Financial Week: 401(k) plans could be facing total revamp: Lawmakers, candidates calling for rethink of DC plans; die early, lose half your assets? Excerpt:

“It’s going to be difficult because people like their 401(k) plans,” said Bill Sweetnam, a partner with the Groom Law Group, Washington.

The prospects for Ms. Ghilarducci’s proposal are considered dim by some lobbyists. For starters, while the existing retirement system in the U.S. is voluntary for employers, Ms. Ghilarducci’s proposal would require participation. In addition, while investments under existing retirement plans are managed by private-sector money managers, investments in Ms. Ghilarducci’s plan would be managed by the federal government.

“It’s a non-starter,” Paul Schott Stevens, president and chief executive officer of the mutual fund industry’s Investment Company Institute, Washington, said of Ms. Ghilarducci’s plan. “It’s puzzling in the (financial) course we are in now that the committee would give currency to that proposal.”

“We believe the current employer-sponsored system is a good one that should be built on,” added Jan Jacobson, senior counsel, retirement policy, American Benefits Council, Washington.

“It (Ms. Ghilarducci’s proposal) is subsidized by workers who die early and forfeit their assets,” added Ed Ferrigno, vice president of Washington affairs, Profit Sharing/401(k) Council of America, Chicago. “I don’t think there’s any prospect for her exact version.

“There may be some elements in it that may end up being considered.”

“There isn’t anybody out there who is serious that is supporting that kind (Ms. Ghilarducci’s) of plan,” added Mark Ugoretz, president of the ERISA Industry Committee, a Washington-based group representing employers.

An Innovative Approach to Health Care

From Bloomberg.com: "Peabody Pays Mayo Clinic Prices to Save on Health-Care Costs." Excerpt:

Ferguson's wife, Shanna, had her colon removed last year because of chronic inflammatory disease. Foundation sent her 700 miles away to the top-ranked Mayo Clinic in Rochester, Minnesota. The company covered the $85,000 bill for the operation and follow-up reconstructive surgery and even paid for Ken's motel.

``I was at the best place with the best doctors possible,'' said Shanna, 50. ``And we saved money.''

So did Foundation. The coal producer says it has found an unconventional way to cut health costs: Seek out the nation's best care and give workers incentives to use it. About two-thirds of operations have proven to be cheaper at better-rated hospitals out of state. Even when the price was higher, the Linthicum Heights, Maryland-based company saved money by reducing misdiagnoses, complications and repeat procedures.

Foundation's experiment in Wyoming could be a model for politicians and insurers seeking to curb the growth in U.S. health-care spending, now $2.2 trillion a year, said Mark McClellan, who served under President George W. Bush as head of Medicare and the Food and Drug Administration.

More on this approach from the Connecticut Employment Law Blog here. See also this link to a book by Michael E. Porter & Elizabeth Olmsted Teisberg entitled "Redefining Health Care" which discusses the approach.

Federal Circuit Overrules Tax Strategy Patent Linchpin

From the Tax Prof:

The Federal Circuit today issued its long awaited decision in In re Bilski, No. 2007-1130 (Fed. Cir. Oct. 30, 2008), rejecting the patentability test (State Street Bank & Trust Co. v. Signature Financial Group, 149 F.3d 1368 (Fed. Cir. 1998)) which was the linchpin in the spate of tax strategy patents issued recently. . .

There has been a lot written about whether strategies could be patented in the ERISA arena. Those who are interested in this topic will want to take note.

Knowledge Poll About SPDs

The HR Lady (sorry, I just can't bring myself to call her "evil" as the name of her blog indicates) has an interesting poll going on at her sight: "I am an HR Professional and I know what a 'Summary Plan Description' is. . ."

It will be interesting to find out the results of this. If they aren't good, I guess we're in trouble.

(For those who might not be benefits or ERISA savvy, you can go here or here for the answer.)

FASB Increasing Pension Disclosure Requirements

According to this press release here, the Financial Accounting Standards Board has mandated that employers provide extensive information about the fair value of assets in pension plans, counter to a staff recommendation and over the objections of Chairman Robert Herz and member Leslie Seidman. See this FASB Summary of Board Decisions here.

The board decided Wednesday that the final staff position will be effective for fiscal years ending after Dec. 15, 2009, one year later than originally envisioned, with early application permitted.

See also these Handouts which were used in the meeting here.

Phillies Win the World Series!!!

Fightin’ Phils are World Series Champions

More here.

Massachusetts Independent Contractor Law

This article from McDermott Will & Emery--"For Massachusetts Employers: Distinguishing Between Independent Contractors and Employees"--discusses an Advisory issued by the Attorney General's Fair Labor Division last May in connection with Massachusetts' Independent Contractor Law. While the whole article is worth reading, here is an important excerpt:

The penalties for misclassifying an employee as an independent contractor can be very steep, and can include both civil and criminal penalties. For example, a willful misclassification is punishable under the law by a fine of up to $25,000 or up to one year in jail. Even a mistaken misclassification can result in a penalty of up to $10,000 or six months in jail for the first offense. Moreover, when an employer misclassifies an employee as an independent contractor, it also violates other Massachusetts and federal statutes, such as those that govern minimum wage and overtime, employer recordkeeping requirements, income tax withholding and workers’ compensation insurance. . .

Misclassifying employees as independent contractors under Massachusetts law could have federal law consequences as well. The attorney general’s office has indicated that, because employers do not pay taxes for independent contractors as they do for employees, it communicates the findings from its independent contractor investigations to the Internal Revenue Service (IRS). While the test for independent contractors in Massachusetts is not the same as the 20 Factor Test used by the IRS, information that an employer is misclassifying employees under the Massachusetts statute could prompt an independent investigation by the IRS that could have devastating financial consequences. For example, the IRS recently fined a large U.S. courier and freight company $319 million dollars for misclassifying employees as independent contractors.

As the article aptly points out, employers sometimes consider reclassifying employees when thinking about ways to cut costs in economic downturns. To read about the perils of such actions (other than the ones discussed above in Massachusetts), you can access previous posts here.

Family's 401(k) Is Herd Of Alpacas

Well, I guess if the 401(k) retirement system is eliminated, one can always raise a herd of alpacas.

Lessons from the Orth Case

There are some really great lessons for all from the District Court and the Circuit Court opinions in the Orth v. Wisconsin State Employees Union Council 24, et al. case discussed in this previous post here (in case you missed it):

(1) Statements in collective bargaining agreements can give rise to unintended ERISA plans. The district court opinion includes a discussion of this issue:

An ERISA “plan” is not an entity or a piece of paper, but a more inchoate group of rights, benefits and procedures (literally, a “plan”) set up by an employer to create pension or welfare benefits. See Pegram v. Herdrich, 530 U.S. 211, 223, 120 S.Ct. 2143, 147 L.Ed.2d 164 (2000) (noting that a plan is merely a “scheme decided upon in advance” for the provision of benefits). The plan may be evidenced by a summary plan description (SPD) and any other documents, such as a CBA, that describe the rights of beneficiaries or such things as how the plan is administered, how premiums are collected, etc. In other words, the fact that the plaintiff's dispute may arise solely from a clause in a collective bargaining agreement does not mean that the dispute does not also implicate the terms of an ERISA plan. In fact, hybrid ERISA/LMRA claims are commonly asserted, even when the dispute is resolved by reference to a CBA rather than merely a plan–specific document.

(Read about another interesting case here which held that a merger agreement acted as a plan amendment to an ERISA retiree medical plan.)

(2) The clause that states "[p]ayment of premiums will be on the same basis as the benefit is currently paid for employees" or similar language occurs often in retiree medical plan language and should be promptly reviewed and revised, if necessary. Many times this language occurs in benefits booklets or SPDs prepared by insurance providers. Normally, such language is meant to portray exactly what the defendant's lawyers tried to argue in the case:

The defendant also suggests patent ambiguity because the clause refers to both benefits and premiums: “Payment of premiums will be on the same basis as the benefit is currently paid for employees.” In the defendant's reading, this means only that retirees will receive the same level of benefits as active employees–not that they will have their premiums paid at the same level.

However, with judges reading such language to mean that the employer, by making that statement, is committing to the same level of premiums for retirees as it has for active employees, employers should make sure that they review such language and clarify it to say exactly what they mean. Such language can be revised to make it more clear, but if the language is in a benefits booklet or SPD prepared by an insurance company, you may have more of a challenge getting it revised.

(3) These types of programs should be clearly communicated to active employees and retirees. When changes are made, those changes should also be communicated. One of the things that was sadly absent from the facts of the case, from an employer's standpoint as well as the employee's standpoint, was the communication aspect. Excerpt from the district court opinion:

WSEU is a small organization with little experience providing retirement benefits, and thus the issue only emerged from under the radar after Orth, who had no doubt thought he was set for life, found himself with no benefits. Rather than establishing some sort of clear understanding between the employees' union and the WSEU, the evidence only shows that the parties were not fully cognizant of what the CBA actually provided.

(Judge Posner authored the Orth opinion. You can access a number of links here at Benefitsblog which reference Judge Posner's court opinions impacting the benefits world.)

Pennsylvania's Prohibition on Excessive Overtime in Health Care Act

From the Pennsylvania Labor and Employment Blog: "Prohibition of Excessive Overtime in Health Care Act will Exacerbate Nursing Shortage." Excerpt:

A health care facility cannot compel a protected employee to work more than an agreed to, predetermined and regular daily shift exclusive of “on call” time, unless one of the following exceptions applies:

(1) the employee voluntarily agrees;

(2) there is an unforeseen emergent circumstance but as a “last resort”, after exhausting other staffing options and giving the employee one hour arrange for family care alternatives;

(3) the extended work is required to complete a patient care procedure already in progress, but only if the employee’s departure would have an adverse effect on the patient.

ATR's 401(k) Tax Calculator

From the Tax Prof Blog: "ATR Releases 2008 Election 401(k) Tax Calculator." Link to the calculator is here (see left-hand column). Press release is here.

The calculator asks a voter to input the curent value of his or her 401(k) account. Then, it recalculates what their 401(k) will be worth under four different tax scenarios:

Consent Order of Dismissal Entered in Well-Known Benefits Case

Professor Secunda over at the Workforce Prof Blog reports that Mr. LaRue has given up his claim in the LaRue v. DeWolff, Boberg & Associates case which made its way all the way up to the Supreme Court. View the Consent Order of Dismissal here. The reason for the change of heart apparently has to do with the statute of limitations.

Legal In-Sourcing Movement

From a new blog entitled Lawdable:

Given the state of the economy, it has been no surprise to find a host of recent articles concerning cost-cutting among corporate legal departments. Everything is on the table, including reductions in fees charged by outside counsel.

An Oct. 22 article (subscription) in Atlanta’s Fulton County Daily Report captured the ongoing discussion through quotes from several prominent GCs and legal department heads regarding various ways they are reducing costs. Almost every one of them mentioned “in-sourcing.” Robin H. Sangston, vice president and associate GC of Cox Communications Inc., offered a comment that many of the GCs echoed:

We have used a variety of approaches to controlling legal fees, including: bidding out 'commodity-type' work, moving work from higher-priced large firms to lower-priced smaller or boutique firms with lower overhead, using contract lawyers, implementing e-billing with our billing guidelines ... Given the state of the economy and the impact on almost all businesses, I would also expect that many companies will not entertain rate increases for next year.

More on Argentina's Private Pension Seizure Plan

From Bloomberg: "Argentines Decry State's `Disastrous' Record as Pensions Seized." Excerpt:

Fourteen years ago, Raul Zimmermann opted to contribute to one of Argentina's new private pension funds because he didn't trust in the state retirement system. Now he's outraged by government plans to seize his savings and take responsibility for paying his monthly benefit.

``The history of the pensions managed by the state is disastrous,'' said Zimmermann, 69, who started drawing a pension two years ago. ``It's not reasonable that they transfer my account without even asking me if I want to.''

On Oct. 21, President Cristina Fernandez de Kirchner announced plans to take over $29 billion of private pension accounts, saying a state-run system would protect retirees from fluctuations in financial markets. Roque Fernandez, an economy minister and central bank president in the 1990s, said the move is a ``confiscation'' of people's savings. . .

More links:

CNBC Interview with House Education and Labor Committee Chairman George Miller (D-CA)

Thanks to ERIC for this link to the CNBC interview with House Education and Labor Committee Chairman George Miller where he gives his view that the 401(k) plan system has failed and needs replacing.

Excerpt from the ERIC Press Release:

Using the current financial crisis as a starting point, the House Education and Labor Committee expressed concern over the retirement assets of American workers at an October 7 hearing. Although fewer than 10 Democrats and only one Republican member of the committee attended, the hearing garnered major media attention in national newspapers and on television and radio. While the intent of the hearing was to examine the effect of the financial crisis on retirement savings, the hearing ranged far afield as witnesses and Members called for significant reforms that would fundamentally change the vehicles in which employees can save for retirement.

At the end of the day, Committee Chairman George Miller (D-CA) made it clear that he did not believe that 401(k) plans were intended as a primary means to provide retirement security and, in fact, that they were not fulfilling that objective. Miller, who is also holding a second hearing in his home town of San Francisco on October 14, signaled his intention to open up the retirement debate next year on how best to provide retirement security.

Access previous posts on the subject here.

Seventh Circuit Holds Employer Accountable for Retiree Medical Muddle

Thanks to Roy Harmon for alerting me to this very interesting Seventh Circuit opinion written by Judge Posner : Orth v. Wisconsin State Employees Union Council 24, et al.

The facts as paraphrased from the first of the two lower District Court opinions (no link unfortunately):

The case involves a retiree who retired from a job with the Wisconsin State Employees Union (“WSEU”) Council 24, which was the union representing employees of the State of Wisconsin. The WSEU's employees were themselves represented by a union, called the Council Employees Union, or CEU. The CEU and WSEU were governed by a collective bargaining agreement (“CBA”). Since 1973 the CBA had provided that, upon retirement, an employee's unused sick leave would be used to pay insurance premiums: “At the time of retirement, any unused sick leave shall be used to pay Blue Cross–Blue Shield premiums for the employee and spouse and /or dependents.” It also provided that “[p]ayment of premiums will be on the same basis as the benefit is currently paid for employees.” 90% of employees' premiums were paid by the employer.

Between the time that this clause was added to the CBA and Orth's retirement in 1998, only two individuals retired from the WSEU. Each retiree had his full premiums paid for out of unused sick leave funds–that is, the WSEU did not cover any portion of the premiums. When Orth retired, the same happened. No one seemed to notice until 2006, when Orth received a letter from the WSEU informing him that his sick leave funds (which had totaled some $42,000) had dried up. If he wished to continue funding his health insurance, he would have to pay the monthly premium of $1109.44 out of pocket. After attempting to work out the dispute with his former employer, Orth brought a lawsuit alleging breach of the CBA, which he believed required the WSEU to pay 90% of his health insurance premiums after he retired.

The union tried to argue that there was either a latent or patent ambiguity in the terms of the CBA, or in the alternative, that there had been a modification of the CBA. However, both the District Court and the Seventh Circuit disagreed. (For those who enjoy the old 1864 Peerless case which you probably studied in law school, both the District Court opinion and the Seventh Circuit opinion include a discussion of this case.)

The result? The Seventh Circuit upheld the District Court's award of $36,000 restored to Mr. Orth’s sick leave account ($40,000 minus 10 percent) plus $7,200 in premium reimbursement, and upheld the defendant's payment of the plaintiff's attorneys fees in the amount of $41,000. In addition, Judge Posner chided the defendants and their lawyers:

The defendants challenge the district judge’s awarding attorneys’ fees to the plaintiffs. They argue that the judge was mistaken to think that there had been no reasonable basis (or, equivalently, as the Supreme Court noted in Pierce v. Underwood, 487 U.S. 552, 565-66 (1988), “substantial justification”) for the defendants’ position. . . The judge made no mistake. No careful lawyer could have thought this a case of latent ambiguity or valid modification. And for the defendants to use their deceptive conduct toward the retired employees as a basis for trying to duck liability was shabby. The only questionable aspect of the district judge’s opinion is his statement that the defendants were acting throughout in good faith.

There are some really great lessons for all from the District Court and the Circuit Court opinions:

Universal Health Care Plan In the Works

From the Washington Times: "Kennedy secretly crafts health care plan." Excerpt:

From his sickbed, Sen. Edward M. Kennedy has secretly been orchestrating meetings with lobbyists and lawmakers from both parties to craft legislation that would greet the new president with a plan to provide affordable medical coverage to all Americans, a measure he has called "the cause of my life." . . .

Among those who are receptive to a bipartisan plan and who have participated in the initial talks is Sen. Michael B. Enzi of Wyoming, the ranking Republican on the Senate health committee, which Mr. Kennedy leads. . .

Mr. Kennedy's goal, his aides say, is to introduce a universal health care bill as soon as the new Congress convenes next year and to push quickly for its passage - a much-accelerated timetable compared with the last time that a health care overhaul was on the agenda, at the start of the Clinton administration.

Second Hearing: Impact of the Financial Crisis on Workers' Retirement Security

Yesterday, in San Francisco, there was a second hearing of the House Education and Labor Committee entitled "The Impact of the Financial Crisis on Workers' Retirement Security." You can access the testimony here. As there was in the first hearing (discussed in a previous post here), there was testimony advocating a government take-over of the 401(k) system as well as a promise from Chairman Miller that the "Democratic Congress will continue to conduct this much-needed oversight on behalf of the American people."

A more rational approach was advocated by Tif Joyce:

First, after they calm down, people view the recent financial turmoil as the latest in an ongoing string of challenges that must be overcome. We need to fix our problems because we have no choice.

At times like this, both investors and government alike need to be concerned about overreaction and trying to create permanent solutions for temporary problems.

If you ask most voters what they think of “a new national defined benefit plan” I strongly believe they would say, “Please fix Social Security first.”

On October 7th, a witness testified before this committee stating that our nation’s pain and chronic financial anxiety is caused by the corrosive effects of 401k plans…

People understand that life is not always fair and they don’t expect government to legislate certainty. Let’s also keep in mind that huge numbers of people have successfully used retirement plans exactly as they were intended to be used.

Predictions of an Approaching Benefits Tsunami

Greenspan today testified before the House Committee of Government Oversight and Reform and called the recent economic crisis a "once-in-a century credit tsunami." The American Benefits Council has issued a warning, indicating a coming benefits tsunami:

The following is an internal report from the chief actuary of one defined benefit plan service provider:

“Our projections are showing DB plans due to get slaughtered in their next round of actuarial valuations. Lest we forget, asset smoothing has all but been eliminated so their unfunded liability will see a $1 for $1 increase for their investment losses this year….I haven’t heard this consistent level of concern from plan sponsors in 20 years. Just to throw a real example out there, a large [organization] has gone from 114% funded for the 1/1/2008 year down to restricted (i.e., below 80% funded) as of yesterday….You have to assume we’ll be doing a lot of freezing amendments next year.”

The benefits system has never seen this level of concern before. Unless something is done -- quickly -- massive funding obligations will trigger benefit freezes on an unprecedented scale. And freezing does not eliminate current funding shortfalls, so companies will be forced to direct huge resources to their plans, which will cost many jobs and prevent companies from making essential investments in their businesses.

Some evidence of this in today's news: "GM Suspending Benefits."

Third Circuit FMLA Decision

The Third Circuit Court of Appeals has issued a decision, in Sinacole v. iGate Capital which agrees with the 2d, 7th and 11th Circuits in invalidating a DOL regulation concerning FMLA leave. In the case (which has been deemed "Not Precedential"), the Third Circuit held that the Department of Labor regulation was invalid to the extent it deemed an employee "eligible" for FMLA leave even if the employee did not work at least "1250 hours in the past 12 months." Excerpt:

It is the sole province of the Congress to establish the scope of employees who have rights under the FMLA.

Boston's $3.2 Billion Benefits IOU

From the Boston Herald.com:

A staggering $3.2 billion IOU to pay off health and other benefits lavished on city worker unions has come due in Boston as the city grapples with a budget crisis that’s raising fears of massive layoffs and service cuts and even tax hikes for Hub residents and businesses.

The huge payout - much of it incurred during the 15-year tenure of Mayor Thomas M. Menino - is forcing the city to more than double its spending on benefits over the next five years, to $220 million, or roughly one-tenth of its current $2.4 billion budget. . .

The $3.2 billion covers the current cost of health care and life insurance benefits promised to present and future city retirees. The tab is high because health care costs are soaring, which caused the IOU to grow more than $500 million in the past two years.

How TARP May Impact All Executive Compensation Disclosures

From the CorporateCounsel.net Blog:

"At our "3rd Annual Proxy Disclosure Conference" yesterday, Corp Fin Director John White delivered an important speech - entitled "Executive Compensation Disclosure: Observations on Year Two and a Look Forward to the Changing Landscape for 2009" - during which John talked briefly about how the TARP's executive compensation provisions could potentially spill-over and impact the many companies not directly subject to TARP. Specifically, John addressed the TARP provision that requires participating financial institution's compensation committees to meet with the senior risk officers of the institution to ensure that the incentive compensation arrangements do not encourage the senior executive officers to take "unnecessary and excessive risks that threaten the value of the financial institution." Here is an excerpt from John's remarks on this topic:

Most of you are not from financial institutions, so let's talk for a moment about non-participating companies. This new Congressionally-mandated limitation on having compensation arrangements that could lead a financial institution's senior executive officers to take unnecessary and excessive risks that could threaten the value of the financial institution obviously applies on its face only to participants in the TARP.

But, consider the broader implications and ask yourself this question: Would it be prudent for compensation committees, when establishing targets and creating incentives, not only to discuss how hard or how easy it is to meet the incentives, but also to consider the particular risks an executive might be incentivized to take to meet the target — with risk, in this case, being viewed in the context of the enterprise as a whole? I'll let you think about what Congress might want. We know what our rules require. That is, to the extent that such considerations are or become a material part of a company's compensation policies or decisions, a company would be required to discuss them as part of its Compensation Disclosure and Analysis. So please consider this carefully as you prepare your next Compension Discosure and Analysis.

Also, more broadly speaking, I expect that current market events are already affecting many companies' compensation decisions and thus should be affecting the drafting of their upcoming Compensation Disclosure and Analysis. Regardless of whether your company participates in the TARP and consequently finds itself having to make new material disclosures, you should not merely be marking up last year's disclosure. Instead, you should be carefully considering if and how recent economic and financial events affect your company's compensation program.

For example, have you modified outstanding awards or plans, or implemented new ones? Have you reconsidered the structure of your program, or the relative weighting of various compensation elements? Have you waived any performance conditions, or set new ones using different standards? Have you changed your processes and procedures for determining executive and director pay, triggering disclosure under Item 407? These questions and more should be addressed as you consider disclosure for 2008."

A Brief Look at Canada's Universal Health Plan

For those who are interested in knowing what a government-run, universal health plan might do to health care in this country, one need only look across the border here.

Proposition 101 in Arizona

Some folks in Arizona want to make sure that no one takes away their freedom of choice when it comes to health care. On November 4th, Arizona will vote on Proposition 101. The measure, called the Freedom of Choice in Health Care Act, would amend the state constitution to include language restricting Arizona's ability to limit or dictate individual health-care choices, and to make government-mandated universal health care illegal. Here is the language of the Proposition:

Because all people should have the right to make decisions about their health care, no law shall be passed that restricts a person's freedom of choice of private health care systems or private plans of any type. No law shall interfere with a person's or entity's right to pay directly for lawful medical services, nor shall any law impose a penalty or fine, or any type, for choosing to obtain or decline health care coverage or for participation in any particular health care system or plan.

Read more about the initiative here.

Out of the Mouth of Babes. . .

From CNN's iReport (via Robert Bluey) here:

Informed Choice celebrates children speaking simply and more wisely than elders by recording their observations about one the most serious choices facing contemporary America - the Presidential Race.

In their wisdom and (unintentional) humor, stripped of partisanship and informed choice, the children lampoon the cult of popularity based solely on physical attributes. Their purity is a mirror reflecting the American voter's obsessions, boredom, judgments of race and age.

With only pictures of candidates McCain and Obama as their guide, the Informed Choice interviewees certainly surprise and amuse even the most strident viewer / voter, regardless of political affiliation.

Argentina's President Proposes Nationalization of Pension Fund

Apparently, Argentina's President Cristina Kirchner has signed a proposal nationalizing the country's private pension funds. The Wall Street Journal reports here that this is being seen as a "grab for cash and power amid the global economic crisis." Excerpt:

Argentine stocks fell by more than 11% in reaction to news that the government plans to nationalize private pension funds.

Details of the proposal -- which must be approved by the country's legislature -- were not immediately available. It was signed by Ms. Kirchner, along with Labor Minister Carlos Tomada and Amando Boudou, the head of the national social security system, ANSES. But an announcer during the televised signing ceremony described it as a project to "eliminate" the "capitalization system," a reference to the defined-contribution plans run by 10 private funds known as AFJPs.

In a speech following the signing ceremony, Mr. Boudou said the reform would "rescue Argentine retirees from uncertainty."

This Bloomberg article here indicates:

About 55 percent of the 94.4 billion pesos held by the country's 10 private pension fund managers are in government debt, according to the pension regulator's Web site. Nationalization would allow the Fernandez administration to write off the government bonds held by the funds, said Javier Salvucci, an analyst with Buenos Aires-based Silver Cloud Advisors.

More from this BBC article here:

Amado Boudou, head of the National Social Security Administration, which will take over the funds, said the "failed experiment" of private pensions was finished.

But the pension administrators defended the system, saying it had a "solid mechanism" that had seen an "almost constant growth trend in the 14 years of its existence".

Union leaders have welcomed the nationalisation move. The commissions on the pensions and the lack of a guaranteed minimum pension has made the private system unpopular with many Argentines.

All of this sounds a bit reminiscent of some of the comments being made about our country's retirement system and the push to have a universal pension as discussed here and here, a proposal which I wholeheartedly reject.

Some language from a proposal being advocated (the parallels seem obvious to me):

Short term, I propose that since 401(k) accounts and the like are financial institutions -- the bank about where 38% of the workforce can intend to save for their retirement -- Congress let workers trade their 401(k) and 401(k) - type plan assets (perhaps valued at mid-August prices) for a Guaranteed Retirement Account composed of government bonds (earning a 3% return, adjusted for inflation). When the worker collects Social Security, the Guaranteed Retirement Account will pay an inflation adjusted annuity, based on the accumulated funds.

How would this work? Take a 55 year old who had $50,000 in his 401(k) account in August and faces job loss and eroded assets because of the erosion of his retirement accounts. Let him swap out the $50,000 for a guarantee of $500 per month. The economy is probably in a recession, but a guaranteed income from his former 401(k) removes a source of financial anxiety, and -- this is not trivial – it end fruitless discussions with brokers and financial sales agents, who are also desperate for more fees and are often wrong about markets. . .

The sooner we admit that our 30 year experiment with 401(k) accounts has failed the sooner we can use these precious government subsidies efficiently and equitably.

An Overlooked Pension

From USA Today "Couple's retirement dream leaves materialism behind." Excerpt:

The Feudos say they probably wouldn't have mustered the moxie to strike out in a radically different direction had they not consulted Will Rogers, a financial adviser in Augusta, who devised their retirement plan in 2002.

In reviewing the couple's retirement assets, Rogers told them they needed to save more aggressively, pay down debt and consolidate accounts that were scattered in various financial institutions.

It was during this time that they and Rogers discovered an overlooked pension plan.

"When we researched their past employment, it turned out Bonnie only needed to work a few more days in her former school district to be vested," Rogers recalls.

Searching for a Lost Pension

View this video here on how "26,000 Americans have walked off and left $75 million in pension money from previous jobs."

Two websites to visit if you are looking for a lost pension:

Humor from the Tax Guru

Great cartoon from the Tax Guru here. It is also acts as a statement about all of the talk of replacing the current 401(k) with a government-run retirement system.

More on the Universal Pension Movement. . .

From Workforce Management: House Democrats Contemplate Abolishing 401(k) Tax Breaks. Excerpt:

Powerful House Democrats are eyeing proposals to overhaul the nation’s $3 trillion 401(k) system, including the elimination of most of the $80 billion in annual tax breaks that 401(k) investors receive.

House Education and Labor Committee Chairman George Miller, D-California, and Rep. Jim McDermott, D-Washington, chairman of the House Ways and Means Committee’s Subcommittee on Income Security and Family Support, are looking at redirecting those tax breaks to a new system of guaranteed retirement accounts to which all workers would be obliged to contribute. . .

More:

This is a battle between liberalism and conservatism,” said Christopher Van Slyke, a partner in the La Jolla, California, advisory firm Trovena, which manages $400 million. “People are afraid because their accounts are seeing some volatility, so Democrats will seize on the opportunity to attack a program where investors control their own destiny,” he said.

The Profit Sharing/401(k) Council of America in Chicago, which represents employers that sponsor defined-contribution plans, is “staunchly committed to keeping the employee benefit system in America voluntary,” said Ed Ferrigno, vice president in the Washington office.

“Some of the tenor [of the hearing last week] that the entire system should be based on the activities of the markets in the last 90 days is not the way to judge the system,” he said.

No legislative proposals have been introduced and Congress is out of session until next year.

See also this article from the Wall Street Journal for what might be in store: A Liberal Supermajority: Get ready for 'change' we haven't seen since 1965, or 1933. Excerpt:

If the current polls hold, Barack Obama will win the White House on November 4 and Democrats will consolidate their Congressional majorities, probably with a filibuster-proof Senate or very close to it. Without the ability to filibuster, the Senate would become like the House, able to pass whatever the majority wants.

Access a previous post here which discusses the universal pension movement.

From EBSA in Today's Federal Register

Interpretive Bulletin Relating to Exercise of Shareholder Rights
Interpretive Bulletin Relating to Investing in Economically Targeted Investments

Social Security Taxable Maximum for 2009

The Social Security Administration ("SSA") has announced that the maximum amount of earnings subject to the Social Security tax (taxable maximum) will increase to $106,800 from $102,000.

See this press release and the SSA fact sheet for more information.

IRS Announces Pension Plan Limitations for 2009

The IRS has announced the 2009 cost-of-living adjustments to dollar limitations for pension plans and other items. The new 401(k) deferral limit will be increased from $15,500 to $16,500. The annual benefit under a defined benefit plan will be increased from $185,000 to $195,000 and the annual limitation for defined contribution plans will be increased from $46,000 to $49,000.

What's in Store for Large Employers Under the Obama Health Care Proposal

The Wall Street Journal today has an article today entitled: "McCain Presses Obama on Health-Plan Penalties." Excerpt:

As the presidential candidates push their competing health-care plans, Sen. John McCain regularly presses Sen. Barack Obama to tell voters how big a fine he would impose on companies that don't offer their workers health insurance. . .

He made the point again at Wednesday's presidential debate. "Senator Obama, I'd …still like to know what that fine's going to be."

Obama officials say the campaign has no plans to answer that question before Election Day on Nov. 4. Neera Tanden, a top Obama policy adviser, said the fine is intended to discourage employers from dropping coverage, not to raise significant revenue.

Here is what Senator Obama's website says about his proposals for health care as it pertains to employer contributions:

(4) EMPLOYER CONTRIBUTION. Large employers that do not offer meaningful coverage or make a meaningful contribution to the cost of quality health coverage for their employees will be required to contribute a percentage of payroll toward the costs of the national plan. Small businesses will be exempt from this requirement.

You can read about a similar requirement imposed now at the state level in Massachusetts in this article from McDermott Will & Emery: "The Massachusetts Health Care Reform Act–What Employers Need to Know."

My guess is that initially large employers might be required to pay a fee under Obama's plan similar to the ones currently adopted under laws such as the Massachusetts law, but that once the door is opened on this, the fees will be raised more and more because the costs of the program will require it. (Read about how this is already happening in Massachusetts here.)

An issue of real concern will be whether employers, once they are required to provide a minimum benefit, will then discard their more generous programs and that employees will end up footing more of the costs themselves. It is also ironic that the Obama proposal would target large employers when they are the ones typically providing more benefits to employees in the first place.

Another question is: what is a "large employer" under this plan? I do not find an answer anywhere, but if you use the Massachusetts model, employers with 11 or more employees were subjected to the "fair share" mandates. Certainly "Joe, the Plumber" would probably not be subjected to the mandate as discussed in the debates last night unless he became a "large employer" under the Democratic plan.

More Executive Compensation Guidance Under EESA

Notice 2008-TAAP: The Notice provides guidance on certain executive compensation provisions applicable to a financial institution from which the Treasury acquires troubled assets through an auction purchase. Section 111(c) of EESA prohibits such a financial institution from entering into entering into any new employment contract that provides a golden parachute to a senior executive officer ("SEO") in the event of the SEO’s involuntary termination, or in connection with the financial institution’s bankruptcy filing, insolvency, or receivership.

Notice 2008-PSSFI: The Notice provides guidance on certain executive compensation provisions applicable to a financial institution from which the Treasury acquires troubled assets through programs for systemically significant failing institutions.

Interim Final Rule on Treasury's Capital Purchase Program: The regulation provides guidance on the executive compensation provisions applicable to participants in the Troubled Assets Relief Program (TARP) Capital Purchase Program (CPP). It requires financial institutions from which the Treasury is purchasing troubled assets through direct purchases to meet appropriate standards for executive compensation and corporate governance, including a requirement for Compensation Committees to certify that they have completed review of the SEOs' incentive compensation arrangements in accordance with the new rules.

Notice 2008-94: Issued yesterday and discussed in this previous post here and here.

New Notice 2008-94: Trusts May Participate in the Government's Troubled Asset Auction Program?

Note Q & A-2 in new Notice 2008-94 issued today (and discussed in this previous post here) in connection with the Troubled Asset Auction Program ("TAAP"):

Q-2: Can a corporation that is not publicly traded, or an entity that is not a corporation, be an “applicable employer”?

A-2: (a) General rule. Yes. An applicable employer for purposes of § 162(m)(5) is not limited to a publicly traded corporation or even to the corporate business form. Thus, an entity, whether or not publicly traded, is an applicable employer if the entity is described in Q&A-1 of this notice regardless of whether the entity is a corporation, a partnership (or taxed as a partnership for federal tax purposes), or a trust.

There is a slight reference in EESA to pension plans being able to participate in the program which you can read about in this previous post here. Perhaps the reference to a "trust" in this Notice might be tied to this possibility? More on this somewhat confusing aspect of the legislation from the Groom Law Group here.

Treasury Begins Issuing Guidance on EESA's Executive Compensation Provisions

The Treasury today announced the development of three programs under the Emergency Economic Stabilization Act of 2008 ("EESA"): (1) the auction purchase of troubled assets; (2) the direct purchase program; and (3) interventions to prevent the impending failure of a systemically significant institution. In connection with these programs, the Treasury has issued guidance regarding the executive compensation and corporate governance standards which will apply to institutions who decide to take advantage of these programs. The standards generally apply to the chief executive officer, chief financial officer, plus the next three most highly compensated executive officers. Any firm participating in these programs will be required to adopt the standards.

Those standards were outlined in a press release as follows:

(1) Troubled Asset Auction Program- As prescribed by EESA, any financial institution that sells more than $300 million of troubled assets to the Treasury via an auction would be prohibited from entering into new executive employment contracts that include golden parachutes for the term of the program. (See Notice 2008-TAAP regarding this restriction - No link yet.) Furthermore, under the Act, (1) the financial institution may not deduct for tax purposes executive compensation in excess of $500,000 for each senior executive, (2) the financial institution may not deduct certain golden parachute payments to its senior executives and (3) a 20-percent excise tax will be imposed on the senior executive for these golden parachute payments. (See Notice 2008-94 regarding these new tax rules.)

(2) Capital Purchase Program- Any financial institution participating in the Capital Purchase Program will be subject to more stringent executive compensation rules for the period during which Treasury holds equity issued under this program. The financial institution must meet certain standards, including: (1) ensuring that incentive compensation for senior executives does not encourage unnecessary and excessive risks that threaten the value of the financial institution; (2) required clawback of any bonus or incentive compensation paid to a senior executive based on statements of earnings, gains, or other criteria that are later proven to be materially inaccurate; (3) prohibition on the financial institution from making any golden parachute payment to a senior executive based on the Internal Revenue Code provision; and (4) agreement not to deduct for tax purposes executive compensation in excess of $500,000 for each senior executive. Treasury will be issuing interim final rules for these executive compensation standards.

(3) Programs for Systemically Significant Failing Institutions- The Treasury Department is currently developing a third program to potentially provide direct assistance to certain failing firms on terms negotiated on a case-by-case basis. The Treasury will be issuing guidance for the executive compensation standards that will apply to the firms participating in such programs and their senior executives (Treasury Notice 2008-PSSFI). These standards will be similar in all respects to the Capital Purchase Programs executive compensation standards described above, with one significant difference. In situations where the Treasury provides assistance under the systemically significant failing institutions programs, golden parachutes will be defined more strictly to prohibit any payments to departing senior executives.

A Novel Health Care Solution

From Instapundit here.

I know there are truly a lot of folks who cannot get affordable health care, but it is good to remember the other side of the coin, i.e. that there are some who could get it, but simply choose not to.

How Do the Presidential Candidates’ Tax Plans Affect Taxpayers’ Marginal Tax Rates

Surprising results reported at the Tax Foundation here. Excerpt:

To the surprise of some, even though Senator Obama's tax plan lowers taxes for the bottom four quintiles, marginal tax rates would fall only for the very lowest-income couples. Taking both income and payroll taxes into account, those at the very bottom of the income distribution would see their effective marginal tax rates fall from 27.4 percent to minus 58.6 percent due to proposed changes to the earned income tax credit and Senator Obama's new "Making Work Pay" credit.

Most low- and moderate-income couples would see their effective marginal tax rates rise, in some cases, significantly. Indeed, some low- and moderate-income taxpayers will see their marginal rates rise to more than 50 percent.

High-income taxpayers can also expect their effective marginal tax rates to rise—to 47.2 percent-under Senator Obama's tax plan. This increase is caused by rolling back the 2001 and 2003 reductions in the top two tax rates, curtailing deductions and exemptions at high income levels, and potentially raising Social Security taxes.

Senator McCain's tax plan also changes marginal tax rates. His proposal to replace the exclusion for employer-based health insurance with a new health tax credit boosts taxpayers' taxable incomes by their health insurance premiums which generally pushes taxpayers into higher tax brackets, but not to as great an extent as Senator Obama's tax plan.

(It would be interesting to calculate how much overall tax a person would end up paying under the Obama plan considering the sum of the following: (1) federal tax owed under the highest income tax bracket, (2) state income tax, (3) local tax (which we pay here in the East), and (4) self-employment tax if you are self-employed. Also, add to that real estate taxes (also very high in the East) and sales tax.)

Recommendations for Improving The Retirement Plan System

At the recent Hearing before the U.S. House Committee on Education and Labor, entitled "The Impact of the Financial Crisis on Workers' Retirement Security," there was a lot of discussion about the dire state of the retirement security of Americans. And from that hearing came the remark that American workers have lost as much as $2 trillion in retirement savings over the last year and that the system is broken. You can access the testimony here (as well as the recommended fixes). While it is true that we need to be examining a number of areas involved here, I don't agree with those who are advocating that we need a universal pension system. I would say that there are ways to improve the current system and for starters would recommend the following:

(1) Congress should get rid of the oppressive excise tax (50%) imposed on surplus assets distributed to employers from overfunded defined benefit plans. This tax which was enacted in the 80's was the beginning of the decline of the defined benefit plan (IMHO). One of the reasons this tax is so unfair is that there is no way employers can adequately predict exactly how much money should go in to a defined benefit plan, i.e. actuaries can only make an educated guess at what the market is going to do and the mortality rates are going to be. Therefore, in the 80's there were a lot of plans that were overfunded. This enabled plans to ride out the down times in the market. However, now with this excise penalty tax in place, employers have been much more cautious about how much they put into these plans and therefore, when the plan hits rough times, many employers are forced to terminate or freeze them. Many such employers will then adopt a 401(k) plan in its place which unfortunately doesn't always compare with the rich benefits people have or used to have under the defined benefit plan system. Thus, Congress should repeal the Section 4980 excise tax so as to encourage employers to maintain defined benefit plans and perhaps encourage employers who have abandoned these plans to reinstate them.

(2) Congress should get rid of the