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The BenefitsLink Newsletter -
Retirement Plans Edition
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July 18, 2002 - 11,391 subscribers
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Pressure Stepped Up On Bidder To Honor Polaroid Pension Plan
Excerpt: "U.S. Representative William D. Delahunt [on July 16] stepped up pressure on Bank One, lead player in a bid to buy Polaroid Corp. from bankruptcy, to honor the company's commitments to retirees.... If the pension plan is terminated, it will be taken over by the [PBGC]. However, taxpayers will have to make up the plan's underfunding, and many retirees would face considerable cuts in their payments because of a government cap on benefits." (digitalMASS.com)

US Airways Names Aon as Fiduciary To Manage Stock In 401(k) Plan
Excerpt: "While Aon manages the buying and selling of company stock in the plan, US Airways will keep fiduciary responsibility for all other operations, including investment selection and monitoring." (BenefitNews.com)

Investment Company Institute Raises Concerns About California 403(b) Bill
Excerpt: "In a recent comment letter, the Institute expressed concerns about Assembly Bill 2506-- legislation under consideration by the California Senate-- that would require the California Teachers' Retirement Board, which manages the State Teachers' Retirement System, to establish a registration process for vendors seeking to offer retirement products under section 403(b) to employees of local school districts, community college districts, and county offices of education." (Investment Company Institute)

Benefits Council Provides Comments to IRS on Minimum Distribution Regulations (PDF)
Excerpt: "The temporary and proposed regulations ... contain a number of provisions that complicate the administration of defined benefit plans and that could represent a significant loss of value to plan participants." (American Benefits Council)

Overview of Senate Finance Committee's Pension Bill
'Current legislative outlook' column for July 12, 2002. Excerpt: "The Senate Finance Committee, chaired by Senator Baucus (D-MT), has produced a bill which appears to be an attempt at a synthesis of Republican and Democrat company stock proposals. Senate Majority Leader Daschle (D-SD) has indicated that he wants to bring up an Enron pension bill as a separate, standalone bill, probably in September. Such an approach would probably mean no bill this year ..." (Plan Advisory Services)

Analysis: Latest Enron-related Pension Legislation Approved by Senate Committee on Finance
Excerpt: "The bill approved by the Finance Committee contains a series of Enron-related pension proposals that would generally be effective for plan years beginning after December 31, 2002. The bill also contains several other pension, executive compensation and stock option proposals. Set forth below is a brief summary of the major provisions in the bill." (Groom Law Group)

Overview of Enron-Related Pension Reform Bills (PDF)
12 pages. Excerpt: "On April 11, 2002, the House of Representatives passed H.R. 3762, the 'Pension Security Act of 2002' ... 'Protecting America's Pensions Act of 2002' was recently approved by the Senate Health, Education, Labor, & Pensions (HELP) Committee.... Below is a summary comparing current law with the [two bills]." (CIGNA's Washington Update)

Opinion: Doing the Right Thing with Investments Doesn't Cost More
Excerpt: "In early 1990, TIAA began to offer a 'social choice' fund in addition to its regular stock and bond funds. I have allocated some portion of my contributions to that fund for many years, more out of curiosity than conviction. How has my experiment fared?" (SanLuisObispo.com)

ERIC to Advisory Council: No Mandatory Education for Fiduciaries of Benefit Plans
Excerpt: "Laurie P. Havanec, Director of Employee Benefits and Human Resources Systems for United Technologies, [on July 17, 2002] warned that implementing mandatory fiduciary education programs for major employer [sic] benefit plans would be ineffective, superfluous and could result in costly legal liability for employers." (ERISA Industry Council)

Fiduciary Studies Leader Testifies on Need for Education Standards
Excerpt: "In his testimony, [Donald Trone asked] for the formation of an advisory committee charged with the responsibility of clarifying investment-related procedures, defining industry standards for investment fiduciaries and addressing ethical issues surrounding investment decisions. The Foundation for Fiduciary Studies is a nonprofit organization dedicated to defining and advancing prudent investment practices for investment fiduciaries." (Pittsburgh Business Times via bizjournals.com; free registration required)

Second Circuit Affirms Principle That Oral Modifications to Pension Plan Not Enforceable Under ERISA
Perreca v. Gluck (2d Cir. July 9, 2002). Excerpt: "[B]ecause Perreca may not, as a matter of law, rely upon an oral promise to modify the terms of an ERISA plan, we affirm that portion of the District Court's judgment that denied plaintiffs' claim to calculate pension benefits from August 1, 1959 on the basis of defendant Gluck's alleged oral promise." (U.S. Court of Appeals for the Second Circuit, via FindLaw.com)

What to Do If You Have Participants Headed for Retirement Fallout
Excerpt: "Many industry surveys have shown that average 401(k) and retirement balances are on the rise. But when one compares median amounts, the story, a new survey has found, is quite different. The downward trend in retirement income adequacy for Americans in the middle and below has gone unnoticed because of a tendency to look at average rather than median retirement wealth ..." (IOMA's Report on Managing 401(k) Plans via International Foundation of Employee Benefit Plans)

Welcome to new BenefitsLink advertiser Intac Actuarial Services
Excerpt: "SMART DC2000 Defined Contribution Software - developed by Intac Actuarial Services - runs on Windows. A result of years of field-proven experience, DC2000 combines today's advanced technology with leading edge design characteristics. More info and FREE downloadable demo are available."

Links to Items on Executive Comp, Benefits in General
(These items appear in both editions of the BenefitsLink Newsletter)

Opinion: Business 'Reforms' Should Not Ignore Incentives and Competition
Excerpt: "Take the idea, pushed by Senator John McCain, the Arizona Republican, and others, that executives shouldn't be able to sell their stock until they've left the company. Rather than encourage sound management that builds good companies, that would actually punish long-term commitments." (New York Times; free registration required)

New Study by Economists Questions Ability of Market Forces to Regulate CEO Pay in Corporate America
Excerpt: "The key assumption of the [prevailing optimal-contracting theory] is that managers and shareholders, in effect, negotiate at arm's length over pay. Basic training in economics is needed to blind one to the absurdity of this assumption. Top managers direct or at the very least influence the board members who set their pay: that means they will succeed in collecting some rent. The only question is how much." (The Economist)

Confusion About Distribution of Stock Options Among Employees Who Are Not Executives
Excerpt: "Campaigning against legislation that would force companies to account for the cost of stock options, corporate executives, lobbyists and sympathetic lawmakers have proclaimed options to be a pillar of the middle class. In reality, however, the defenders appear to have greatly exaggerated the spread of options." (New York Times; free registration required)

Global Accounting Group Pushes Hard for Stock Options Expensing
Excerpt: "A day after the Senate sidestepped a vote on stock-option accounting, an international accounting group took a significant step toward adopting a standard that would treat employee options as an expense. At a meeting in London [on July 16, 2002], the International Accounting Standards Board gave its go-ahead to create a so-called exposure draft that would form the basis for recognizing stock options in financial statements." (Dow Jones via Yahoo! News)

Opinion: Stock Options for Rank-and-File Employees Are Worth Defending
Excerpt: "As the anti-options steamroller gains momentum, it's worth taking some time to dig into the details ... [I]f Congress isn't careful about those details, it could end up crippling the socially useful role of stock options as a wealth-sharing tool -- while leaving CEOs free to continue to rake in unconscionable sums of money." (Salon.com)

Opinion: the Real Stock Options Problem is Dilution
Excerpt: "So should stock options be treated as normal compensation and expensed accordingly? Of course they should. That was easy. But it's also missing the point. Expensing stock options, as Coca-Cola and a small group of other companies now say they will do, will lower reported earnings. That, however, amounts to just a bookkeeping change. Where options absolutely do matter is in their dilutive effect." (CNNmoney)

Expensing Options Probably Won't Hurt Most Firms, Experts Say
Excerpt: "A study by last year by business school professors at the University of California at Los Angeles and Stanford found that while investors view stock-based compensation as an expense, the effects on valuation are frequently offset by expectations that the incentive provided by options will serve as a catalyst for future earnings growth." (Chicago Tribune via International Foundation of Employee Benefit Plans)

Employee Ownership Update for July 16, 2002: the Outlook for Stock Option Accounting
NCEO executive director Corey Rosen discusses the Senate's accounting reform bill, moves by companies such as Coca-Cola to expense stock options, the pressure for companies to expense stock options, and the outlook for broad-based programs for employees. (National Center for Employee Ownership)

Opinion: Massive Option Grants May Not Spur Massive Fraud
Excerpt: "Many pundits have identified stock options, and particularly excessively large option grants, as the root cause of all the unethical behavior we have witnessed among chief executive officers in recent months.... [A]fter looking at all the names on the top 10 list, it would be hard to draw a solid conclusion that exceedingly large stock option grants corrupt a person's moral character." (Graef Crystal on Bloomberg.com)

SEC: Shareholder Proposals on Executive Equity Compensation Plans No Longer 'Ordinary Business'
Division of Corporation Finance: Staff Legal Bulletin No. 14A. Excerpt: "We believe that the public debate regarding shareholder approval of equity compensation plans has become significant in recent months. Consequently, in view of the widespread public debate regarding shareholder approval of equity compensation plans and consistent with our historical analysis of the 'ordinary business' exclusion, we are modifying our treatment of [shareholder] proposals relating to this topic." (Securities and Exchange Commission)

Commentary: Accounting for Accuracy, Coke is It
Excerpt: "Coke broke ranks with most of corporate America and announced it would begin counting executive and employee stock options as an expense, starting in the fourth quarter. For such a large, well-known and respected company to make this move voluntarily torpedoes the anti-expensing forces who have long said such accounting would be impossible or disastrous." (The [Philadelphia] Inquirer)

Senate Reform Bill Sidesteps Stock Options
Excerpt: "option expensing -- the monster in the attic of America's house of corporate scandal -- was conspicuously ignored in an otherwise sweeping corporate reforms bill passed by the Senate on Monday. Fierce debate erupted off and on for days on the floor, but in the end, opponents blocked a move to force a Senate reckoning on how companies account for the controversial executive perk." (Reuters)

Washington Post Co. To Treat Stock Options As Expenses
Excerpt: "One day after a similar announcement by Coca-Cola Co., Washington Post Co. said it will treat employee options as an expense the next time the company issues options." (Wall Street Journal via MSNBC.com)

Newly Posted or Renewed Job Openings - Post a Help Wanted Ad
Extraordinary & Fun Defined Benefit Consulting Opportunities in So. Calif. for Louis Kravitz & Associates, Inc.
in CA
Relationship Manager, Business Development for Transamerica
in CA
Retirement Services Internal Wholesaler for Transamerica
in CA
Employee Benefits Attorney/Writer/Speaker for Employee Benefits Institute of America LLC (EBIA)
in WA
Plan Analyst for CIGNA Retirement and Investment Services
in CT
Senior Retirement Specialist for US Airways
in VA
DC Compliance and Consulting Manager for Putnam Investments - Norwood MA
in MA
Health and Welfare Consultant / Sr. Manager for Ernst & Young LLP
in DC, MD, PA, VA
Associate - Insurance Services - Los Angeles, CA and Deerfield, IL for Mullin Consulting, Inc.
in CA, IL
Financial Analyst - Los Angeles, CA and Deerfield, IL for Mullin Consulting, Inc.
in CA, IL
Benefits Attorney for Stanton Hughes Diana Cerra Mariani & Margello P.C.
in NJ
Institutional Investment Sales Guru for Fifth Third Bank
in IL, IN
Qualified Plan Director for Manulife Wood Logan
in CT
Health and Welfare Project Manager for Towers Perrin
in NJ, PA
Sr. Benefits Account Manager for Wonderful Insurance Brokerage in Los Gatos, CA
in CA
Benefits Analyst for GKN Automotive, Inc.
in MI

Newly Posted Webcasts (Post Yours!)
John Q Goes to Washington: Health Policy Issues in Popular Culture on July 16, 2002
presented by Kaiser Family Foundation

Newly Posted Conferences (Post Yours!)
Prototype Plan Workshop - ONE DAY ONLY!in CO on August 21, 2002
presented by SunGard Corbel
Health Care Cost Containment Seminarin CA on July 25, 2002
presented by ArlenGroup

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Editor and Publisher: David Rhett Baker, J.D.