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Retirement Plans Newsletter

April 22, 2010

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[Official Guidance]
Text of Supreme Court Decision in Xerox Pension Case; Decision of Second Circuit Reversed; No Exception to Firestone Deferential Standard of Review (PDF)
38 pages. The Court upheld an interpretation of the Xerox pension plan by its plan administrator, even though a lower court had found a previous interpretation to be illegal under ERISA. Excerpt: "People make mistakes. Even administrators of ERISA plans. That should come as no surprise, given that the Employee Retirement Income Security Act of 1974 is 'an enormously complex and detailed statute,' . . . and the plans that administrators must construe can be lengthy and complicated. . . . We held in Firestone Tire & Rubber Co. v. Bruch, 489 U. S. 101 (1989), that an ERISA plan administrator with discretionary authority to interpret a plan is entitled to deference in exercising that discretion. The question here is whether a single honest mistake in plan interpretation justifies stripping the administrator of that deference for subsequent related interpretations of the plan. We hold that it does not. . . . As in many ERISA matters, the facts of this case are exceedingly complicated. . . . "
(U.S. Supreme Court)

[Guidance Overview]
Supreme Court Expands Deference Applicable to ERISA Plan Administrators
Excerpt: "In a ruling issued [April 21, 2010], the Supreme Court held in Conkright v. Frommert, No 08-810, that an administrator's initial faulty implementation of a plan rule does not prevent application of the deferential arbitrary and capricious standard in reviewing the administrator's subsequent determination as to how best to remedy the prior mistake. The ruling is significant in that it confirms that courts must defer to ERISA plan administrators, even outside the context of traditional benefit determinations, so long as the administrator has authority to interpret the plan."
(Proskauer Rose LLP)

[Guidance Overview]
High Court Rules ERISA Plan Administrator's Interpretation Is Entitled to Deference in Pension Distribution Case (PDF)
3 pages.
(Ogletree, Deakins, Nash, Smoak & Stewart, P.C.)

[Guidance Overview]
Supreme Court Sides with Pension Plan Administrator
Excerpt: "The U.S. Supreme Court ruled 5-3 Wednesday that a lower court should give deference to a pension plan administrator's interpretation of the terms of the plan when dealing with a dispute. The case -- Sally L. Conkright et al. vs. Paul J. Frommert et al. -- involved a pension plan governed by the Employee Retirement Income Security Act. The suit was brought by a group of employees who left Xerox Corp. in the 1980s and received lump-sum distributions of retirement benefits earned up to that point, but later were rehired."
(Business Insurance)

[Guidance Overview]
Revised Forms W-2 and W-3 for HIRE Act Changes
Excerpt: "The IRS has issued revised Form W-2, Form W-3 and Instructions for Forms W-2 and W-3 to reflect changes made by the Hiring Incentives to Restore Employment (HIRE) Act. A new code for box 12 of Form W-2, Code CC, has been added for employers to report the amount of wages and tips covered by the payroll tax exemption under the HIRE Act. The total of Code CC is reported in new box 12b on Form W-3, and the total of deferred compensation amounts, previously reported in box 12, is now reported in new box 12a on Form W-3."
(McGuireWoods LLP)

Case Study: Planning for a Plan Termination
Excerpt: "A manufacturing company froze its defined benefit pension plan in 2005, but the plan did not have enough assets to terminate. In late 2009, the firm received some good news: It was sitting on a sizeable amount of cash, and its accountants informed it that for a variety of financial reasons it would be advantageous to make a large, deductible contribution to the pension plan. But the company's Milliman actuary gave it some bad news: The large contribution it could afford would not be quite enough to terminate the plan right away. The favorable financial situation would not last beyond early 2010, so how could the firm best take advantage of the opportunity to fund up its pension plan?"

Milliman 2010 Pension Funding Study (PDF)
6 pages. Excerpt: "The funded status of the Milliman 100 pension plans increased slightly during 2009, reaching 81.7%. The aggregate pension deficit (i.e., unfunded projected benefit obligation (PBO)) decreased by $10.6 billion during their 2009 fiscal years, partially reducing a $254 billion deficit at the end of 2008 and producing an aggregate pension shortfall of $243 billion for the 100 companies as of the end of their 2009 fiscal years."

Leveraging Multiple Small Employer Plans to Close the Retirement Coverage Gap (PDF)
18 pages. Excerpt: "There is no one solution that will completely solve this country's retirement coverage gap. But we believe there are several prominent ideas, including the recently proposed Automatic Individual Retirement Account (IRA), which together could help us take a significant step forward. This paper presents another idea, the Multiple Small Employer Plan (MSEP). We believe the MSEP should be offered as a complementary alternative to the Automatic IRA, allowing small employers to choose the appropriate option for their workforce. MSEPs are designed to address concerns about costs and administrative burden -- the two issues most cited by small employers that discourage them from offering a retirement plan. By allowing employers with fewer than 100 employees to pool their resources under a single plan, MSEPs could provide lower costs and simplified administrative requirements to sponsors. Participants would likewise benefit from cost savings via access to institutionally priced investments, as opposed to the retail offerings available in IRAs."
(Prudential Retirement via Retirement Made Simpler)

Plans to Rein in California Public Employee Pension Costs
Excerpt: "Warning that retirement benefits for public employees are escalating out of control, Gov. Arnold Schwarzenegger and Los Angeles Mayor Antonio Villaraigosa said Wednesday that they supported controversial plans to rein in the costs. The mayor and the governor, appearing at separate events, said the retirement packages -- which allow some public employees to stop working at age 50 with a pension nearly equal to their entire salary -- are more generous than taxpayers can afford."
(Los Angeles Times)

California Public Pension Plan Would Vest 10 Years Later for Most Employees
Excerpt: "New California public employees would have to work 10 years longer to qualify for pensions under a plan by the state Senate's top Republican to shave $110 billion off retirement costs over the next three decades. Minority Leader Dennis Hollingsworth's bill would require new employees to have 10 more years of service than current workers to get benefits at age 65. Police, firefighters and prison guards would have to work seven years longer before vesting. The bill would base retirement pay on the average of the highest three years of wages, instead of just the last year."

California Public Employees' Retirement System Experience Study, 1997 to 2007 (PDF)
69 pages. Excerpt: "The purpose of this experience study is to compare the actual experience of the system against the current recommendations and to recommend new actuarial assumptions for rates of decrement and salary increase. The report presents the results of the experience study of plans that participate in the California Public Employees Retirement Fund (State, schools and public agencies). The report is derived from data collected during fiscal years 1997 to 2007."
(California Public Employees' Retirement System)

BrightScope Shines a Light on 401(k) Plans
Excerpt: "The company's rating system gives employees insights into brokerage and other plan fees. Employers and plan advisors are taking notice."
(Workforce Management; free registration required)

2010 ERISA Guide to Reporting & Disclosure
Excerpt: "The Guide is useful in: Identifying forms to be filed and distributed annually; Developing controls for compliance, including an internal calendar for reporting and disclosure; Determining and coordinating reporting and disclosure items for actuaries, attorneys and accountants to prepare; Identifying special reporting and disclosure requirements for plan installation, amendment, termination, etc.; Evaluating administrative considerations in establishing a new or supplemental plan; Advising on responsibility for compliance with the reporting and disclosure rules."
(PricewaterhouseCoopers LLP)

American Benefits Council Letter to Senator Casey Regarding Swaps Legislation (PDF)
2 pages. Excerpt: "In accordance with the very strict fiduciary duties imposed by ERISA, private sector retirement plans use swaps to mitigate and manage risk, not to speculate and create risk. The bill pending before the Senate Committee on Agriculture, Nutrition & Forestry would, however, effectively subject many private sector plans to regulation as if they were dealers speculating in swaps. In addition, the bill would eliminate the ability of a plan fiduciary to decide whether to clear 'standardized' swap. We are very concerned about both of these aspects of the bill. We believe that plans are inadvertently being swept up in a regulatory regime that is not appropriate for plans and that will cause real harm to plan participants, plan sponsors and the economy."
(American Benefits Council)

Xerox Wins ERISA Section 502(a)(1)(B) Supreme Court Case (Unfortunately)
Excerpt: "I am not going to try to be unbiased in this post. I am dismayed that the conservatives on the Supreme Court still do not get how ERISA remedies work (or that they do, but choose to side with business interests regardless). I, along with some other law profs, had filed an amicus brief in support on Xerox employees to receive their proper pensions in Conkirght v. Frommert, 08-810 (U.S. Apr. 21, 2010)."
(Workplace Prof Blog)

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Executive Compensation; Benefits in General

Hearing on H.R. 4855, Work-Life Balance Award Act
Excerpt: "The legislation, authored by subcommittee chairwoman Rep. Lynn Woolsey (D-CA) and committee chairman Rep. George Miller (D-CA), recognizes on an annual basis exemplary employers that provide their employees the ability to achieve a work-life balance through the creation of a Work-Life Balance Award within the Department of Labor. A bipartisan advisory board representing both private and public employees, labor and family advocates will develop the award's criteria."
(U.S. House Committee on Education & Labor, Workforce Protections Subcommittee)

Health Care Legislation Attacks Executive Compensation by Insurance Companies
Excerpt: "As we feared it would . . . , Section 9014 of the 'Patient Protection and Affordable Care Act' . . . modifies Code Section 162(m) to impose inexplicable limits on the compensation of insurance company employees."
(Michael Melbinger via Winston & Strawn LLP)

Webcasts and Conferences

Changes in 2010 and 2011 for Employer-Sponsored Plans: Health Care Reform Drill Down
Nationwide on June 3, 2010
presented by EBIA / Thomson Reuters

Health Care Reform: What Corporate Employers Need to Know - Tactically and Strategically
Nationwide on May 6, 2010
presented by International Foundation of Employee Benefit Plans

OTC Restrictions, Health FSA Limits, and Simple Plans: Health Care Reform Drill Down
Nationwide on May 27, 2010
presented by EBIA / Thomson Reuters

Weight Loss at the Workplace - Legal Issues For Employers Seeking To Reduce Healthcare Costs
Nationwide on May 11, 2010
presented by Lorman Education Services

Press Releases

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