Thursday, October 25, 2012

Court Rules Against Maryland County in Age Discrimination Case

The United States District Court for the District of Maryland ruled last week that Baltimore County, Maryland violated the Age Discrimination in Employment Act ("ADEA") by requiring public employees age 40 and older to contribute a higher percentage of their salaries to the county's defined benefit pension plan than younger employees contributed, even if the older and younger workers had the same years to go for retirement eligibility. See EEOC v. Baltimore County, No. 07-2500, (D.Md. Oct. 17, 2012). The EEOC had sued under the ADEA on behalf of older Baltimore County employees hired prior to July 1, 2007. In 2009, the Court granted summary judgment to the county, reasoning that the employer had shown that it was motivated by the permissible financial consideration of the “time value of money,” rather than the ages of new hires. On appeal by EEOC, however, the U.S. Court of Appeals for the Fourth Circuit vacated the district court's ruling and remanded for further consideration of whether the varying contribution rates for employees actually were justified by the alleged financial considerations.
Ruling on competing summary judgment motions, the district court determined that, because the early retirement option was strictly based on years of service, Baltimore County could not justify an age-based disparity in employee contribution rates. In granting partial summary judgment to the Equal Employment Opportunity Commission EEOC the court held that Baltimore County violated the ADEA because it had not shown any non-age-related financial considerations that justified the disparity in contribution rates between older and younger workers. The Court noted that, athough the County had been presented with the opportunity to depose representatives of Buck Consultants, the actuarial firm responsible for the county's Employee Retirement System since its inception in 1945, "the county has come forward with no evidence demonstrating why two workers with the same number of years until retirement eligibility should be required to contribute to the ERS at different rates.” The Court noted that, although linking an employee's contribution rate to his or her age made financial sense when the retirement system  provided for retirement at age 65, the county's 1973 decision to add an early retirement option based on years of service, irrespective of age, detached an employee's pension eligibility from age. The Court found that the EEOC had proved that the county's pension contribution system, which charged older employees a higher percentage of their salaries until the county adopted a flat-fee system effective July 1, 2007, facially discriminated based on age and could not be be justified by nondiscriminatory financial considerations.



Wednesday, October 24, 2012

Update - DOL Expects to Re-Prepose Fiduciary Rule in Early 2013

On October 23, 2012, the United States Department of Labor's ("DOL") Assistant Secretary of Labor for the Employee Benefits Security Administration ("EBSA"), Phyllis Borzi, announced that DOL expects to issue its re-proposal of its "fiduciary rule" early next year. DOL proposed the regulation, to revise and expand the definition of the term “fiduciary” under Section 3(21)(A) of ERISA in October 2010. After concerns about the proposed regulation as drafted were raised, DOL announced in September 2011 that it would withdraw and re-propose the rule. Borzi previously said that practitioners should expect the regulation to address several issues that some felt were unclear in the initial proposal, including drawing a brighter line between participant advice and education.

Thursday, October 18, 2012

PBGC Announces New Hires to Assist in Proper Asset Valuation

On October 17, 2012, the Pension Benefit Guaranty Corporation ("PBGC") announced the hiring of new directors of benefits payments and quality management. The appointments were made in part due to  findings by the PBGC's inspector general that the agency undervalued the terminated pension plans of United Airlines. According to PBGC's Director, Joshua Gotbaum, “One of the issues that has been raised with our benefits department is that the agency was sloppy in checking the value of assets at United and elsewhere, and the agency was. And we've done a whole bunch of things to go back and redo the work.” PBGC on August 15, 2012 that it would begin making corrected payments and back payments to retired United Airlines pilots and management employees in September, following a completed a review of the air carrier's pension assets . PBGC determined after several audits that an agency-hired contractor had undervalued United Airlines' terminated pension plans by about 0.75 percent, or $58 million, by relying on trustee-furnished accounts that were out of date or not adjusted to reflect the fact that PBGC was assuming responsibility for the pensions. While it turned out that the agency only “shortchanged” some United employees by less than 1 percent of what they were owed, Director Gotbaum said that mistake needed to be remedied. “This mistake on relying on the trustees' numbers and getting stale numbers turned out to not have a large effect, but the fact of the matter is that any mistake, any mistake we do, undermines the confidence of anyone who gets a benefit from us. So it does not matter that in United we were paying 99.5 percent of the benefits to 8,000 people and 100 percent of the benefits to the rest. As a result, we have made a series of changes in the organization.” PBGC also appointed a director of the agency's new Quality Management Department. The department will focus on best practices for PBGC's benefits department, as well as the entire agency. “One of the points that our inspector general said was, you have a benefits group and you don't have any organization within PBGC to do quality management and to do oversight, except the IG, and the IG is not supposed to be working for the agency,” Director Gotbaum said. “So we took the IG's advice and we set up a separate operation: quality management. That is entirely new,” he said. PBGC also plans to use the Quality Management Department to review other “broader processes” of the agency.