IRS Voluntary Classification Settlement Program Update - More Tax Relief For Employers?

The Internal Revenue Service ("IRS") is revising and expanding eligibility for the Voluntary Classification Settlement Program ("VSCP") that offers tax relief for employers that agree to prospectively treat workers as employees. In addition to relaxing certain technical rules that, in the past, prevented taxpayers from participating in the VCSP as originally formulated, the IRS is offering an expanded program to permit employers that failed to file required Forms 1099 to elect to treat workers as employees going forward. The IRS stated in an annoucement this week that the new program will: (1) permit taxpayers under audit, other than employment tax audits, to participate; (2) eliminate the requirement that taxpayers agree to extend the assessment period of limitations for employment taxes as part of the VCSP closing agreement with IRS; (3) clarify eligibility for taxpayers that are members of an affiliated group under Section 1504(a) where another member of the group is under an employment tax audit; and (4) clarify that taxpayers contesting in court the classification of workers from previous audits are ineligible to participate. A taxpayer participating in the program agrees to prospectively treat a class or classes of workers as employees for future tax periods. In return, the taxpayer pays 10 percent of the employment tax liability that would have been due on compensation paid to the workers being reclassified for the most recent tax year, as though they had been classified as employees. Interest and penalties are waived, and the taxpayer is not subject to an employment tax audit for prior years. The announcements were published Dec. 17 in Internal Revenue Bulletin 2012-51.

When Does A 401(k) Contribution Become A Plan Asset? New 11th Circuit Decision Provides Insight

 

In Pantoja v. Edward Zengel & Son Express Inc., Case No. 12-10036 (11th Cir. Dec. 12, 2012), the United States Court of Appeals for the Eleventh Circuit ruled that a section 401(k) plan participant's claim that his employer committed a fiduciary breach under ERISA by failing to forward certain employer contributions to the plan failed because the contributions in question did not constitute "plan assets" under ERISA. The court held that employer contributions to Section 401(k) plans do not become "plan assets" prior to being remitted to the plan absent “specific and clear” plan language providing otherwise.

 

By way of background, the defendant, Edward Zengel & Son Express Inc. ("EZS"), contracted with the U.S. Postal Service to haul mail in its trucks. The contract required EZS to provide fringe benefits to its employees either by paying them as wages or depositing them into a Section 401(k) plan. To satisfy its fringe benefit obligation, EZS elected the latter method and established a Section 401(k) plan for its employees. The plaintiff, Manuel Pantoja, worked for EZS for about six months in 2009. During that time, EZS withheld fringe benefits totaling $3,472 and failed to remit most of the money due the Plan on Pantoja's behalf, instead using the money to pay its employer payroll taxes. After receiving a benefit statement indicating that his Section 401(k) account balance was less than $300, Pantoja filed suit against EZS and three of its corporate officers. EZS subsequently paid into the plan the funds attributable to Pantoja plus interest. At the district court level, the court granted partial summary judgment to EZS on the issue of liability under ERISA. The district court found that the fringe benefits withheld did not constitute “plan assets” and that EZS therefore did not breach a fiduciary duty as a matter of law. Pantoja appealed to the Eleventh Circuit.

 

On appeal, the Eleventh Circuit first noted that, while Department of Labor regulations make clear that an employee's elective contributions to an ERISA plan constitute plan assets, those regulations do not address the status of employer contributions to a plan. Thus, the Eleventh Circuit looked to its own precedent, finding it had “held that unpaid employer contributions are not ‘plan assets' unless specific and clear language in the plan documents or other evidence so indicates." The Eleventh Circuit continued on to say that this reliance on clear plan language was justified by the “unfairness in imposing strict fiduciary responsibilities—and personal liability—upon corporate officers who are not clearly aware of their status as fiduciaries.” Pantoja argued that his case was “distinguishable” because EZS's obligation to contribute to the plan stemmed from a written contract with the Postal Service and was therefore “mandatory.” The Eleventh Circuit rejecting this argumentstating that, in every case Pantoja cited in which the court found employer contributions to be plan assets, the plan documents “clearly indicated contributions became assets when ‘due' or ‘owing,' rather than when they were actually remitted to the plan.” In the instant case, the Eleventh Circuit found “no clear and specific language indicating the fringe benefits are ‘plan assets' before they are actually remitted to the Plan.” Accordingly, EZS did not breach a fiduciary duty “as a matter of law" and the Eleventh Circuit affirmed the decision of the district court.

 

 

FCRA Changes Impose New Rules For Employers Using "Consumer Reports"

New regulations that go into effect early next year will require employers who use "consumer reports" to hire, fire promote, demote and/or reassign current or prospective employees to inform their employees and applicants, in advance, of their intention to obtain a consumer report. Regulations promulgated under the Fair Credit Reporting Act ("FCRA"), which take effect on January 13, 2013, will also require employers to obtain the employee's or applicant's express written consent to obtain such reports. In addition to securing the employee's or applicant's consent, employers will be required to give a copy of the report to the affected individual, as well as, provide advance notice if the employer intends to take any adverse employment action on the basis of the information in the report. The FCRA recently issued a Summary of Consumer Rights which employers must furnish to individuals before taking any adverse employment action based on information in a consumer report. The FCRA also recently issued a revised "Notice of Furnisher Responsibilities," which sets out the obligations of those who furnish consumer reports, and a revised "Notice to Users of Consumer Reports of Their Obligations Under the Fair Credit Reporting Act," which summarizes the duties of employers using consumer reports. Employers may obtain a copy of the Summary of Rights by clicking on following this link. View PDF .

IBM To Overhaul 401(k) Retirement Program

The Wall Street Journal reports that IBM is overhauling its retirement program to contribute once a year to employee 401(k) accounts in a lump-sum payment. IBM's switch is the latest in a series of moves big companies have been making to lower retirement-plan expenses, and the financial implications for employees could be significant.  According to the article, starting next year, IBM's contributions, which generally range from 6% to 10% of pay, will take place Dec. 31. Workers who leave the company before Dec. 15 won't qualify for the match, unless they retire. The article also note that, for IBM, the latest move could help save millions of dollars a year in compensation expenses, and keep valued workers who want to ensure they receive the match more tethered to their jobs—at least until the end of a given year. The change "reflects our continuing commitment to invest in our employee 401(k) plans while maintaining business competitiveness in a challenging economic environment," IBM spokesman Douglas Shelton said in a statement. Financial planners say the lump-sum contributions undermine one big advantage of 401(k) plans: "dollar-cost averaging," in which investors are buying stock and bonds at multiple prices over time, leveling out risk and return.

http://online.wsj.com/article/SB10001424127887323316804578163722900112526.html

Supreme Court Declines Consideration of "Moench" Presumption Case

The U.S. Supreme Court announced yesterday that it will not review a decision of the U.S. Court of Appeals for the Sixth Circuit on the extent to which Section 404(c) of the Employee Retirement Income Security Act shields plan fiduciaries from claims of imprudent investment in employer stock See State Street Bank and Trust Co. v. Pfeil, U.S., No. 12-256, cert. denied 12/3/12. Earlier this year, the Sixth Circuit held that, while the Section 401(k) plan participants pleaded sufficient facts to overcome the “presumption of prudence” (frequently called the "Moench" presumption) that attaches to plans that invest in employer stock, the lower court erred in applying the presumption at the motion-to-dismiss stage. According to the Sixth Circuit, plan fiduciaries cannot escape their duty of prudent investing by asserting at the pleadings stage that any losses plan participants suffered were caused by the participants' decisions to continue investing in employer stock, asserting that “[s]uch a rule would improperly shift the duty of prudence to monitor the menu of plan investments to plan participants” and would place an “unreasonable burden” on “unsophisticated” participants.

By way of background, in 2009, two General Motors Corp. employees filed a proposed class action alleging that State Street Bank and Trust Co. breached its fiduciaries duties by waiting too long to divest GM's Section 401(k) plans of their holdings in GM stock. The U.S. District Court for the Eastern District of Michigan dismissed the employees' complaint and found that, although they were likely to overcome the “presumption of prudence” that attaches to plans that invest in employer stock, they would be unable to show that State Street caused their investment losses, because the employees retained ultimate control over their investment selections. On appeal, the Sixth Circuit reversed, finding that the district court erred in applying the presumption of prudence at the motion to dismiss stage. The presumption, the appellate court said, was an evidentiary presumption, rather than an additional pleading requirement. The Sixth Circuit also found that the employees plausibly pleaded a causal connection between State Street's alleged breach and the plan losses. In so finding, the appeals court said the district court erroneously relied on the fact that the plaintiffs could divest their plan accounts of the GM stock to find that State Street's alleged breach did not cause plan losses.

In its petition for review, State Street framed the issue to the Supreme Court as whether ERISA Section 404(c) provides fiduciaries of otherwise-qualified plans a defense to liability against an imprudent investment claim when the participant's control over the investment is the proximate cause for the loss. It also asked the Court to consider a second question—whether liability under ERISA Section 409(a) for a breach of fiduciary duty claim requires that the breach constitute the proximate cause of the loss. In response to State Street's petition, the employees challenged whether a circuit split existed with respect to ERISA Section 404(c), saying that “[a]ny such circuit split, however, has no bearing on the Sixth Circuit's holding in the case because the Sixth Circuit held that 404(c) is a fact-intensive affirmative defense that the district court improperly applied on a motion to dismiss, an issue on which the courts of appeals unanimously agree.” The employees argued that State Street, as an ERISA fiduciary, “cannot breach its duty and then escape liability as a matter of law on 404(c) or causation grounds when the exact risk State Street was supposed to protect against materializes to harm the plans.” The employees also asserted that State Street's petition did not seek review of the case's “key holding,” which they contended was the holding that “GM plan participants had alleged sufficient facts to overcome the presumption of prudence,” and instead sought review of only two “narrow issues.”

Must Employers Appoint Employees With Disabilities to Vacant Positions? New Guidance From The Courts

Employers may violate the Americans with Disabilities Act (“ADA”) if they fail to appoint disabled employees to vacant positions for which they are qualified, even if they are not the most qualified candidate for the job, according to a recent decision by the Seventh Circuit.  In EEOC v. United Airlines, No. 11-1774 (7th Cir. Sept. 7, 2012),  the Seventh Circuit overruled its own precedents and adopted the Supreme Court rule first announced in U.S. Airways, Inc. v. Barnett, 535 U.S. 391 (2002) – that an employer has a duty to appoint a qualified disabled employee to a vacant position, absent “undue hardship”.  Under Barnett, for example, if the reassignment violates a seniority system, that ordinarily will constitute undue hardship, but the Plaintiff can still argue that special circumstances support the finding of an ADA violation.  This decision brings the Seventh Circuit in line with the Tenth and D.C. Circuits, though the Eighth Circuit continues to adhere to precedent imposing no such duty on employers.

 

 

Supreme Court To Decide "Supervisor" Job Discrimination Case

In Vance v. Ball State University, the Supreme Court will decide who is a “supervisor” and who is not, under Title VII of the Civil Rights Act of 1964. Maetta Vance, the only black employee in Ball State’s catering department, alleged that a number of her supervisors and co-workers subjected her to racial taunts and veiled threats, creating a hostile work environment for her at the Muncie, Ind. university. However, the University won summary judgment at trial in part because the court, interpreting Seventh Circuit precedent, ruled that one of Vance’s alleged supervisors was not, in fact, her supervisor. The court ruled, and the Seventh Circuit affirmed, that supervisors are only those with“the power to hire, fire, demote, promote, transfer, or discipline an employee,” and not simply those who possess “the authority to direct an employee’s daily activities.” The Supreme Court is tasked with determining whether the Seventh Circuit’s definition is proper.

Title VII prohibits employers from racial discrimination with respect to an employee’s “compensation, terms, conditions, or privileges of employment…”42 U.S.C. § 2000e-2(a)(1). In order to hold an employer liable for a hostile work environment created by its employees, however, a plaintiff must prove, among other things, that there is a basis for employer liability. See Dear v. Shinseki, 578 F.3d 605 (7th Cir. 2009). This element is the issue at the heart of Vance. A basis for employer liability is automatically found if the harassing employee is a supervisor, but if the harassing employee is merely a co-worker then Vance must show that the employer was “negligent in either discovering or remedying the harassment.” Williams v. Waste Mgmt. of Ill., 361 F.3d 1021, 1029 (7th Cir. 2004).

See http://www.nytimes.com/2012/11/27/us/supreme-court-hears-job-discrimination-case.html.

Calling Verizon - Do You Know Where My Benefits Are?

Verizon Communications Inc. ("Verizon") was sued earlier this week in the United States District Court for the Nothern District of Texas for an alleged misuse of plan assets. See Lee v. Verizon Communications Inc., Case No. 12-cv-04834 (N.D. Tex.). The putative class action alleges that Verizon's plan to transfer $7.5 million in assets from its defined benefits pension plan to purchase annuities from Prudential Insurance Company of America ("Prudential") violates ERISA.

By way of background, Verizon announced on Oct. 17, 2012 that it reached an agreement to use pension assets to purchase a group annuity contract from Prudential, which would then assume the obligation to make future annuity payments affecting about 41,000 Verizon retirees. Verizon asserted that it expected the transfer to further its “objective of de-risking the pension plan while improving the company's longer term financial profile.” The lawsuit alleges that the plan asset transfer violates Verizon's fiduciary duties under ERISA and interferes with the retirees' protected rights under ERISA. The retirees have asked the court to enjoin Verizon from proceeding with the plan asset transfer to Prudential. The lawsuit alleges that the transfer of plan asset would improperly eliminate all ERISA protections to which the retirees are entitled because “Prudential will not be subject to ERISA's fiduciary duties standards, minimum funding standards and disclosure requirements.” The participants also aver that the transfer “will effectively eliminate all of the transferred retirees' ERISA protections for their pensions,” including the financial security provided by the Pension Benefit Guaranty Corporation.

The lawsuit sets forth several claims. First, it alleges that Verizon violated ERISA by failing to issue a summary plan description ("SPD") that “disclose[d] all circumstances that may result in Plaintiffs' and putative class members' ineligibility for or loss of benefits provided by the Plan,” asserting that Verizon's SPDs failed to disclose “that either a single retiree or large group of retirees with vested rights could be involuntarily removed from enrollment in the Plan and transferred to either Prudential or any other insurance company and, thereby, made ineligible for continued receipt of pension benefits under the Plan.” The lawsuit also asserts that Verizon breached fiduciary duties by failing to comply with relevant plan documents, stating that Verizon's plan to transfer the participants out of the plan is an attempt to “evade a standard termination of the Plan,” which is the “only process allowed by the Plan's controlling terms so as to immediately end Plan participation by the group of 41,000 retirees.” According to the complaint, the plan lacks language authorizing Verizon to “involuntarily transfer retirees' pensions out of the Plan to be replaced by an insurance annuity,” which violates the plan's restriction on reducing participants' accrued benefits under the plan. Additionally, the transfer breaches fiduciary duties to diversify investments and to act solely in the interest of plan participants, the participants allege. The lawsuit also alleges that Verizon has violated ERISA Section 510 by interfering with the participants' rights by seeking to expel them from the plan before they have received all vested benefits they are entitled to under the plan. The suit further asserts claims under ERISA Sections 502(a)(2) and (a)(3) seeking to require Verizon to “maintain the status quo and not carry out the contemplated removal of 41,000 retirees from the Plan.”

Recent Decision - Conflict of Interest and Fiduciary Exception to Attorney-Client Privilege

In September of this year, the U.S. Court of Appeals for the Ninth Circuit reversed and remanded a district court decision upholding Unum Life Insurance Co.'s  ("Unum") calculation of a participant's disability benefits, finding that the district court did not properly weigh the inherent conflict of interest present in Unum's dual status as the entity responsible for both paying and calculating benefits. See Stephan v. UNUM Life Insurance Co. of America, 9th Cir., No. 10-16840 (Sept. 12, 2012). The case addressed two interesting issues: (1) the "conflict of interest" analysis and the weight to be given such conflicts by district court's reviewing benefits determinations; and (2) the "fiduciary exception" to the attorney-client privilege. 

 

With regard to the former issue, the Ninth Circuit found that the U.S. District Court for the Northern District of California correctly determined that Unum's actions should be reviewed for an abuse of discretion but that the district court failed to fully consider Unum's conflict of interest. The Court  of Appeals  remanded the case to the district court and instructed it to weigh the evidence in the light most favorable to the participant, to consider evidence outside the administrative record, and to consider the “public record" of Unum's history of biased decision making. With regard to the latter issue, the Ninth Circuit also ruled that the fiduciary exception to attorney-client privilege applied to insurance companies acting as fiduciaries of plans governed by the Employee Retirement Income Security Act, an issue of first impression in the Circuit.

 

By way of background, three months after he accepted a management position at Thomas Weisel Partners, Mark Stephan sustained injuries in a bicycle accident that rendered him a quadriplegic. Stephan applied for long-term disability benefits from a Unum plan that provided disabled employees with 60 percent of their monthly earnings, up to a maximum of $20,000. Unum calculated Stephan's monthly benefit at $10,000 based on his annual salary of $200,000. Stephan appealed Unum's determination, arguing that the calculation should included both his $200,000 salary and the $300,000 annual bonus that TWP guaranteed in his offer of employment. Unum rejected his appeal based on its finding that Stephan only worked for TWP for four months and did not receive a bonus during that period, and its conclusion that TWP “went outside their own employment agreement” when it paid Stephan's guaranteed bonus four months after he stopped working. Stephan sued Unum to recover additional disability benefits, and the United States District Court for the Northern District of California determined that Unum did not abuse its discretion in calculating his benefits  The district court found that, because Unum both determined benefits eligibility and paid claims out of its own pocket, it operated under a conflict of interest that must be weighed as a factor in determining whether an abuse of discretion occurred. However, the district court found that, although a conflict of interest existed, there was little evidence of malice, self-dealing, or a pattern of disproportionately denying claims to support a finding that Unum abused its discretion.

 

On appeal, the Ninth Circuit ruled that the district court correctly concluded that, because Unum “both decides who gets benefits and pays for them,” it must consider this structural conflict of interest in determining whether Unum abused its discretion and that the significance of this conflict “depends upon the likelihood that the conflict impacted the administrator's decision making.” However, according to the Court of Appeals, the district court improperly weighed this factor in its analysis in several ways. First, the district court should have applied traditional principles of summary judgment in weighing the conflict, including viewing the evidence in the light most favorable to the non moving party—Stephan—and admitting evidence outside the administrative record. Second, because the district court limited its review to information contained in the administrative record, it failed to consider other relevant evidence about Unum's history of biased decision making, the Ninth Circuit concluded.

 

The Ninth Circuit also held that the fiduciary exception to attorney–client privilege—which generally provides that ERISA fiduciaries cannot assert attorney-client privilege with regard to legal advice and they receive in their capacity as ERISA fiduciaries—applies to insurance companies as well as employers, finding that the policy behind the fiduciary exception applies equally to employers and insurers serving as ERISA fiduciaries. While the district court concluded that the fiduciary exception did not apply to the instant case because the documents Stephan sought to admit were created after an adversarial relationship had begun, the Ninth Circuit disagreed and found that the documents in question “offer advice solely on how the Plan ought to be interpreted” and “do not address any potential civil or criminal liability Unum might face” and thus should have been admitted. The Ninth Circuit held that, for purposes of the fiduciary exception, the relationship between the parties does not become adversarial until after the final adverse benefit determination, and that documents prepared prior to that time are presumed admissible.

 

Finally, the Ninth Circuit said that “numerous courts” have commented previously on Unum's history of “erroneous and arbitrary benefit denials, bad faith contract misinterpretations, and other unscrupulous tactics.”In affirming Unum's determination, the district court held that Stephan had not sufficiently demonstrated Unum's history of biased claims administration, the Ninth Circuit said. On remand, the Ninth Circuit instructed the district court to “take into account the public record of Unum's history of biased decision making as well as any evidence of such history Stephan produces.” The Ninth Circuit also described several aspects of Unum's decision making that the district court could find indicative of bias.

What - No More Twinkies!

Hostess Brands announced today that it will liquidate in bankruptcy. The New York Times wrote up a nice discussion. See http://dealbook.nytimes.com/2012/11/16/hostess-brands-says-it-will-liquidate/?ref=business

Bailey & Ehrenberg Honored in the 2012-2013 U.S. News Best Lawyers® "Best Law Firms" Rankings

Washington, D.C. – U.S. News Media Group and Best Lawyers® have released the 2012-2013 “Best Law Firms” rankings, and Bailey & Ehrenberg is pleased to announce that the Firm took first-tier honors for its Employee Retirement Income Security Act (“ERISA”) Litigation practice both nationally and in the Washington, D.C. area.

The U.S.News – Best Lawyers® “Best Law Firms” rankings are based on a rigorous evaluation process that includes the collection of client and lawyer evaluations, peer review from leading attorneys in their field, and review of additional information provided by law firms as part of the formal submission process. For more information on Best Lawyers®, please visit www.bestlawyers.com.

Dedicated to high quality, Bailey & Ehrenberg PLLC provides comprehensive legal representation on a nationwide basis to both individual and corporate clients in nearly every practice area.

Supreme Court Denies Cert. in JP Morgan "Moench Presumption" Case

The United States Supreme Court denied cert. yesterday in a lawsuit by JP Morgan Chase & Co. (“JP Morgan”) employees, Fisher v. JP Morgan Chase & Co., U.S., No. 12-298 (cert. denied Nov. 13, 2012) who alleged that fiduciaries of the company's Section 401(k) plan (the “Plan”) breached their duties under ERISA by not eliminating company stock from the Plan when the stock price dropped due to losses the company incurred through its dealings with Enron Corp.

 

By way of background, the lawsuit was filed in 2003 by a group of JP Morgan employees who had invested in the company's stock between April 1999 and January 2003. The employees alleged that, during this period, the fiduciaries of JP Morgan's 401(k) plan knew or should have known that the company's stock was not a prudent investment option, given that JP Morgan had billions of dollars in undisclosed loss exposure to Enron. The Supreme Court’s denial of cert. followed the United States Court of Appeals for the Second Circuit’s May 2012 decision upholding a district court’s dismissal of the lawsuit against JP Morgan, using the “presumption of prudence” (frequently called the "Moench presumption") that attaches to defined contribution pension plans that offer employer stock in their plans, finding that there were no “dire circumstances” that should have prompted plan fiduciaries to remove employer stock as an investment option. The Second Circuit had noted that it had already ruled in two other cases that the “presumption of prudence” applied to all eligible individual account plans and employee stock ownership plans, even if those plans did not strictly mandate that employer stock be offered.

 

The petition for certiorari asked the Supreme Court to determine whether there is a presumption of prudence that immunizes from liability fiduciaries of Section 401(k) plans when they offer employer stock as an investment option, and, if so, whether the presumption is applicable to all eligible individual account plans or only those plans that mandate or strongly favor employer stock. The petition also asked what facts or circumstances give rise to or overcome the presumption and whether the presumption is properly applied to test the sufficiency of a complaint on a motion to dismiss.

What Protections Do Graduate Students Have When Advisors' Actions Are Unchecked

B&E is currently representing a former graduate student of a national university in a litigation stemming from actions the graduate student's faculty advisor took vis-a-vis the student and actions the university failed to take to assist the graduate student. The case is referenced in an article that appearted in yesterday's Chronicle of Higher Education and highlights the difficult situation that many graduate students find themselves in when a faculty advisor is alleged to have stolen a student's work and passed it off as his or her own, or where an advisor allegedly impeded a student's ability to stand for his or her dissertation (for impermissible reasons). The article, which notes the difficulties that graduate students face, can be found at: http://chronicle.com/article/My-Adviser-Stole-My-Research/135694/?key=Tz9zJQU%2FMXxHYXFmNWpKNj0DbCRtNhojYiBMaypwblxdFg%3D%3D

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.

 

 

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.

 

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.

PBGC's news release is at http://www.pbgc.gov/news/press/releases/pr12-29.html?cid=CPAD01ACOCT1720121.