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Cypen & Cypen
MARCH 2, 2004

Stephen H. Cypen, Esq., Editor

Never Forget - September 11, 2001


Ann L. Combs, Assistant Secretary Employee Benefits Security Administration, U.S. Department of Labor, has issued a statement entitled “Duties of Fiduciaries in Light of Recent Mutual Fund Investigations.” Although the statement deals with ERISA -- generally not applicable to the public sector -- the concepts are equally applicable to governmental plans. The guidance is important enough to quote at length:

“As significant investors in mutual funds, plan fiduciaries, understandably, are concerned about the impact of reported late trading and market-timing abuses on their pension plans and the steps that should be taken to protect the interests of their plans’ participants and beneficiaries. Although investors generally could not anticipate the late trading and market-timing problems identified by Federal and state regulators, plan fiduciaries nonetheless are now faced with the difficult task of assessing the impact of these problems on their plans' investments and on investment options made available to the plans' participants and beneficiaries.

As fiduciaries conduct their review, it is important to remember that ERISA requires that fiduciaries discharge their duties prudently. The exercise of prudence in this context requires a deliberative process. In this regard, fiduciaries, deciding whether to make any changes in mutual fund investments or investment options, must make decisions that are as well informed as possible under the circumstances.

In cases where specific funds have been identified as under investigation by government agencies, fiduciaries should consider the nature of the alleged abuses, the potential economic impact of those abuses on the plan's investments, the steps taken by the fund to limit the potential for such abuses in the future, and any remedial action taken or contemplated to make investors whole. To the extent that such information has not been provided or is not otherwise available, a plan fiduciary should consider contacting the fund directly in an effort to obtain specific information. Fiduciaries of plans invested in such funds may ultimately have to decide whether to participate in settlements or lawsuits. In doing so, they will need to weigh the costs to the plan against the likelihood and amount of potential recoveries.

Late trading and market -timing abuses may extend to mutual funds and pooled investment funds beyond those currently identified by Federal and state regulators. For this reason, plan fiduciaries will need to consider whether they have sufficient information to conclude that such funds have procedures and safeguards in place to limit their vulnerability to abuse.

The appropriate course of action will depend on the particular facts and circumstances relating to a plan's investment in a fund. Plan fiduciaries should follow prudent plan procedures relating to investment decisions and document their decisions. The guiding principle for fiduciaries should be to ensure that appropriate efforts are being made to act reasonably, prudently and solely in the interests of participants and beneficiaries.”

We appreciate the guidance.

As usual, is on the cutting edge of providing useful information. This time, provides a list of firms (27) that have been named, charged or admitted problems with late trading, market-timing or both. Once at the site, readers can click on individual fund names to find the latest coverage of events regarding the particular firm. The list appears at

One section of the Age Discrimination in Employment Act of 1967 forbids discriminatory preference for the young over the old. The United States Supreme Court has determined that the ADEA does not prohibit favoring the old over the young. A collective-bargaining agreement eliminated the employer’s obligation to provide health benefits to subsequently retired employees, except as to then-current workers at least 50 years old. Employees who were then at least 40 (and thus protected by ADEA) but under 50 brought a discrimination action under ADEA. The United States Court of Appeals for the Sixth Circuit reversed a dismissal in favor of the employer, and reasoned that ADEA’s prohibition of discrimination is so clear on its face that if Congress had meant to limit its coverage to protect only the older worker against the younger, it would have said so. In reversing the Court of Appeals, the United States Supreme Court held that ADEA’s text, structure, purpose, history and relationship to other federal statutes show that the statute does not mean to stop an employer from favoring an older employee over a younger one. If Congress had been worried about protecting the younger against the older, it would not likely have ignored everyone under 40. The high court rejected the following arguments proffered by the employees and amicus EEOC: (1) because other instances of “age” in ADEA are not limited to old age, the word “age” has the same meaning wherever ADEA uses it; (2) the employees’ review is supported by a colloquy on the Senate floor involving an ADEA sponsor; and (3) the court owes deference to EEOC’s statutory interpretation. General Dynamics Land Systems, Inc. v. Cline, Case No. 02-1080 (U.S., February 24, 2004).

4. PENSION FUNDS CAN’T SUE EX-GOVERNOR’S ACCOUNTANTS: reports that the Arizona Supreme Court has agreed with the Court of Appeals that the statute of limitations bars union pension funds from suing ex-Governor Fife Symington’s accounting firm. Readers may remember the long history of the pension fund’s disastrous dealings with Symington (see C&C Newsletters for October, 1997, Item 8; March, 1998, Item 5; July, 1999, Item 12; April, 2001, Item 5 and November, 2001, Item 12). Although the unions apparently were aware of their potential claims against the accountants earlier, they did not file suit until 1998. Unfortunately for the unions, they admitted that they knew in 1991 the name of Symington’s accountants, concluded that there might be fraud in connection with his financial statements, but decided not independently to investigate his financial condition. However, the saga is not complete, as the unions still have a separate action pending against a bank they claim also played a role in their loss.

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Items in this Newsletter may be excerpts or summaries of original or secondary source material, and may have been reorganized for clarity and brevity. This Newsletter is general in nature and is not intended to provide specific legal or other advice.

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