Cypen & Cypen
MAY 18, 2006
Stephen H. Cypen, Esq., Editor
The Sereboffs were beneficiaries under a health insurance plan administered by Mid Atlantic Medical Services, Inc., and covered by the Employee Retirement Income Security Act of 1974. The plan provided for payment of covered medical expenses and had an “Acts of Third Parties” provision. This provision requires a beneficiary who is injured as a result of an act or omission of a third party to reimburse Mid Atlantic for benefits it has paid on account of those injuries, if the beneficiary recovers for those injuries from the third party. The Sereboffs were involved in an automobile accident and suffered injuries. The plan paid the couple’s medical expenses. The Sereboffs sought compensatory damages for the accident from third parties. After the Sereboffs settled their suit, Mid Atlantic filed suit under §502(a)(3) of ERISA, seeking to collect from the Sereboffs’ recovery medical expenses it had paid on their behalf. The Sereboffs agreed to set aside from their recovery a sum equal to the amount Mid Atlantic claimed, and preserved this sum in an investment account pending outcome of Mid Atlantic’s suit. The court found in Mid Atlantic’s favor and ordered the Sereboffs to turn over the amount set aside. The United States Court of Appeals affirmed, and observed that the courts of appeal were divided on the question of whether §502(a)(3) authorized recovery in these circumstances. In a unanimous opinion written by Chief Justice Roberts, the United States Supreme Court held that Mid Atlantic’s action properly sought equitable relief under §502(a)(3). Sereboff v. Mid Atlantic Medical Services, Inc., Case No. 05-260 (U.S., May 15, 2006).
Fannie Mae, the largest source of money for U.S. home loans, said it has found new accounting errors and plans to spend $800 Million this year on accountants and lawyers to correct $10.8 Billion in bookkeeping mistakes. Bloomberg News reports that Fannie Mae revealed in a filing with the Securities and Exchange Commission two miscues stemming from use of trust in packaging home loans into mortgage-backed securities. The entity will need to place $25.5 Billion of securities on its balance sheet, less than 2% of the $1.6 Trillion in Fannie Mae mortgage-backed bonds outstanding. Fannie Mae says it will not know the impact of the new errors until it completes the restatement, but continues to meet capital requirements mandated by its regulator after errors were first discovered in 2004.
Baby Boomers are entering retirement, but not like their parents did. This generation, which is made up of Americans born between 1946 and 1964, is reinventing this phase of their lives to incorporate work, often in modified or reduced form, volunteerism and leisure activities. (Boomers represent 27% of today’s population! About 90% have a high school diploma and 30% have a bachelor’s degree or higher.”) Employers are facing new challenges from this aging workforce and their new approach to retirement. With 77 million Americans reaching age 55 between now and 2020, employers are reexamining employment policies and benefit structures to meet the needs of the older employee population, as well as to address current and future labor shortages and their troubled budget situations. An article in the June 2006 Benefits & Compensation Digest treats this subject in detail, concluding that state and local governments will feel the impact of an aging employee population before private sector employers.
According to Fidelity’s Retirement Index for Spring 2006 (reviewed in Plansponsor.com), American workers are on track to replace 57% of their income in retirement, up from 56% last fall. The Index found that while the average American household is in for more than a 40% pay cut, 52% of them have taken some action in the last six months to brace for this situation. The most popular steps were increasing contributions to employee retirement savings, adjusting retirement portfolios, consulting a financial advisor and opening retirement savings accounts. Respondents seem to be more aware that retirement will cut their incomes by more than 40%, with 83% saying they are not saving enough for retirement, up from 78% in June of last year. Even if people are more aware that they will be living on less after retirement, 76% say that spiking fuel prices have affected their ability to save for retirement. Of these respondents, 45% say that fuel prices have caused them to reduce retirement savings and 25% say that high prices have delayed plans to start savings. The Index looks at overall retirement readiness of American households based on data such as workplace and individual savings, projected Social Security/pension benefits and anticipated retirement horizons. The Index aims to predict whether the average household will have more, less or the same amount to live on in retirement compared to pre-retirement.
The Investment Company Institute has issued the 46th Edition of its Investment Company Fact Book, providing a look at the retirement market in 2005. The book finds that Americans held a record $14.3 Trillion in retirement assets. This amount in retirement market assets is held in a variety of tax-advantage plan types. The largest components are individual retirement accounts and employer-sponsored defined contribution plans, each holding about $3.7 Trillion at year-end 2005. Within employer-sponsored defined contribution plans, 401(k) plans held the largest share, $2.4 Trillion. Other employer-sponsored pensions include private defined benefit pension plans ($1.8 Trillion), state and local government employee retirement plans ($2.8 Trillion) and federal government defined benefit plans and federal employees’ Thrift Savings Plan ($1.1 Trillion). In addition, there were $1.4 Trillion in annuity reserves at year-end 2005. Mutual funds accounted for $3.4 Trillion, or 24%, of the $14.3 Trillion U.S. retirement market (almost 40% of all mutual fund assets). The remaining $10.9 Trillion of year-end 2005 retirement market assets were managed by pension funds, insurance companies, banks and brokerage firms. ICI is a national association of U.S. investment companies. It seeks to encourage adherence to high ethical standards, promote public understanding and otherwise advance the interest of funds, their shareholders, directors and advisers.
In 2003 a retired major league baseball player brought a class action on behalf of himself and other retired baseball players against Major League Baseball, claiming, in part, that MLB had violated Title VII by excluding them from medical and supplemental income plans devised by MLB for former Negro League players. Plaintiffs were virtually all Caucasian former MLB players who played in the major leagues for less than four years between 1947 and 1979, and were accordingly denied MLB pension and medical benefits. Between 1947 and 1979, MLB players became vested in the medical and pension plans after four or five years of service in the MLB. Some plaintiffs missed the vesting requirements by a matter of days. After a strike by MLB players in 1981, the vesting requirement for MLB medical benefits was reduced to one day; the vesting requirement for an MLB pension was reduced to 43 days. These vesting requirements were not extended to players who had ended their careers prior to 1980. Until 1947, when Jackie Robinson broke the color barrier in the major leagues, African-Americans were not allowed to play major league baseball and could play only in the so-called “Negro Leagues,” associations of professional baseball clubs composed exclusively of black players. In the 1990s, seeking to make partial amends for its exclusion of African-Americans prior to 1947, MLB voluntarily decided to provide certain benefits to former Negro League players. In 1993, MLB created a plan that provided medical coverage to former Negro League players. In 1997, it adopted a supplemental income plan that provided an annual payment of $10,000 to eligible players. The trial court granted summary judgment in favor of MLB and against plaintiffs. On appeal, the judgment was affirmed: the appellate court concluded that plaintiffs had failed to make a prima facie showing of discrimination under Title VII. The appellate court held in the alternative that MLB had a legitimate non-discriminatory reason for the actions taken and that such reason was non-pretextual. “MLB’s absolute ban on African-American players before 1947 impeded these players from accumulating the necessary years of service in the Major Leagues to qualify for the medical and pension benefits under the terms of the MLB benefits plans in effect at the time.” Moran v. Selig, Case No. 04-55647 (U.S. 9th Cir., May 9, 2006).
The Pension Benefit Guaranty Corporation’s single-employer insurance program insures the pension benefits of over 34 million participants in almost 29,000 private sector defined benefit pension plans. The increase in PBGC’s probable claims has raised questions about PBGC’s monitoring and financial disclosure practices, including whether the information that PBGC discloses is sufficient for interested parties to understand the effect on PBGC’s financial condition. The United States Government Accountability Office examined (1) the steps that PBGC takes to monitor and ensure accuracy of its probable claims, (2) how PBGC’s financial liability reporting compares with those of publicly traded companies and (3) the steps PBGC has taken to improve transparency of its financial reporting and whether additional improvement is needed. To improve transparency of information PBGC discloses about its financial condition, GAO recommends that PBGC (a) disclose in its press releases whether a newly terminated plan was already included in its published deficit and (b) make its interest rate methodology more widely available to the public. In doing so, PBGC should consider making this information available on its website. (Incidentally, in response, PBGC has agreed with GAO’s recommendations.) GAO-06-429 (March, 2006).
The Internal Revenue Service announced agreements with 33 states and Puerto Rico to begin sharing Bank Secrecy Act information. The agreements will allow IRS and the participating states to share information and leverage their resources to ensure that money services businesses are complying with their federal and state responsibilities to register with the government and report cash transactions and suspicious activities. Money services businesses are non-bank financial institutions that provide certain financial services to their customers. Such businesses include currency exchangers, check cashers, issuers of traveler’s checks or stored value cards and money transmitters. IRS and participating states will share enforcement leads and coordinate their efforts to make sure they are doing all the Bank Secrecy Act examinations on money services businesses as required by law without overlapping efforts. The agreements will also help IRS and the states present a united compliance front to money services businesses and their representatives. (Note that Florida did not sign an agreement with IRS.) IR-2006-070.
The U.S. Department of Labor, Bureau of Labor Statistics, has issued its 2005 National Compensation Survey - Benefits. According to that survey, 53% of all workers in private industry have access to at least one employer-provided defined benefit retirement plan. Access to employer-provided defined contribution plans varies notably among worker and establishment characteristics. Workers in higher paying occupations are more likely to have access to employer-provided defined contribution plans than are other workers. Workers in white-collar occupations are more likely to have access to employer-provided defined contribution plans than are workers in blue-collar and service occupations. Full-time workers have greater access to defined contribution plan benefits than do part-time workers. Private industry workers in larger firms are more likely to have access to defined contribution benefits than those in smaller firms. Data show that 87% of establishments with 100 workers or more offer defined contribution plans, while only 47% of smaller establishments do so. The factors that determine the percent of workers who have access to defined contribution plans are somewhat overlapping. For example, workers in private industry earn, on average, higher wages in larger establishments than do those in smaller establishments, and white-collar workers earn more, on average, than service workers.
This week’s quote comes from that
great philosopher Homer Simpson -- “Weaseling out
of things is good. It’s what separates us from the
other animals -- except the weasel.”
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