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Cypen & Cypen
MAY 15, 2008

Stephen H. Cypen, Esq., Editor


In a suit for declaratory judgment, an insurance company contended that it had no duty to defend its insured, a municipality, against a suit by firefighters claiming that the municipality had, for decades, shortchanged its pension fund. The district court granted summary judgment for the insurance company, holding that the firefighters’ suit alleged intentional conduct rather than a “negligent act, error, or omission” that would be covered by the insurance policy. The general liability insurance policy purchased by the municipality covered claims arising from administering employee-benefit plans, including the firefighters’ pension fund. The policy included a duty to defend against some claims, and when the firefighters sued, the municipality demanded that the carrier defend it. The carrier denied coverage, and then filed the federal court action for declaratory judgment that it had no duty to defend the municipality against the claim being asserted by the firefighters. On appeal, the summary judgment for the insurance company was affirmed. A settlement paid to remedy failure to make required contributions to a pension plan is not a “loss” because the money paid in settlement is money the insured had no right to possess in the first place. Whatever caused the alleged underfunding, the remedy would be for a municipality to contribute money that it was legally required to contribute all along. Even if the outcome of the firefighters’ suit required the municipality to move amounts earmarked for other uses or to collect more taxes, the municipality would not suffer a loss under the policy because it would still only be paying an amount offset by a benefit it had already received -- either having use of extra tax money or having ability to collect fewer taxes. Were the rule otherwise, the municipality could avoid its pension fund obligations entirely by levying no taxes and making no contributions. It would be absurd to think that in such a situation, the effect of a court finally requiring the municipality to make contributions would be a covered loss that the insurance company was required to cover. St. Paul Fire and Marine Insurance Company v. Village of Franklin Park, Case No. 06-2924 (U.S. 7th Cir., April 23, 2008).


The Department of Labor’s ERISA Advisory Council has released final reports of the 2007 working groups on participant benefit statements, financial literacy for plan participants and multiemployer plan expenses. The reports include several recommendations. The benefit statement group recommends development of a model pension benefits statement that inspires sponsors to add information and education without crossing the “advice” threshold. The plan expenses group recommends that DOL propose regulations permitting multiemployer plans to pay for professional services that would generally be deemed settlor functions (for example, plan design, merger, amendment and termination) without requiring that such activities be artificially characterized as fiduciary functions. The financial literacy group makes the following recommendations:

1. Make Best Practices Available to Plan Sponsors. For plan sponsors that wish to craft their own program, a best practices grid would point to core literacy skills needed for a successful retirement. The Working Group recommends that the Department of Labor determine and publish best practices for the plan sponsor and fiduciaries to consider for use in educating plan participants with a focus toward increasing financial literacy

2. Draw Attention to Publications Already in Existence. For plan sponsors that wish to incorporate generic material to accomplish literacy, heightened awareness of existing material is needed. The Working Group recommends that the Department of Labor publish and continue to publish information and provides information regarding the unique needs and requirements for managing finances in retirement.

3. Update, Expand and Amend 96-1. The Working Group recommends that the Department of Labor expand the reach of IB 96-1 by changing and updating it. As innovation continues in the financial marketplace, educational initiatives will need to address items heretofore not necessarily addressed in 96-1. That Interpretative Bulletin needs to address information, education, and advice in the de-accumulation stage as well as the accumulation phase. Further, as innovation continues in this area, 96-1 needs to be updated continually.

4. Coordinate and Bring Together Government Agencies, Private Sector and the Academic World. The Working Group recommends that the Department of Labor initiate, engage and facilitate interaction with regulatory agencies, self-regulatory organizations, industry trade groups and academic institutions like Financial Industry Regulatory Authority, Investment Company Institute, National Association of Insurance Commissioners, IRS, SEC, Health and Human Services Department and Department of Education for the purpose of creating "partnerships" of common understanding, materials and resources that employers, plan sponsors and fiduciaries can draw upon to increase financial literacy of employees and plan participants.

5. Encourage and Allow Use of Income Replacement Formulas and Final Multiples. The Working Group recommends that the Department of Labor encourage, allow and facilitate plan communications that use retirement income replacement formulas and final pay multiples in employee benefit statements on a personal participant basis. Plan communications should encourage participants to have a numerical goal, whether as a result of a sophisticated or elementary formula, and repeat that message. At the very least, participants should be able to determine and have access to an estimated plan account balance necessary for retirement.

ERISA Advisory Council was created by ERISA to provide advice to the U.S. Secretary of Labor. In 2007 ERISA Advisory Council formed the above working groups to study their respective issues. The reports do not necessarily represent the position of the Department of Labor.

3. MOMS WOULD “EARN” ALMOST $117,000 A YEAR:, a leading provider of on-demand compensation and talent management solutions, has announced the results of its annual Mom Salary Survey. has revised calculations to reflect the impact of company size on mom’s compensation. For 2008, has determined that the time mothers spend performing the 10 most popular “Mom job functions” would equate to an annual cash compensation of $116,805 for a stay-at-home mom and $68,405 for a working mom, down from last year’s calculations of $138,094 and $85,938. The job titles that best match a mom’s definition of her work are (in order of hours spent per week): housekeeper, day care center teacher, cook, laundry machine operator, computer operator, psychologist, facilities manager, van driver, chief executive officer and janitor. The prime mover of mom’s six-figure salary is the amount of overtime work. This year, mom’s overtime averaged 54.4 hours per week, according to the survey, stay-at-home moms work a 94.4 hour “work week” -- over half of which is overtime. Working moms reported an average 54.6 hour “mom work week,” in addition to their paying jobs. Let this piece also serve as a belated Happy Mother’s Day to all of our Mom readers, who hopefully spend a little time each week reading this newsletter.


“Every calling is great when greatly pursued.” Oliver Wendell Holmes, Jr.

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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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