Highlights
Aircraft Mechanics Fraternal Association Asks DOL and PBGC to Conduct Forensic Audit of United Airlines Pension Plan
The PBGC and its plan termination insurance protect and assume the pension obligations of troubled companies. According to the Aircraft Mechanics Fraternal Association, forensic audits should be performed and the work of parties providing financial planning should be examined to determine if those parties were partially responsible for the plans’ demise.
Airline Plans’ Underfunding Illustrates Broader Problems with the Defined Benefit Pension System
Underfunded pension plans are a symptom of the financial ills facing the airline industry.
Bank serving as trustee of IRA provides investment recommendations consistent with five model investment strategies. The Bank recommends investments among three of the bank’s mutual funds and some unrelated mutual funds. Some insurance companies provide s
Bank serving as trustee of IRA provides investment recommendations consistent with five model investment strategies. The Bank recommends investments among three of the bank’s mutual funds and some unrelated mutual funds.
Court Rules that Individual Employees of Investment Consulting Firm May Be Liable for Advice Given to Pension Plans
Investment consulting firm made recommendations to plan trustees regarding investment manager to be hired by plan. After plan lost millions, the individuals working for the consulting firm who were primarily responsible for advising the trustees regarding the investment manager were sued for providing bad investment advice.
DOL and SEC Issue Guidance Addressing Potential Conflicts of Interest of Pension Consultants
An SEC staff report issued in May 2005 raised serious questions about whether some pension consultants are disclosing potential conflicts of interest.
DOL Issues Tips for Selecting and Monitoring Plan Service Providers
The DOL prepared tips to assist business owners in carrying out their responsibility under ERISA to prudently select and monitor plan service providers.
DOL Response to Allegations that Some in Insurance Industry Have Developed a Pattern and Practice of Underreporting Commission and Fee Payments to Brokers and Agents
In response to allegations by Fortis Benefits Insurance Company that some in the insurance industry have developed a pattern and practice of underreporting commission and fee payments to brokers and agents based on incorrect interpretations of Schedule
DOL Rules that Plan Fiduciaries May Not Increase Expenses, Sacrifice Investment Returns, or Reduce the Security of Plan Benefits to Promote Collateral Public Policy Goals
After AFL-CIO officials reportedly suggested that plan fiduciaries could spend plan assets to inform plan participants about the current debate on Social Security and could hire and fire plan service providers based on the providers’ opinions on Social Security, the DOL issued an advisory opinion expressing grave concern about such statements.
ERISA Does Not Preempt State Law Claim Against First Allmerica Life Insurance Company and Its Agent for Misrepresentations in connection with the Establishment of Pension Plan
Insurance company agents recommended that small business owners set up defined benefit plan and represented that because the plan would be insured by the PBGC, they were guaranteed 100% of the spousal benefits promised under the plan.
Future of the Defined Benefit System and the Pension Benefit Guaranty Corporation
According to a forum comprised of government officials, researchers, accounting experts, members of the investment community and others, improvements should be made to the transparency and timeliness of pension plan financial information that is reported to plan participants, regulators and those who invest in the plan sponsor’s stocks and bonds.
GAO Says that DOL Has Made Improvements to Pension Enforcement Program but that Significant Challenges Remain
The Department of Labor’s Employee Benefits Security Administration (ESBA) closed about 4,400 investigations in 2004,with nearly 70% of those cases resulting in corrections of ERISA violations.
Government Actions Could Improve the Timeliness and Content of Form 5500 Pension Information
The DOL, IRS, and PBGC use the information provided on Form 5500 for as a compliance tool to identify actual and potential violations of the ERISA and the Internal Revenue Code. Currently there can be a three year lag in the release of Form 5500 information.
Plan Fiduciary Must Disclose Material Information Regarding Potential Service Providers Even If Fidcuciary is Not Participating in Decision-making About that Service Provider in order to Avoid Conflict of Interest
ERISA prohibits plan fiduciaries from acting, in his individual or other capacity, in any transaction involving the plan on behalf of a party whose interests are adverse to the plan.
Recent Experiences of Large Defined Benefit Plans Illustrate Weaknesses in Funding Rules
The Government Accountability Office (GAO) found that from 1995 to 2002 39 of the 100 largest defined benefit pension plans were less than 100% funded.
SEC Staff Study of Pension Consultants Indicates that Business Alliances among Pension Consultants and Money Managers Can Give Rise to Serious Disclosure and Conflicts of Interest Issues that Have not been Addressed
In part due to concerns that pension consultants may steer clients to hire money managers and other vendors based on the pension consultant’s other business relationships and receipt of fees from those firms, the SEC Staff conducted a study to explore risk areas relating to pension consulting. More than 50% of the pension consultants reviewed provided products and services both to plans and to money managers and mutual funds on an ongoing basis.
The Pension Benefit Guaranty Corporation and Long-Term Budgetary Challenges
The Pension Benefit Guaranty Corporation (PBGC) is experiencing significant long-term deficit and many large plans are underfunded. The PBGC is exposed to considerable risk from underfunded plans concurrently with its revenue base being threatened by the decline in defined benefit plan participation.
