Monthly Archives: August 2011

Say on Pay Sails By Shareholder Meetings

The Dodd-Frank-required rule requiring a non-binding shareholder vote on executive compensation for public companies (Say on Pay) came and went this annual meeting season without much fanfare, at least according to a BNY Mellon report

The report–studying 500 public company annual shareholder meetings–found that about two-thirds of the companies’ say-on-pay advisory votes were supported by over 95% of shareholders. Every vote reviewed by BNY Mellon garnered at least 80% of shareholder votes.

Advertisements

Watch What You Say

A federal court in Pennsylvania this week allowed part of an employee’s ERISA lawsuit to continue based on a resolution adopted by the employer’s board of directors twelve years ago despite the fact that the employer never amended the plan itself to reflect the resolution.

The employer, back in 1999, passed a resolution that recommended freezing the company’s pension plan accruals at the end of 2009 and changing the plan’s early retirement at age 55 from a Rule of 90 to a Rule of 74. In 2002, it passed a resolution actually freezing the plan at the end of 2009. In 2004, the plan administrator emailed, in response to an employee’s question about when the Rule of 74 would take effect, that

[T]he Board formalized its intention in the 1999 resolution, and I really can’t see them going back on it. It wouldn’t be honorable—and probably would be actionable. Bottom line, I truly believe that the rule of 74 will be put in place some time between now and 2009 and the necessary money put into the plan.

The plan was never formally amended and the plan administrator denied an employee’s early retirement using a Rule of 74.

The court dismissed the employee’s claim that the plan itself entitled her to benefits under the Rule of 74 calculation. But it held that the employee’s claim to reform the terms of the plan to conform with the Rule of 74 could continue, citing the recent U.S. Supreme Court case of CIGNA v. Amara, which affirmed that employees could sue to change plan terms inconsistent with legally required disclosures provided to employees.

While it’s too early to tell what will eventually happen, the case sends a clear warning: if you’re going to change your plan, do it; if not, don’t tell participants you are.

When Compensation Is Not “Compensation”

The IRS’s Summer 2011 Retirement News for Employers points out a perhaps uninteresting but important issue: what counts as “compensation” for purposes of your company’s retirement plans?

A plan has to define “compensation” for purposes of, among other things, calculating salary deferrals, employer matching contributions, and discretionary contributions. For example, a plan may provide that an employee can defer up to 6% of his or her “compensation” each year with a discretionary employer contribution of 3%. Here’s the rub: compensation can mean different things for each type of contribution–the employee deferral definition of “compensation” may include bonuses and commissions while the definition of discretionary contribution “compensation” may include only the employee’s base salary. It’s critically important, then, to make sure that you’re making the correct contributions to your plans; an operational failure could lead to a dreaded plan disqualification and resulting taxation.

The good news, however, is that employers who catch these errors on their own can generally correct them through the IRS’s Employee Plans Compliance Resolution System, or EPCRS. While EPCRS can be complicated–and can involve paying a fee–it’s much better than being corrected the hard way.

4th Circuit Okays Termination of Post-Retiree Health Benefits

The 4th Circuit in a published opinion released yesterday affirmed the longstanding rule that companies can freely terminate their post-retiree, ERISA-governed health benefits as long as there is no contractual obligation to continue them.

Citing escalating healthcare costs, New Century Aluminum modified or terminated its post-retiree health benefits for some retirees in 2007. Predictably, they sued, arguing that collective bargaining agreements guaranteed their right to continued coverage. Relying on the durational language of the agreements–and even despite the lack of an express provision securing the right to terminate post-retiree benefits–the 4th Circuit ruled that the retirees could not show they had a likelihood of success on the merits to grant the injunction the retirees were seeking.

However, with or without bargaining agreements, employers should still include an explicit provision in any post-retiree health plan that the retirees have no vested right to continued coverage and that benefits may be terminated at any time.

Care Needed When Revamping Employer Group Health Plans

A new study from the National Business Group on Health has found that, among large employers, more than half plan on raising their employees’ share of premium contributions in 2012 given escalating healthcare costs.

However, any employer that plans on raising employee contributions has to keep in mind the Affordable Care Act’s new requirement that fully insured group health plans not discriminate in favor of highly compensated employees, meaning that lower-paid employees must be eligible to receive the same benefits as highly compensated employees under the health plan. The problem: no one really knows what that means–including the IRS. With steep penalties for violation, the IRS has delayed enforcement of penalties for discriminatory, fully insured group health plans, seeking more guidance on how exactly those rules should operate.

One major issue still outstanding is whether employers may contribute more toward the premiums of highly compensated employees compared to nonhighly compensated employees. For example: can an employer pay all of its executive employees’ health insurance premiums but only half of lower-level employees’ premiums?

The overdue IRS guidance will hopefully clarify some of these questions; in the meantime, the only good news is that no one else knows what to do either.

EEOC Sues Defense Contractor for Employees’ Stereotype-Based Harassment

The EEOC on Wednesday sued defense contractor DynCorp International in the Eastern District of Virginia for its employees’ alleged harassment after out-of-court settlement talks failed.  The basis: male employees harassing a male coworker who didn’t fit the typical gender stereotype of a man. From the EEOC’s press release:

According to the EEOC’s complaint,  from October 2006 through January 2007, James Friso, an aircraft sheet  metal/structural mechanic working in Taji,  Iraq, was  subjected to harassment based on his sex by a male co-worker. The lawsuit alleges the harassment included  daily derogatory sex-based comments, accusations that Friso is gay and engaged  in homosexual acts, and descriptions of homosexual acts. Friso, who is heterosexual, is 5’4” and of  small stature. He is married, and the  co-worker knew that Friso is married and is not homosexual.

The lawsuit alleges that despite this knowledge, the harasser subjected  Friso to the harassment because Friso did not match the gender stereotype for a  man. Although Friso complained to  DynCorp’s management and human resources representatives about the co-worker’s  unwelcome and offensive conduct, the harassment continued until Frisco was  transferred to another work site. The  complaint alleges that Friso’s transfer was in retaliation for his complaints  about the harassment.

With the ever-widening scope of claims, employers must take all harassment complaints seriously and take meaningful action to remedy it before it grows into a bigger–and more expensive–problem.

The EEOC press release is here.