Articles Posted in Pension

Pension “de-risking” sounds like a fancy term for protecting participants’ interests in their benefits. In other words, take the risk out of pension benefits. Well, not quite. Not even close. Pension de-risking is a scheme to benefit the employers who sponsor pension plans. It refers to ways in which the employer can reduce its own risk that it may not have enough assets to pay the benefits that have been promised or just reduce the expense associated with such promises. While pension de-risking is not new to the pension world, the amount of de-risking and the type of de-risking in recent years should be concerning.

There are a few ways that pension plans can reduce their risk. Older and more common methods are to amend the plan to freeze benefits, terminate the plan altogether or make a lump sum offer to eligible participants. Another de-risking strategy that has become very popular in recent years is for an employer to purchase annuities from an insurance company which then provides the monthly payments to the pensioners. This is more commonly referred to as a “buy-out.” One need only do a simple google search of the term “pension de-risking” to find a plethora of insurance companies chomping at the bit to buy-out pension liabilities.

That begs the question, “why?” Why do insurance companies want to take on these liabilities and why do employers find them attractive? Employers find annuity buy-outs attractive for a few reasons.

If you are a union employee, you probably have a pension plan that has promised to pay a monthly annuity for your life once you reach retirement age. What happens if the plan cannot pay your benefit when the time comes? Well, there’s insurance for that. Pension plan sponsors are required to pay premiums for insurance through a government run program called the Pension Benefit Guaranty Corporation (PBGC). Simply stated, this insurance kicks in if the employer cannot fulfill the promises made to the employees. When that happens, the PBGC pays the pension benefits, up to certain limits. However, the PBGC predicts that its multi-employer program, the program that covers most union-sponsored pension plans, will become insolvent before the end of 2026 and almost certainly by 2027.

To determine its potential obligations, the PBGC looks at the funding status of all multi-employer plans. Each year, pension plan are required to report their funding status to the Department of Labor if the funding levels fall below certain thresholds. For 2020, the Department of Labor website shows there were 55 plans reported to be in engaged status (less than 80% funded), 112 plans reported to be in critical status (less than 65% funded), and 61 plans reported to be in critical and declining status (reported as going insolvent within 20 years). Many of these plans are multi-employer plans and some are very large plans. Continued failure of these multi-employer pension plans is putting an enormous strain on the PBGC’s resources. In 2020, the multi-employer portion of the PBGC had a deficit of -$63.7B. Despite being able to turn around its deficit for the single employer program, the multi-employer program has had a deficit fluctuating between -$42.4B to -$65.2B since 2014.

The PBGC was designed to be self-supporting by requiring pension plans to pay premiums for the plan participants and by taking over the assets of failed pension plans. It does not receive any funding assistance from the Federal government which means that if the PBGC fails there is no other government funding for these failed pension plans and no current mechanism to support the PBGC.

Renaker Hasselman Scott and Kantor & Kantor. LLP represent a former employee of Helena du Pont Wright in litigation concerning a pension trust established in 1947 by Mary Chichester du Pont Clark. The trust provides pensions to employees of Mary Chichester du Pont Clark’s children and grandchildren, including A. Felix du Pont, Allaire Crozier du Pont, Alice du Pont Mills, Mary Mills Abel Smith, Katharine Gahagan, James Mills, Phyllis Wyeth, Christopher T. du Pont, and Michael du Pont. Positions that may be covered include household employees, secretaries, personal assistants, chauffeurs, stable hands, and grooms, among others.

The litigation seeks to ensure that the pension trust is operated in accordance with the Employee Retirement Security Act of 1974 (ERISA), the federal law that establishes standards for pension plans sponsored by private employers. In June 2019, the United States District Court for the District of Delaware ruled that the pension trust is governed by ERISA.

Generally, ERISA requires that a pension plan provide pensions to employees who work in employment covered by the pension plan for at least five years. ERISA also generally requires that a pension plan provide benefits to the surviving spouses of such employees.

Kantor & Kantor has established a regular, live, and interactive Zoom conversation to discuss generally and answer questions from the public about long-term disability, health insurance, pensions, life insurance, casualty (homeowners), and more.  BenefitsChat will be live on Wednesday evenings from 5:00 pm – 6:30 pm Pacific Time.

Host Andrew Kantor, his fellow Kantor & Kantor attorneys, and select guests will explain and discuss everything from “big picture” concepts, such as the distinctions between different ways of obtaining insurance, to case-specific concepts designed to help individuals protect their rights.

While there is always a demand for legal information, current events have created an unparalleled need for as many real, live, helping hands as are available to be lent—even if the hand can only be safely lent via webcam. This forum will give people the chance not only to learn from our attorneys and each other; but to do so within the safety and comfort of a like-minded and supportive group of individuals and their families.

The Supreme Court handed down a victory on February 26, 2020 to employees whose pension, healthcare or other benefit plans are mismanaged.  Under ERISA, the federal law that governs such plans, those who manage or administer such plans are considered fiduciaries bound by strict standards that require them to act with great care and in the interest of plan participants and their families.  If they fail to meet these requirements or otherwise violate the statute, ERISA give employees six years to sue unless they have “actual knowledge” that the plan managers or administrators violated their duties or the statutory requirements, in which case a three-year period for filing suit applies.  In Intel Corp. v. Sulyma, a unanimous Supreme Court held that Congress meant what it said and that plan participants must actually know about the fiduciary breach or violation to trigger the shorter deadline.  In that case, a pension plan participant stated that he never read financial disclosures posted by his employer on a website.  The Supreme Court held that, in those circumstances, the employee did not automatically gain “actual knowledge” of the plan’s risky investments based on these web postings and therefore his suit was timely.  This decision will ensure that ERISA works as intended so that employees and their families are not prematurely cut off from their right to file suit simply because an employer or insurance company posts information which could have led them to discover mismanagement.  Kantor & Kantor filed a friend-of-the-court brief on behalf of the Pension Rights Center supporting the employee, Mr. Sulyma, and we are very pleased with the result.

For questions about your pension, healthcare, or long-term disability benefits, please call Kantor & Kantor for a free consultation at 800-446-7529 or use our online contact form.

Kantor & Kantor Partner Elizabeth Hopkins filed an Amicus Brief in the Supreme Court on October 28, 2019 for The Pension Rights Center in support of the Ninth Circuit in Intel Corp. Investment Policy Committee et al. v. Christopher M. Sulyma  The case is about whether workers get six years or three years to sue over ERISA violations.

Please see the brief here:  18-1116bsacPensionRightsCenter

For questions on the handling of your Pension benefits, please do not hesitate to contact Kantor & Kantor for a no-cost consultation at (800) 446-7529 or use our online contact form.

Kantor & Kantor Partner Elizabeth Hopkins filed an Amicus Brief in the Supreme Court on September 18, 2019 for The Pension Rights Center in support of the petitioners in Thole v. U.S. Bank, N.A.  The case is about funding in defined benefit pension plans, constitutional standing, and when participants in these plans may sue to recover plan losses.

Please see the brief here: Thole v. U.S. Bank, N.A. Amicus Brief

For questions on the handling of your Pension benefits, please do not hesitate to contact Kantor & Kantor for a no-cost consultation at (800) 446-7529 or use our online contact form.

 

DowDuPont merger attempts to thwart DuPont’s promised pensions to employees that helped build the company.

Kantor & Kantor lawyers are representing U.S. retirees of E. I. du Pont de Nemours and Company in a class action lawsuit after a series of corporate maneuvers taken by the company over the last four years left workers’ retirement benefits in jeopardy of failing. Elizabeth Hopkins and Susan Meter are representing the proposed class action along with co-counsel.

W. Daniel “Dee” Miles, III, head of Beasley Allen’s Consumer Fraud Section, is one of the co-counsel working with our firm on the case. “Workers for DuPont have given decades of their working lives to the company to secure a pension for retirement that they were promised. These companies are now attempting to find ways to not only avoid funding the plan, but also are placing it in jeopardy of failing, leaving the workers with little or no pension after a lifetime of savings,” Miles said.

In an intensely litigated ESOP case involving 14 counts of ERISA violations, on April 22, 2019, Judge Staton, District Judge, Central District of California, certified a class of ESOP participants. The certification came after the court denied Defendants’ motions to dismiss all 14 counts. The case, as a whole, has many interesting legal issues, however, most interesting is the continued litigation of whether indemnification agreements for breaches of fiduciary duty are void.

As background, ERISA § 410 categorically voids indemnification agreements and states, in part “any provision in an agreement…which purports to relieve a fiduciary from responsibility or liability for any responsibility, obligation, or duty…shall be void as against public policy.” However, Department of Labor regulations have interpreted this to permit employer indemnification but not plan indemnification. (29 CFR 2509.75-4). The regulations also permit indemnification agreements so long as it does not relieve a fiduciary of responsibility or liability.

In 2009, we heard the first case in the 9th circuit that interpreted ERISA § 410 and its regulations, giving some clarity on the validity of indemnification agreements. In Johnson v. Couturier, 52 F.3d 1067 (9th Cir. July 27, 2009) the ESOP participants alleged defendants breached their fiduciary duties by allowing the company to pay excessive compensation to an officer who was a fiduciary to the plan. The company in Johnson was 100% ESOP owned and was in the process of liquidation. The indemnity agreement between officer-fiduciary and plan sponsor (company) provided indemnity unless due to gross negligence or deliberate wrongful acts. Despite the indemnity being paid from corporate assets, which would typically be permitted under DOL regulations, here, because the company was liquidating, the Court held that payment of indemnification by the company would reduce, dollar-for-dollar, the liquidating distribution from the plan – essentially paid by ESOP.

Your claim for pension benefits has been approved! A check came in the mail from your pension plan. You open it, look at the amount of your monthly benefit, and wonder how the dollar amount was calculated. You shrug and deposit the check, assuming the pension plan has correctly calculated what you are entitled to receive. But is it correct?

Although you may think calculating the amount of your monthly pension benefit is a simple matter of plugging some numbers into an equation based on the language in the pension plan, there are multiple ways a plan administrator can make an error when calculating the amount. According to the Department of Labor, the top ten most common errors made when calculating pension benefits are:

  1. The plan did not include all your relevant income when calculating the benefit amount. One of the variables used to calculate pension benefits is pre-retirement earnings. The higher your earnings were when you were working, the higher the amount of your pension benefit. However, if the pension plan mistakenly excludes some of your compensation – such as bonuses, commissions, or overtime – your benefit may be smaller than it should be.
Contact Information