Articles Tagged with retirement

Multiple sclerosis (MS) is a potentially disabling disease of the brain and spinal cord (central nervous system). In MS, the immune system attacks the protective sheath (myelin) that covers nerve fibers and causes communication problems between your brain and the rest of your body. Eventually, the disease can cause permanent damage or deterioration of the nerves.

Signs and symptoms of MS vary widely and depend on the amount of nerve damage and which nerves are affected. Some people with severe MS may lose the ability to walk independently or at all, while others may experience long periods of remission without any new symptoms. While there is no cure for MS, treatments can help speed recovery from attacks, modify the course of the disease, and manage symptoms.

The National MS Society estimates that more than 2.3 million people have a diagnosis of MS worldwide and approximately 1 million people over the age of 18 in the United States have a diagnosis of MS.

When a plan participant is denied a retirement plan benefit, he is required under ERISA to ask the plan, usually through a plan administrator or other fiduciary, to review the denial before he can file a complaint in court. This is referred to as exhausting the plan’s administrative remedies. These administrative remedies and procedures that a plan participant must follow are laid out in the governing plan document and in the summary plan description. This process allows the plan administrator to reconsider its position with perhaps additional information, explanation or evidence. Once the participant gets to a “final” denial, he can then file a complaint in court. Typically, a claim is filed when a participant believes he is entitled to a benefit, or more of a benefit, and the plan tells him he is not. However, when a plan participant believes a fiduciary to the retirement plan has breached a fiduciary duty under ERISA, the question of whether a participant must exhaust the plan’s administrative remedies is unresolved and depends on the jurisdiction where the case is filed.

While the majority of courts of appeals and district courts have found no requirement to exhaust administrative remedies for breaches of fiduciary duty claims, there are two circuits that have ruled the opposite. In a fairly recent case, Fleming v. Rollins, Inc., No. 19-cv-5732 (N.D. Ga. Nov. 23, 2020), the Eleventh Circuit confirmed again its minority stance that exhaustion is required for breach of fiduciary duty claims. Citing Bickley v. Caremark RX, Inc., 461 F.3d 1325, 1328 (11th Cir. 2006). The Second Circuit, on the other hand, has not yet directly addressed the question; however, numerous circuit courts within the Second Circuit have routinely found no exhaustion requirement for breach of fiduciary duty claims.

To be sure, this is not deterring defense attorneys from bringing motions to dismiss on the basis of failure to exhaust. In the decision, Savage v. Sutherland Global Services, Inc., 2021 WL 726788 (W.D.N.Y., 2021) defendants argued exhaustion was required for statutory ERISA claims because the exhaustion requirement is specifically written into the plan document. The court was not impressed with the argument explaining “while plan fiduciaries may have expertise in interpreting the terms of the plan itself, statutory interpretation is the province of the judiciary.” Savage at 4, quoting De Pace v. Matsushita Elec. Corp. of America, 257 F.Supp.2d 543, 557 (E.D.N.Y. 2003).

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.

Undeterred by a federal court’s recent ruling striking down most of a Department of Labor regulation that allowed small employers and sole proprietors to band together to form association healthcare plans (AHP), DOL is giving top priority to finalizing a rule that will do much the same thing on the pension side.  The proposed pension rule, which was published last October, is aimed at increasing the abysmally low retirement savings by employees of small businesses, whose employers more often than not do not offer pension plans, a laudable goal.  As proposed, the rule expands the definition of “employer” in ERISA to allow unrelated employers and sole proprietors that are in the same general line of business, or in the same State or geographic area, to participate in a pension plan sponsored by an employer group, association or professional employer organization.  DOL has said that it is aiming to release the final rule in June.

If the final rule looks mostly like the proposal, it is hard to say whether it would be a good thing or a bad thing for employees overall.  Unlike the AHP regulation, which was seen by many as a fairly blatant attempt to undermine key consumer protections of the ACA, the pension proposal seems genuinely aimed at increasing the availability of such plans for more small businesses and not at undermining any of the protections of federal law.  In fact, in its proposed form, the rule does not go as far as some industry professionals had wanted in expanding who may sponsor such plans, and it expressly prohibits financial services professionals – banks, insurance companies, broker-dealers, third-party administrators and the like – from sponsoring these plans.  And it remains to be seen if, in issuing the final rule, DOL tightens the requirements for the sponsoring organizations by, for instance, mandating a minimum number of years of experience, staffing qualifications and capital reserves, as some commenters have urged.  But, however well-intentioned the approach, by allowing unrelated employers and business owners with no employees to join association retirement plans, the rule cannot be easily squared with the employment-based context of ERISA.  It takes precisely the approach that DOL took in its AHP regulation, and it is likely to be challenged in the same court and to suffer the same fate.  Stay tuned for updates.

The attorneys at Kantor & Kantor keep up to date on issues such as these so we can better protect our clients.  For more information, please contact an attorney at at 800-446-7529 or use our online contact form.

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