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3rd Quarter 2008 Executive
Summaries
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In LaRue v. DeWolff, Boberg & Associates Inc. et al., the U.S. Supreme Court recently opened the door for 401(k) plan participants to sue plan fiduciaries to recover losses to their individual accounts. The decision resolved a split in the circuit courts of appeals and held that the Employee Retirement Income Security Act of 1974 (ERISA) authorizes recovery for a fiduciary’s alleged mismanagement of a plan, even though the alleged fiduciary breach impacts only a subset of participants’ 401(k) accounts. This article analyzes the LaRue decision and concludes that it is not especially harmful to plan fiduciaries and sponsors. The authors suspect that the real impact will depend on how courts hereafter apply the varied reasoning in the majority opinion and in Chief Justice Roberts’ concurrence.
FMLA Expanded for Leaves Related to Family Members Serving in the Military
by Richard Gisonny and Stephen Douglas, Towers Perrin
On January 28, 2008, President Bush signed into law the National Defense Authorization Act for Fiscal 2008 (Public Law 110-181), which includes provisions expanding the Family and Medical Leave Act (FMLA) to require employers to provide unpaid leaves of absence for certain reasons related to family members serving in the military. Under the new law, employees will be entitled to 12 weeks’ FMLA leave per year for certain yet-tobe-defined “qualifying exigencies” related to a family member’s active military duty. In addition, employees are entitled to take 26 weeks of leave during a single 12-month period to care for a covered family member who suffers a serious injury or illness while on active military duty.
Nationwide Savings Plan Automatic Enrollment Getting Associates PREPared for Retirement
by Mark D. Swanson, CEBS, Nationwide Mutual Insurance Company and D. Bryan Farnen, Aon Consulting
Despite Nationwide’s considerable efforts, the active participation rate in its retirement plan remained mostly unchanged for many years, and the company knew its associates were not adequately preparing for retirement. Due to the passage of the Pension Protection Act of 2006, Nationwide implemented automatic enrollment and automatic increase features in the Nationwide Savings Plan (auto enroll/auto increase) in 2007.This article describes the company’s better-than-expected results for all its associates and offers advice and encouragement to other employers that may be considering adding auto enroll/auto increase features to their plans.
Work Options for Older Americans: Employee Benefits for the Era of Living Longer
by John A. Turner, Social Security and Pension Policy Consultant
Many of our social and employee benefit policies were designed for an era when people had shorter life expectancy and employers had a large cohort of younger workers to replace those retiring. In light of new demographic trends, this article examines work options for older Americans, provides an overview of benefits policy issues for an aging workforce and lists topics for further benefits policy analysis.The author also identifies policy options to facilitate work at older ages in a number of areas, including changes to employer retirement plans, Social Security, Medicare and disability policy.
Alternatives to Cash in Ensuring the Solvency of Defined Benefit Pension Funds
by Peggy Hedges, Ryan Lee and Norma Nielson, Haskayne School of Business, University of Calgary
Since 2001, even some sound corporate sponsors have faced sudden and severe negative impacts on pension plan solvency due to poor equity market performance, record low interest rates and declining mortality trends. Following an overview of key accounting changes that have occurred internationally, this article reports on legislation and regulations developing in Canada to assist plan sponsors. The authors describe different instruments of financial guarantee that might be employed and identify several areas that require additional work to enhance those instruments’ robustness and transparency.
Lessons From Pension Reform in the Americas
by Stephen Kay, Federal Reserve Bank of Atlanta and Tapen Sinha, International Center for Pension
Research
Policy makers continue to struggle to address changing demographics and aging populations amid much disagreement regarding the best path for pension reform.This article describes the social security reform efforts of several nations in the Americas, which, since Chile’s pension reform, have become a global laboratory for pension reform.
The authors review the many lessons of this new “postprivatization” era of pension policy, in which the euphoria of the initial phase of reform is clearly over and a decade or more of experience has proven pension reform to be an ongoing project.
The Future of Retirement: An Exploration and Comparison of Different Scenarios
by Anna Rappaport, Anna Rappaport Consulting
Policy makers continue to struggle to address changing demographics and aging populations amid much disagreement regarding the best path for pension reform.This article describes the social security reform efforts of several nations in the Americas, which, since Chile’s pension reform, have become a global laboratory for pension reform.
The authors review the many lessons of this new “postprivatization” era of pension policy, in which the euphoria of the initial phase of reform is clearly over and a decade or more of experience has proven pension reform to be an ongoing project.
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