E M P L O Y E E B E N E F I T S , C O M P E N S A T I O N
& P E N S I O N L A W
Vol. 3, No. 18: September 26, 2002
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Publisher: LSN Employment, Labor, Compensation & Pension Journals
a division of
Social Science Electronic Publishing, Inc. (SSEP)
and Social Science Research Network (SSRN)
Editor: PAMELA PERUN
Urban Institute
Mailto:pamela@planetnow.com
Copyright: SSEP, Inc. 2002. All rights reserved.
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Topic of This Issue:
ERISA and Tax Issues
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T A B L E of C O N T E N T S
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NEW and FORTHCOMING ARTICLES
"The Cost and Duration of Cash-Balance Pension Plans"
Financial Analysts Journal, Vol. 57, No. 6,
November/December 2001
DAVID BROWN
University of Florida
Department of Finance, Insurance & Real Estate
PHILIP H. DYBVIG
Washington University, St. Louis
John M. Olin School of Business
WILLIAM J. MARSHALL
NISA Investment Advisors, L.L.C.
"Consumers Versus Managed Care: The New Class Actions"
Health Affairs, July/August 2001
CLARK C. HAVIGHURST
Duke University School of Law
"Value of Benefits Constant in a Changing World: Findings from
the 2001 EBRI/MGA Value of Benefits Survey"
EBRI Notes, Vol. 23, No. 3, March 2002
RACHEL CHRISTENSEN
Employee Benefit Research Institute (EBRI)
"Split Dollar Arrangements: A Beleaguered Technique"
Journal of Taxation of Investments, Vol. 20, No. 1, Autumn
2002
MARY ANN MANCINI
Steptoe & Johnson LLP
Washington, D.C. Office
"Judicial Standard of Review in ERISA Benefit Claim Cases"
American University Law Review, Vol. 50, p. 1083, 2001
KATHRYN J. KENNEDY
John Marshall Law School
WORKING PAPERS
"Does the Balance of Power Within a Family Matter? The Case of
the Retirement Equity Act"
SAKU AURA
Bocconi University
CESifo (Center for Economic Studies and Ifo
Institute for Economic Research)
S S R N I N F O R M A T I O N
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N E W and F O R T H C O M I N G Articles
_________________________________________________________________
"The Cost and Duration of Cash-Balance Pension Plans"
Financial Analysts Journal, Vol. 57, No. 6,
November/December 2001
BY: DAVID BROWN
University of Florida
Department of Finance, Insurance & Real Estate
PHILIP H. DYBVIG
Washington University, St. Louis
John M. Olin School of Business
WILLIAM J. MARSHALL
NISA Investment Advisors, L.L.C.
Contact: DAVID BROWN
Email: Mailto:FAJ@AIMR.ORG
Postal: University of Florida
Department of Finance, Insurance & Real Estate
P.O. Box 117168
Gainsville, FL 32611-7168 UNITED STATES
Co-Auth: PHILIP H. DYBVIG
Email: Mailto:DYBVIG@DYBFIN.OLIN.WUSTL.EDU
Postal: Washington University, St. Louis
John M. Olin School of Business
One Brookings Drive
Campus Box 1133
St. Louis, MO 63130-4899 UNITED STATES
Co-Auth: WILLIAM J. MARSHALL
Email: Mailto:faj@aimr.org
Postal: NISA Investment Advisors, L.L.C.
150 N. Meramec Avenue
Suite 640
St. Louis, MO 63105 UNITED STATES
Paper Requests:
Contact Kathryn Dagostino, Associate, Mailto:kld@aimr.org
Postal: AIMR, Educational Products, 560 Ray C. Hunt Dr.,
Charlottesville, VA 22903. Phone: 804-591-5393. Fax:
804-951-5370. Fee $25.
ABSTRACT:
Controversy about the fairness of early transitions from
traditional defined-benefit plans to cash-balance plans may have
overshadowed the subtleties of funding a cash-balance pension
liability. Because crediting rates of cash-balance liabilities
float with market rates, the same techniques used to value and
hedge floating-rate bonds provide the present value cost and
effective duration of a cash-balance liability. The
present-value cost of funding a liability varies dramatically
across the menu of IRS-sanctioned crediting alternatives. For
example, given the yield curve from November 15, 1999, the
present value per $1.00 of cash balance of funding a liability
paying off 30 years from now varies between $0.90 and $1.48. The
effective duration of a cash-balance liability also varies
dramatically according to various crediting rates; the effective
duration is typically positive but much shorter than the
expected time until retirement or other payment and, depending
on the choice of crediting rate, can vary by a factor of five or
so. These findings are useful for comparing the costs of plans,
for comparing how various groups are treated in a plan
conversion, or for evaluating the riskiness of any mismatch
between assets and liabilities for various funding alternatives.
JEL Classification: G12, M41
______________________________
"Consumers Versus Managed Care: The New Class Actions"
Health Affairs, July/August 2001
BY: CLARK C. HAVIGHURST
Duke University School of Law
Paper ID: Duke Law School, Public Law Research Paper No. 19
Contact: CLARK C. HAVIGHURST
Email: Mailto:HAV@LAW.DUKE.EDU
Postal: Duke University School of Law
Corner Science & Towerview
Box 90360
Durham, NC 27708 UNITED STATES
Phone: (919) 613-7061
Fax: (919) 613-7231
ABSTRACT:
The plaintiffs in pending consumer class-action lawsuits against
health maintenance organizations (HMOs) contest the legality of
certain practices of managed care plans and seek far-reaching
relief, including both money damages and injunctions shaping the
way modern health plans conduct their businesses. The plaintiffs
should fail in their claims for damages for consumer fraud under
federal racketeering legislation because the circumstances in
which HMOs introduced cost controls into a market previously
lacking them suggest motives not deserving punitive sanctions.
But courts could easily find that HMOs violated the Employee
Retirement Income Security Act (ERISA). Not only have HMOs
arguably breached their duty as ERISA fiduciaries to disclose
their business methods (including their relationships with
physicians), but they also have not strictly honored their
generous contractual promises with respect to coverage.
Injunctive relief compelling more extensive disclosures and
clearer contracts with subscribers might legitimize HMOs'
methods and generally improve the performance of the health care
marketplace.
Keywords: health maintenance organizations, class actions,
consumers, health law, ERISA
JEL Classification: I1, I11, K1, K2, K32, K42
______________________________
"Value of Benefits Constant in a Changing World: Findings from
the 2001 EBRI/MGA Value of Benefits Survey"
EBRI Notes, Vol. 23, No. 3, March 2002
BY: RACHEL CHRISTENSEN
Employee Benefit Research Institute (EBRI)
Document: Available from the SSRN Electronic Paper Collection:
http://papers.ssrn.com/paper.taf?abstract_id=307245
Contact: RACHEL CHRISTENSEN
Email: Mailto:CHRISTENSEN@EBRI.ORG
Postal: Employee Benefit Research Institute (EBRI)
Suite 600
2121 K Street, NW
Washington, DC 20037-1896 UNITED STATES
Phone: (202) 775-6330
Fax: (202) 775-6312
Note: The PDF for the above title also contains the full-text
of another EBRI Notes article abstracted on SSRN:
"Pension Plan Participation Continued to Rise in 2000 -
What Next?"
Paper Requests:
Contact Alicia Willis at Mailto:publications@ebri.org, or 2121 K
St., NW, Suite 600, Washington, DC 20037-1896.
Phone:(202)572-7422, Fax:(202)775-6312. Full-Text downloads are
available from SSRN Online for $7.50.
ABSTRACT:
The 2001 EBRI/MGA Value of Benefits Survey finds that American
workers' preferences for various employee benefits, and for
employee benefits in general, changed little between 1999 and
2001, despite the economic downturn and the terrorist attacks in
September, 2001. In 2001, 77 percent of workers reported that
the benefits that a prospective employer offers are very
important in their decision to accept or reject a job, nearly
unchanged from 79 percent in 1999. Employees also continue to
rank health insurance as the most important benefit: 60 percent
of workers rated it as number one in 2001, down slightly from 64
percent in 1999. Twenty-three percent of workers ranked
retirement savings plans, such as 401(k)s, as the most important
benefit in 2001, up from 21 percent in 1999.
Keywords: Employee benefit attitudes and opinions,
Employment-based benefits
JEL Classification: J32
______________________________
"Split Dollar Arrangements: A Beleaguered Technique"
Journal of Taxation of Investments, Vol. 20, No. 1, Autumn
2002
BY: MARY ANN MANCINI
Steptoe & Johnson LLP
Washington, D.C. Office
Contact: MARY ANN MANCINI
Email: Mailto:mmancini@steptoe.com
Postal: Steptoe & Johnson LLP
Washington, D.C. Office
1330 Connecticut Avenue, N.W.
Washington, DC 20036 UNITED STATES
ABSTRACT:
In January 2002, Treasury and the Internal Revenue Service
issued Notice 2002-8, a notice that was considered generally
favorable for split dollar arrangements, in that it
grandfathered a great many split dollar arrangements that were
in existence or implemented prior to January 28, 2002. The rules
under this Notice for arrangements that were not grandfathered,
although not as generous, were generally seen as workable, with
a few issues, until the issuance of final regulations. The final
regulations, the Notice warned, would be even less generous, and
would impose a system of two mutually exclusive regimes of
taxing split dollar arrangements, the "economic benefit regime"
and "loan regime." On July 3rd, the Service and Treasury issued
the anticipated Proposed Regulations setting forth the system of
taxation that governs split dollar arrangements entered into
after the date of the Final Regulations. These Regulations were
much worse than expected and imposed new levels of taxation on
the parties to a split dollar arrangement that had not
previously existed. Only July 28th, an article appeared in the
New York Times discussing a form of split dollar arrangement
that permitted the transfer of large amounts of assets to the
insured's family at little or no gift tax, utilizing a loophole
in the Service's previously issued Revenue Rulings, which was
not completely closed by Notice 2002-8. On August 16th, the
Service and Treasury issued Notice 2002-59, to prohibit what is
referred to in the Release to the Notice as an abusive tax
avoidance transaction using split dollar life insurance. In a
New York Times article dated August 17th, the reporter stated
that Treasury acted after being sent a copy of the July 24th New
York Times article by Rep. Lloyd Doggett (Tx-D). On July 30th,
Congress passed the Sarbanes-Oxley Bill, which President Bush
subsequently signed into law. This new law prohibits loans and
other "extensions of credit" by any publicly traded company to
its executives after July 30, 2002. When the Bill was reviewed
prior to passage, the possibility of the inclusion of split
dollar transactions in the prohibition against extension of
credit and loans was raised with Senator Sarbanes, who refused
to rule out the possibility (although at the same time admitting
that Congress had not considered the implications to split
dollar arrangements), which would terminate split dollar
arrangements between publicly traded companies and their
executives. Until the words "extension of credit," as they
appear in the Sarbanes-Oxley bill, are explained, no publicly
traded company should enter into a new split dollar arrangement
with any of its executives, whether or not it is an economic
benefit arrangement, and certainly not using a loan arrangement.
This article discusses developments in this area, and current
planning possibilities.
______________________________
"Judicial Standard of Review in ERISA Benefit Claim Cases"
American University Law Review, Vol. 50, p. 1083, 2001
BY: KATHRYN J. KENNEDY
John Marshall Law School
Document: Available from the SSRN Electronic Paper Collection:
http://papers.ssrn.com/paper.taf?abstract_id=317020
Contact: KATHRYN J. KENNEDY
Email: Mailto:7kennedy@jmls.edu
Postal: John Marshall Law School
315 South Plymouth Court
Chicago, IL 60604 UNITED STATES
ABSTRACT:
The federal law known as the Employee Retirement Income Security
Act of 1974 (ERISA) provides protection for participants'
employee benefits and prescribes a uniform set of requirements
for employers in the voluntary delivery of such benefits.
Unfortunately the statute is silent regarding the judicial
standard of review in ERISA litigation cases. The Supreme Court
in Firestone Tire & Rubber Co. v. Bruch rendered the de novo
standard as the presumed standard of review in benefit denial
cases. This allows the court to substitute its decision for that
of the plan administrator. The ability to second-guess the
findings of a plan administrator can cause unexpected
administrative and substantives consequences for employers
maintaining these plans. The federal courts have fashioned a
common law alternative to the de novo standard permitting plan
administrators, in certain circumstances, a more deferential
review. However, the application of this more deferential
standard, especially in conflict of interest cases (e.g., the
employer as plan administrator of a self-funded plan), is
anything but straightforward within the various federal
circuits, either for the benefit of the participant or the plan
administrator. This article examines the discrepancy in
application of the more deferential standard by circuits and
recommends a multi-step approach for courts to use which is
consistent with ERISA's legislative intent, as well the goal of
providing a uniform and cohesive rule for employee benefit
plans.
______________________________
W O R K I N G P A P E R Abstracts
_________________________________________________________________
"Does the Balance of Power Within a Family Matter? The Case of
the Retirement Equity Act"
BY: SAKU AURA
Bocconi University
CESifo (Center for Economic Studies and Ifo
Institute for Economic Research)
Document: Available from the SSRN Electronic Paper Collection:
http://papers.ssrn.com/paper.taf?abstract_id=318352
Other Electronic Document Delivery:
http://www.CESifo.de
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Paper ID: CESifo Working Paper Series No. 734
Date: May 2002
Contact: SAKU AURA
Email: Mailto:saku.aura@uni-bocconi.it
Postal: Bocconi University
Via Sarfatti 25
I-20136 Milan, ITALY
Paper Requests:
Hardcopies For Libraries: contact Gertraud Porak, Postal: CESifo
Inc., Poschinger Str. 5, 81679 Munich, Germany.
Mailto:porak@CESifo.de
ABSTRACT:
This paper studies within-family decision making regarding
investment in income protection for surviving spouses. A change
in US pension law (the Retirement Equity Act of 1984) is used as
an instrument to derive predictions both from a simple
Nash-bargaining model of the household and from the classical
single-utility-function model of the household. This law change
gave spouses of married pension-plan participants the right to
survivor benefits unless they explicitly waived this right. The
predictions of the classical model are rejected in favor of the
predictions of the Nash-bargaining model in the data.