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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. 21: November 7, 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:
The John Marshall Law Review
Symposium on the Future of Employee Benefits Law
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NEW and FORTHCOMING ARTICLES
"A Primer on the Taxation of Executive Deferred Compensation
Plans"
The John Marshall Law Review, Vol. 35, No. 4, pp. 487-538,
Summer 2002
KATHRYN J. KENNEDY
John Marshall Law School
"Another Look at 401(k) Plan Investments in Employer Securities"
The John Marshall Law Review, Vol. 35, No. 4, pp. 539-564,
Summer 2002
SUSAN J. STABILE
St. John's University
School of Law
"Pension Simplification"
The John Marshall Law Review, Vol. 35, No. 4, pp. 565-632,
Summer 2002
DAVID A. PRATT
Albany Law School
"Phased Retirement Programs for the Twenty-First Century
Workplace"
The John Marshall Law Review, Vol. 35, No. 4, pp. 633-672,
Summer 2002
PAMELA PERUN
Urban Institute
"Women and Pension Reform: Economic Insecurity and Old Age"
The John Marshall Law Review, Vol. 35, No. 4, pp. 673-708,
Summer 2002
LORRAINE A. SCHMALL
Northern Illinois University
College of Law
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EDITORIAL POLICIES
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N E W and F O R T H C O M I N G Articles
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"A Primer on the Taxation of Executive Deferred Compensation
Plans"
The John Marshall Law Review, Vol. 35, No. 4, pp. 487-538,
Summer 2002
BY: KATHRYN J. KENNEDY
John Marshall Law School
Contact: KATHRYN J. KENNEDY
Email: Mailto:7kennedy@jmls.edu
Postal: John Marshall Law School
315 South Plymouth Court
Chicago, IL 60604 UNITED STATES
Phone: 312-427-2737 ext. 515
ABSTRACT:
The Enron scandal has piqued Congress' interest regarding the
particulars of executive deferred compensation plans. While
Enron's rank-and-file employees, participating in the company's
qualified profit sharing plan, watched their life savings
plummet in value as the company stock collapsed, Enron
executives were selling off their company stock, and receiving
bonuses and making withdrawals from their executive compensation
plans. With respect to these executive deferred compensation
plans, how could these insider Enron executives withdraw massive
amounts of deferred compensation in advance of their company's
bankruptcy, draining the employer's assets from its creditors?
What were the provisions of these executive compensation plans?
Were the particulars of these plans readily available to Enron's
shareholders and employees, and to the public at large? The
answers to these questions were not readily available when
Congress inquired, which obviously caused even greater concerns.
A variety of legislative proposals have been discussed ranging
from corporate governance to tax law changes.
The author was asked to testify before the Senate Finance
committee in April 2002 on the tax aspects of executive deferred
compensation plans, inquiring how such plans are designed to
avoid current taxation to its participants. By late June 2002,
the Democrats in Congress initiated a new "corporate governance"
legislation that proposed to alter the taxation of executive
compensation plans, but only for those plans funded with
employer stock. While the Enron executives clearly help company
stock, which was sold in advance of the company's bankruptcy, it
is not clear whether their executive deferred compensation plans
used employer stock as the basis for payment. The Senate Finance
Committee proposed legislation in mid-July, tightening the tax
rules applicable to executive compensation plans in an effort to
prevent future Enron-type scandals. This article is a by-product
of the oral and written testimony provided by the author to the
Senate Finance Committee in April. It is intended to summarize
the existing tax rules applicable to these plans and to
recommend whether tax legislation post-Enron is warranted or
appropriate. Certainly corporate governance initiatives should
be encouraged as a result of Enron; however the author questions
relying on the federal tax code to cure Enron's woes as the best
avenue.
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"Another Look at 401(k) Plan Investments in Employer Securities"
The John Marshall Law Review, Vol. 35, No. 4, pp. 539-564,
Summer 2002
BY: SUSAN J. STABILE
St. John's University
School of Law
Contact: SUSAN J. STABILE
Email: Mailto:stabiles@stjohns.edu
Postal: St. John's University
School of Law
8000 Utopia Parkway
Jamaica, NY 111439 UNITED STATES
ABSTRACT:
In Another Look at 401(k) Plan Investments in Employer Services,
Professor Susan Stabile argues that more regulation of 401(k)
plan investment in employer securities is warranted and that
something more than expanded disclosure and education is
required. This article explores the basis for that conviction
and expands on some of her earlier work in the wake of the Enron
and other related debacles.
A growing emphasis on employee stock ownership is evident in
recent years, owing to the belief of employers and investors
that employee stock ownership enhances worker productivity and
motivation by giving employees a stake in the performance of the
company. In addition, managers have viewed favorably employee
stock ownership. However, Stabile points out that building a
retirement savings around a single company stock creates a
tremendous risk to retirement security. Given the inherent risk
associated with heavy 401(k) investment in employer securities,
Stabile questions the wisdom of an employee's decision to invest
such a large percentage of their retirement savings in that
manner. The author offers several explanations for such heavy
plan investments in employer securities, including context
dependence, optimistic bias, loyalty, and pressure. Given these
explanations for such heavy 401(k) investment in employment
securities, Stabile reasons that improved educated is unlikely
to be effective in reducing the concentration of employer
securities in participants' 401(k) accounts. Stabile also points
out that ERISA provides very little protection from the
consequences of over investment in employer securities.
Stabile concludes with a sober warning: an unacceptable
environment of risk has been created wherein large numbers of
employees will retire with account balances that will provide
them with insufficient savings to support them during their
retirement. She concludes that notwithstanding this danger,
Congress appears intent on preserving individual freedom to
invest in employer securities without adequate safeguards.
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"Pension Simplification"
The John Marshall Law Review, Vol. 35, No. 4, pp. 565-632,
Summer 2002
BY: DAVID A. PRATT
Albany Law School
Contact: DAVID A. PRATT
Email: Mailto:dprat@mail.als.edu
Postal: Albany Law School
80 New Scotland Avenue
Albany, NY 12208 UNITED STATES
Phone: 518-472-5870
ABSTRACT:
Professor David A. Pratt, in his article, Pension
Simplification, has described the rules for traditional defined
benefit pension plans as especially complex. He states that,
given the well-documented financial problems facing the Social
Security system as the "baby boomer" generation begins to
retire, a strong private pension system, to supplement
Social Security, is extremely important. The current federal
pension rules, he notes, are largely the product of the
Employee Retirement Income Security Act of 1974 (ERISA), a
statute which made many worthwhile changes, but
was enacted in response to the very different economic and
social conditions of the mid-1960's. Pratt opines that
subsequent pension legislation has rarely represented good
pension policy and that generally, such legislation has been
revenue-driven or inspired by a desire to thwart the selfish
machinations of highly compensated business owners and
executives.
Pratt notes that Congress's Joint Committee on Taxation, in a
major study of tax simplification generally, included numerous
recommendations for simplification of the rules governing
qualified pension plans. Pratt discusses those issues covered in
the study, and suggests that the new rules stemming from its
recommendations, though less complex, are still very difficult
to work with in certain respects, even for participants and
beneficiaries who have access to expert advice. He also
discusses simplification proposals not included in the J.C.T
study, such as the number of different types of defined
contribution plans, minimum funding rules, and the need for all
retirement plans and IRAs to be subject to a uniform set of
distribution rules.
Pratt also outlines recent proposals to simplify or reform the
federal pension laws, emanating from legislators, interest
groups, practitioners, economists and others, which he feels
include many promising ideas. These proposals include the
implementation of voluntary investment choices, a "universal
pension", reforms to employer sponsored plans, government
financed plans, matching credits, the jettisoning of complicated
Treasury Regulations, a requirement that a qualified pension
plan must cover all employees, and various combinations of the
above.
In conclusion, Professor Pratt suggests that private pension
systems in the United States, and in all other industrial
nations, will face unprecedented challenges during the next
thirty years. These challenges, resulting from the aging of the
population and the resulting financial pressures on Social
Security and Medicare, heighten the need for pension
simplification.
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"Phased Retirement Programs for the Twenty-First Century
Workplace"
The John Marshall Law Review, Vol. 35, No. 4, pp. 633-672,
Summer 2002
BY: PAMELA PERUN
Urban Institute
Contact: PAMELA PERUN
Email: Mailto:pamela@planetnow.com
Postal: Urban Institute
2100 M Street, NW
Washington, DC 20037 UNITED STATES
Phone: 510-644-9410
ABSTRACT:
The notion that our laws and regulations should be designed to
facilitate phased retirement represents a 180-degree shift in
traditional benefits thinking. For decades, employers have
looked for benefits tools to ease older workers out of the
workforce. This paper examines how today's legal apparatus
discourages later retirement and inhibits flexible work
arrangements with less than full-time work. The first section
describes the three laws governing employee benefits - the Tax
Code, ERISA and the Age Discrimination in Employment Act - and
discusses their features which most conflict with the objectives
of phased retirement programs. It also describes how similar
issues were resolved for early retirement programs a decade ago.
The next section reviews existing studies of phased retirement
programs and discusses various employer strategies, including
the deferred retirement option plans popular among public
employers. The paper then reviews some of the potential
drawbacks for employees and describes an innovative alternative
developed for tenured faculty. In the final section, a number of
policy options - from relatively easy to accomplish regulatory
changes to more extensive statutory reforms permitting
innovative designs and safe harbor plans for older workers - are
considered. The paper concludes by noting that phased retirement
programs may revisit the treatment of part-time work under ERISA
and thereby serve as a vanguard for more flexible benefits
policies to meet the needs of the twenty-first century
workplace.
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"Women and Pension Reform: Economic Insecurity and Old Age"
The John Marshall Law Review, Vol. 35, No. 4, pp. 673-708,
Summer 2002
BY: LORRAINE A. SCHMALL
Northern Illinois University
College of Law
Contact: LORRAINE A. SCHMALL
Email: Mailto:l10las1@wpo.cso.niu.edu
Postal: Northern Illinois University
College of Law
DeKalb, IL 60115 UNITED STATES
Phone: 815-753-0480
ABSTRACT:
In her article entitled Women and Pension Reform: Economic
Insecurity and Old Age, Professor Lorraine Schmall laments about
the plight of women's economic security as they age. Despite all
the talk about Social Security insolvency and fears of aged
poverty, over the last fifteen years, the private supplemental
pension coverage rates have remained fairly stable. The author
observes that women make less than men during their working
lives, and, therefore, have much less than men when they are too
old to work. Her concern is that pension policies, practices,
and laws that do not recognize and compensate for women's
immutable differences perpetuate not only discrimination, but
the reality of poverty for older women for generations to come.
The author reviews statistics that support the claim that wage
discrimination may be rationalized based upon objective,
observable differences between genders as well as discrimination
against women's occupations. Her analysis reveals that future
societal changes are unlikely to address adequately the
immediate needs of older women. She notes important political
and philosophical differences between the genders where women
favor government because they rely on these programs as an
important source of financial support, whereas men negatively
view such programs as the primary source of higher taxes. The
author makes the noted observation that women are not paid the
same as men for equal work. She emphasizes that pensions have
become more important, especially in light of the budgetary
pressures on the Social Security System and increase in the
population of older people.
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