Institutional investors want today and every day to be Earth Day

By Jerry Kalish on Posted in 401(k) Plans, Defined Benefit Pension Plans, Public Employee Plans

Last month a group of more than 60 institutional investors and asset managers with collective assets totaling more than $4 trillion, and leading publicly traded corporations, issued a climate policy call to action requesting Congress and the Federal government to take prompt action on global climate change. The coalition, called Investors and Business for U.S. Climate Action, is the first group of leading U.S. investors to issue a statement of this kind, and the first to outline the business and economic rationale for climate action.

It calls for U.S. government actions that are needed to enable the business and investment communities to reduce climate-related business uncertainty and risks and capture climate-related opportunities. The four-page statement, coordinated by Ceres and the Investor Network on Climate Risk (INCR), differs in several key ways from similar statements issued earlier this year by the U.S. Climate Action Partnership (USCAP) and the Global Roundtable on Climate Change (GroCC).

And the response to date? Not much. Ceres reports that to date there has been no response from any of the letters concerning the climate Policy Call to Action sent to President Bush, and the SEC. Against overwhelming evidence, the current government has yet to substantively address climate change risks. Every member of Congress also received a letter and so far only one has made a formal response. Massachusetts Rep. Edward Markey, Chairman of the House Select Committee on Energy Independence and Global Warming, released a press release applauding the Climate Policy Call to Action. 

Here is a link to Ceres’ press release.

Hockey, maple syrup, and dueling public employee pension funds

By Jerry Kalish on Posted in Defined Benefit Pension Plans, Public Employee Plans

Just one week after reports that the largest investor in Bell Canada was putting together a consortium to take the company over, BCE, Bell Canada’s parent, announced that it was talking about going private with another investor group.

BCE, which is widely held, has a market value of about US$26.5 billion. A buyout of the 127-year-old company would be the largest ever attempted in Canada and could cost about $US45 billion.

What makes this situation so interesting is that the rival investor groups are led by public employee retirement plans. On one side is the Ontario Teachers’ Pension Fund, the largest investor in Bell Canada, which owns 5.3%. The Fund has been openly critical of BCE’s management. On the other side is a group led by The Canada Pension Plan board which manages the funds held by Canada’s national public pension program wants a friendly takeover.

The latest negotiations may not mark the end of bidding for BCE. The Ontario Teachers’ fund said that it was still considering "leading an alternative Canadian consortium." This could include several other large Canadian funds, including one that invests for municipal workers in Ontario.

What’s old is new again. ESOPs in mergers and acquistions

By Jerry Kalish on Posted in Employee Stock Ownership Plans

First, the Chicago Tribune, and shortly thereafter financier Kirk Kerkorian has proposed using an ESOP as part of an effort to buy Chrysler.  ESOPs are now being promoted as a tax efficient way to finance leveraged buyouts. The attraction, of course, is the ability to deduct principal (and interest) and "reasonable" dividends. There was a surge of large company ESOP leveraged buyouts in the 1980s such as:

  • Avis
  • Simmons Mattress Company
  • Dan River
  • Burlington Industries
  • Polaroid

Some of these ESOPs worked. Some didn’t.  It’s too soon, of course, to see if we will return to those thrilling days of ESOP yesteryear. Corey Rosen, Executive Director of the National Center for Employee Ownership, puts these old transactions and the new transactions into perspective in his article, ESOPs in Mergers and Acquisitions: Wave of the Future?  I also included another of Corey’s commentaries in my recent post  Understanding the Tribune ESOP .

Educational institutions, 403(b) plans, and class action law suits

By Jerry Kalish on Posted in 401(k) Plans, 403(b) Plans, Public Employee Plans

Keller Rohrback, a Seattle-based law firm and one of the leaders in 401(k) class action law suits, has now turned its attention to 403(b) plans. The firm, whose website is named ERISAfraud,com, announced its investigation into ithe National Education Association (“NEA”) Valuebuilder 403(b) variable annuity plan. As background, the NEA has 3.2 million members who work in public education, and it sponsors a 403(b) plan for them. 403(b) plans are named for that section of the Internal Revenue Code which permits employees of tax-exempt organizations under Section 501(c)(3) of the Code and certain educational insitutions to set aside money for retirement on a pre-tax basis – much like 401(k) plans.

The law firm is investigating whether the NEA is endorsing the program limited only to one vendor because of the revenue it receives, or whether it made a prudent decision to endorse the product because it was in the best interest of its members. While there is no certainty that a class action law suit will be filed, don’t expect the fee issue involving the underlying funding method of 403(b) plans, variable annuities, to go away soon.

ESOPs in newspapers, what’s been the experience?

By Jerry Kalish on Posted in Employee Stock Ownership Plans

The other day I wrote about Understanding the Tribune ESOP considering the multi-faceted aspects of employee ownership. But what about the Trib’s ESOP in the context of other newspaper ESOPs? In that light, the Chicago Tribune ESOP will be a unique venture. While there have been successful newspaper ESOP models, there have been none in large newspaper chains or large daily metro papers like the Trib.

One smaller newspaper ESOP success story is the Milwaukee Journal. Alan Mutter, a former journalist now consultant to communication technology start-ups writes about the Journal in his blog, Reflections of a Newsosaur. The Journal ESOP participants struck it rich when the paper did an IPO.

Newspaper ESOPs have been done in other countries. According to Marc Mathieu, head of the European Federation of Employee Share Ownership, some major newspapers in France had a controlling employee share ownership since the 1970s or even earlier. For instance, France’s paper of record, Le Monde and Libération. And like all newspapers, they are struggling to compete against the "new media", e.g., news enabled communication devices like iPod, cell phones and Blackberrys. At both papers, employee shareholders have had their say in the management and being represented on the Boards of Directors. Which will not be the case with the Tribune.

But it’s not just the financial aspects of the deal that are important. The success of this deal also depends on whether an ownership culture will be developed.

Understanding the Tribune ESOP

By Jerry Kalish on Posted in Employee Stock Ownership Plans

The Tribune ESOP deal has generated a lot of discussion in the media. It’s a complicated deal with lots of facets and ramifications. Most of the commentary and coverage has focused on the corporate finance part of the deal. Some of the coverage has been decidedly negative with the United Airlines ESOP still in people’s mind.

However, Corey Rosen is someone who understands all aspects of the transaction which he explains in his article, An ESOP for the Tribune Company? Things to Know in Assessing the Transaction. Corey is Executive Director of the National Center for Employee Ownership, a private, nonprofit membership and research organization that serves as the leading source of accurate, unbiased information on ESOPs, equity compensation plans such as stock options, and ownership culture.

Identity theft made simple. Just leave employee retirement plan data on a laptop

By Jerry Kalish on Posted in Defined Benefit Pension Plans

The recent theft of two laptops containing information on 40,000 current and former Chicago Public School employees is another reminder that benefit plan sponsors should be asking their service providers how safe is their data. Just how vulnerable is employee payroll and benefit data? Well, if it could happen to Scotland Yard, one the world’s preeminent law enforcement agencies, from whom someone stole 3 laptops with payroll and pension data on 15,000 Met police officers, it could also happen to your retirement plan’s data.

And how did the Chicago Public School caper happen? The laptops were taken from an empty conference roome where two accountants had used them to review the payment history to the Chicago Teachers Pension Fund.

It’s almost like someone didn’t want the Pension Fund to feel slighted. Last November, personal information including names, addresses, and Social Security numbers for 1,740 former employees was revealed in a staff mailing about health insurance programs. Then, like now, the Chicago Board of Education is offering a year of credit protection for those at risk. Phew, now the 41,740 current and former employees can feel safe!


Unpaid payroll taxes, late 401(k) deposits, and pyramids

By Jerry Kalish on Posted in 401(k) Plans

Accounting Web’s story, Unpaid Trust Fund Taxes Are Serious Business, was about how some business engage in “pyramiding”, the practice of repeatedly withholding trust fund taxes from employees but intentionally failing to send them to the IRS. They’re called ‘trust fund’ taxes because it’s the obligation of employers to hold the employee’s money in trust until they deposit it with the government. Failure to do so in a timely manner can subject the business and the individuals involved to penalties and interest.

Now substitute "plan assets" for "trust fund taxes" and "Department of Labor" for "Internal Revenue Service" and it’s about the same thing: an employer "borrowing" employee money to run the business. Some employers pay it back, others go out of business. And like the Internal Revenue Service, the Department of Labor takes this matter seriously.

But while employees usually have no way of confirming payroll tax deposits, the magic of technology makes it easy to go online with a daily valuation plan to check to see when their 401(k) contributions hit their accounts. Consistently late 401(k) deposits can be a red flag for an employer having financial problems.

How not to hire an auditor for your ERISA plan

By Jerry Kalish on Posted in 401(k) Plans, Defined Benefit Pension Plans, Employee Stock Ownership Plans

It’s ERISA audit time again. The regular tax season is winding down, and accountants will soon be turning their attention to ERISA plan audits. And if you’re a plan sponsor whose plan is subject to an ERISA audit, selecting a plan auditor is a fiduciary function. So here are a few mistakes to avoid when selecting an auditor:

  • Don’t go through a competitive bidding process, but automatically go with your corporate auditor. Employee benefit plan auditing is a specialized field, and many otherwise capable accounting firms don’t have the necessary experience.
  • Always select the one with the lowest price. While cost is an important factor, it should not be the only reason an auditor is hired. Sometimes the old adage is true, “you get what you pay for.”
  • Don’t ask what training your auditors receive and what continuing education they get. Consider whether they are involved with the Employee Benefit Plan Audit Quality Center at the American Institute of Certified Public Accountants (AICPA).
  • Don’t be concerned about continuity of your audit team. Accounting firms, like all firms, have employee turnover. You don’t want to be charged for “training” a new plan auditor every year.

Your fiduciary responsibilities don’t end after the selection process. You also have a duty to monitor. The law does not permit the Department of Labor (DoL) to take direct enforcement action against the plan auditor for a “bad audit”, substandard work. The DoL can, however, take indirect enforcement action against the plan administrator, the person who engages a plan auditor, by imposing civil penalties. An experienced ERISA auditor is good insurance for you to meet your fiduciary responsibility, and to have a better managed retirement plan.

After the pension plan freeze, then what? Will IBM’s $50 million investment education program be the new benchmark?

By Jerry Kalish on Posted in 401(k) Plans, Defined Benefit Pension Plans

It’s now a common event to learn that yet another healthy large company has frozen its defined benefit pension plan. The most recent of which in the news was Fidelity. In many cases, these employers are beefing up other benefits such as an increased match or profit sharing contribution. But very few seem to be increasing their employee investment education programs to help them be better prepared for the increased responsibility they will be assuming for saving for retirement.

IBM, however, is stepping up to the plate to the tune of $50 million over 5 years for a financial education and coaching program for its 127,000 U.S. employees. Whether it’s because IBM wants to burnish its image among employees disgruntled about retirement plan changes, or just because it’s IBM considered to be one of this country’s best employers, it doesn’t really matter. The program will go beyond the usual financial education and will teach basic financial skills and offer one-on-one counseling. Seminars will be free to employees, spouses or domestic partners.

Will this be the new benchmark?

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