Send lawyers, pens, and money. ESOP to become major shareholder in Tribune sale

By Jerry Kalish on Posted in Employee Stock Ownership Plans

The Tribune Company announced yesterday that an agreement was struck to take the company private in a complicated transaction with Sam Zell , the epitome of a contrarian investor. It’s a fascinating deal with a number of different story lines. it’s about the business of law with at least 9 major law firms involved in this substantial transaction. It’s about the business of corporate finance with 3 investment banking firm that helped structure the complicated deal. It’s about the significant changes taking place in the communications industry for traditional mass media.

The deal is a corporate transaction taking place in an ERISA environment. It will be the Tribune Company employees who through a new employee stock ownership plan will own the majority of the common stock. Big corporate ESOPs haven’t always worked, and with the amount of leverage involved, it’s going to take a lot of employee effort – not just corporate restructuring – to make it successful.

But for many Chicagoans and baseball fans all over, it’s only about the Cubs: 99 years and still waiting!

Footnote: The title of the post is adopted from the 1978 hit song, "Lawyers, Guns and Money", by Warren Zevon, a Chicago-born guy who died too young in 2003 at age 56 of the same cancer that killed Steve McQueen. In 2006, Zevon’s song was used as the theme song for producer Jerry Bruckheimer’s short-lived TV series Justice, a program centered on the fictional exploits of high-powered LA-based attorneys.

Welcome back public employees

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

My very first client was a municipality whose retirement plans covered uniformed police and firefighters with collectively bargained benefits and the civilian employees covered by civil service rules. Somewhere along the line, we drifted away from public employee retirement plans, but now some years later here we are again – working with benefit plans in the public sector. So I opened up a new blog topic, Public Employee Plans, as the archive for the posts about this very challenging and unique benefit area.

Challenging and unique for a number of different reasons. First, these plans are subject to quite a different regulatory scheme than plans in the private section. Then add to the mix the collectively bargained element, the political area in which these plans operate, and funding issues which impact taxpayers, and it’s certainly not dull work. Stay tuned.

Is Fidelity’s decision to eliminate its pension plan the tipping point for defined benefit pension plans?

By Jerry Kalish on Posted in Defined Benefit Pension Plans

Morton M. Grodzins who was a professor of political science at the University of Chicago is credited with coining the term “tipping point”. Malcolm Gladwell later popularized the term in his 2000 bestselling book The Tipping Point: How Little Things Can Make a Big Difference. In common parlance, the term is applied to any process in which beyond a certain point, the rate at which the process proceeds increases dramatically.

Have defined benefit pension plans reached that point now with the announcement that Fidelity has made the decision to eliminate its pension plan for roughly 32,000 of its employees?

While other healthy companies have been freezing or terminating their pension plans, Fidelity’s decision is significant. The giant investment company has been a visible player in corporate America’s transition from defined benefit pension plans to defined contribution plans. Will this encourage more companies to place the responsibility of retirement on their employees?

Public Employee and Union Benefit Conference

By Jerry Kalish on Posted in Events, Public Employee Plans, Seminars and Speaking Engagements

I am honored to be a guest speaker at the 2007 Annual V3 Users Conference which is taking place in Palm Coast, Florida on June 6 – 8, 2007. The conference is being sponsored by Vitech Systems Group , a provider of public retirement and multi-employer benefit administration software for users of their V3 Benefits Administration System, an enterprise software solution designed specifically for the needs of public retirement systems.

The title of my presentation is:

THE PENSION PROTECTION ACT OF 2006:
New Challenges and Opportunities for Plan Sponsors, Their Employees, and the Administrators Who Make Their Benefit Programs Work

Vitech expects approximately 120 Fund Administrators, Trustees, heads of IT, and other users of the software. I look forward to this opportunity to meet people who are involved with this rapidly changing part of the benefits world.

Guest Column about 401(k) Improvements in Pension Protection Act

By Jerry Kalish on Posted in 401(k) Plans, Publications

Here is a link to a recent guest column I wrote, New Law Good News for 401(k) Sponsors (PDF) that appeared in the Enterprise Forum, the on-line publication for executives of privately-held companies published by WWJ•950 NEWSRADIO, CBS Radio in Detroit, Michigan. It’s published weekly. Present company excluded, there is good information here for private companies. You can check it out using this link.

Who’s your 401(k) Administrator?

By Jerry Kalish on Posted in 401(k) Plans

Steve Rosenberg in his Boston ERISA  Law Blog recently asked the question, When is a Plan Admininstrator a Fiduciary? Steve then goes on to answer the question in writiing about a recent court decision in the which the decision’s main analysis was whether one of the plaintiffs, the plan administrator, qualified as a fiduciary. ERISA requires that the Plan Adminstrator be named in the plan document. The Plan Administrator is a fiduciary because of discretionary responsibility for making the key decisions in the retirement plan such as:

  • Determing eligibility for someone to participate in the plan;
  • Determining the amount of benefits payable under the plan; and
  • Approving or denying claims for benefits.

So who exactly should the Plan Adminstrator be? The Plan Administrator could be an individual, a committee made up of key executives, or the employer itself. So who should be the Plan Administrator? From a risk management standpoint, the employer should not be the Plan Administrator.

If it is, the Board of Directors and officers can be held liable as plan fiduciaries even if they know little about the day to day operations of the plan. The plan document would then provide that an administrative committee designated by the employer would be the Plan Administrator. The employer, of course, still has the duty to monitor the committee’s activities.

But you’re an employee who is asked – and willing to serve – as a member of your plan’s administrative committee, make sure that your employer will indemnify you from fiduciary liability –  except in cases of an intentional breach of fiduciary responsibility. How? Appropriate language in the plan document and fiduciary liability coverage.

Are “terror free” mutual funds next for 401(k) plans?

By Jerry Kalish on Posted in 401(k) Plans

Trade sanctions against Iran are already in place for U.S. companies with more punitive measures being proposed by Congress. Now legislators on both the federal and state level are pushing legislation that would require public employee retirement plans to divest themselves of investments in foreign companies doing business with Iran. Missouri already has had such legislation in place since last June which required public employee retirement plans to sell shares of companies with commercial interests in Iran, North Korea, Syria and Sudan. All four countries are accused by the State Department of sponsoring terrorism. Similar measures are now being considered by Georgia, California and Florida.  

And over in the private sector, Nationwide, one of the largest 401(k) providers, intends to add a "terror-free" mutual fund option to its approximately 25,000 401(k) plans. The fund is the Roosevelt Anti-Terror  Multi-Cap Fund The Fund’s objective is to seek long term capital appreciation, and it invests primarily in common stock of U.S. companies of all capitalization ranges. It will not invest in companies that have ongoing business relationships with countries that sponsor terrorism. which will screen out companies with ties to Iran and others on the U.S. terrorism list. Will the other major 401(k) providers follow suit?

 

Mike Ditka and Jerry Kramer team up to fight for disabled retired NFL players

By Jerry Kalish on Posted in Defined Benefit Pension Plans

A few weeks ago a senior producer from ESPN called me after seeing my post that I wrote the day before Media Day during Superbowl Week, Super Bowl teams in the spotlight, NFL retirees in the background. We talked for about 45 minutes as I gave him some background on the NFL Players Association negotiated benefit program in the context of ERISA and the Taft-Hartley Act. At the end of our conversation, I made the observation that the real battle was not the legal one, but rather a PR one.

And now that PR battle for the hearts and minds of NFL fans as leverage to increase benefits for the retired players is heating up. The Bears Hall of Famer, Mike Ditka and Packers great, Jerry Kramer (who many say should be), are teaming up to fight for the retirees. They held an auction last Thursday at Ditka’s restaurant in Chicago to raise money and continue to pester both the league and the Players Association to "do what’s right".

Both of them are extremely media savvy so stay tuned. This issue isn’t going away.

Return with us now to those thrilling days of yesteryear. ESOP LBOs ride again.

By Jerry Kalish on Posted in Employee Stock Ownership Plans

The news that Chicago real estate mogul Same Zell was close to a deal to acquire media conglomerate The Tribune Company brought back some old memories. The proposed deal would take the company private, giving ownership to a partnership between Zell and an ESOP used as a financing arrangement reminiscent of the high-flying days of the 1980s. A time in which new and larger ESOPs were encouraged by increased tax benefits, a rising stock market, hostile takeover activity, and the availability of high-yield debt to purchase companies.

But more that anything else, it was the new tax benefits that Congress added in the 1980s:

  • 1984: an exclusion from gross income for 50% of the interest a qualified lender receives on a securities acquisition loan.
  • 1986: dividends paid on ESOP shares deductible when they were used to repay exempt loans in 1986.

Combined with the ability to deduct principal repayment on ESOP debt, large public companies used ESOPs to finance leveraged buyouts (LBOs) and as an anti-takeover device by putting stock in friendly hands, i.e., the employees.

This would be ESOP number 2 for The Tribune Company. It’s first ESOP, started small in 1988, was later expanded to successfully thwart a hostile takeover by the billionaire Bass brothers of Texas. Newday (itself a Tribune company)  reported that if that ESOP existed today, its holdings – 18.6 million shares of common stock, according to a securities filing – would make it Tribune’s third-largest shareholder, behind the Chandler family of Los Angeles, which owns 20 percent, and the McCormick Tribune Foundation with 13 percent.

Or in Shakespeare’s words, what’s past is prologue.

Are we being tricked into putting too much money into our 401(k) plans?

By Jerry Kalish on Posted in 401(k) Plans

There’s been a rash of stories lately about how we’re saving too much for retirement carried by such publications as The New York Times, USA Today, MarketWatch. They cite studies by contrarian economists that tell us we’re all being tricked by the on-line calculators put there by the fund providers to get us to invest more. Yesterday, a panel of academics and analysts at the National Aging Conference in Chicago took issue with this growing coverage that many people – including the boomers – will have enough at retirement.

But what about the unknown and the unexpected? Can we predict with certainty future investment performance, tax rates, health care costs, or a major emergency or family crisis? Of course not. And since we can’t, we’ll continue to pound out the same message to 401(k) participants as we have been since the beginning: save as much as you can!

Maybe the best response to these stories was made by Harry Rick Moody, director of academic affairs for AARP who was quoted at the National Aging Conference, "“Next we’re going to be told we’re eating too little.”

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