Merger Is Not a Permissible Form of Plan Termination Under ERISA

In Beck v. Pace International Union, No. 05-1448 (June 2007), the United States Supreme Court held that an employer who is a plan administrator and plan sponsor for a single-employer plan does not have a fiduciary obligation when considering whether to terminate an employee benefits plan governed by ERISA to consider merger into another plan unless the plan documents require it to do so. 

The employer, which was going through bankruptcy, realized that it could recoup $5 million dollars for the benefit of its creditors if it terminated the plan and purchased annuities to cover the plan's obligations to the participants.  The Supreme Court said that the employer's purchase of annuities comported with the provision of ERISA setting forth permissible methods of terminating a single-employer plan and distributing assets, 29 U.S.C. section 1341(b)(3)(A).

The court made another useful point concerning ERISA fiduciary duties when it noted that although the employer acted as the plan sponsor and plan administrator, ERISA fiduciary duties are implicated only when the employer acts as the plan administrator.  When the employer acts as a plan sponsor, it is acting as a settlor, which is immune from ERISA's fiduciary obligations.


Brocade CFO Charged By SEC with Fraud in Stock Options Backdating Scandal

The Wall Street Journal is reporting today that the SEC has charged Brocade's CFO, Michael Byrd, with fraud related to his role in Brocade's stock options backdating.



Mandatory Retirement Ages for Lawyers - Should They Be Abolished?

The National Law Journal reports today that the American Bar Association is recommending that mandatory retirement ages for lawyers be abolished.  I probably sound a bit insensitive but I'm curious why this is an important issue for the ABA?  Are a number of lawyers complaining that after clocking in enormous billable hours they want to continue working for their large law firms after 65?  Me, I hope to retire by then....

Stock Option Backdating Charges Coming Soon Against KLA-Tencor General Counsel

According to an article in The Recorder, the SEC plans to file civil charges against the former General Counsel of KLA-Tencor, Lisa Berry, for her role in stock options backdating at that company.  The SEC has said it will file these charges by September 30, 2007.

Honest Services Fraud Can Require Jail Time

Public employees who take bribes or otherwise receive cash or other gifts in exchange for taking an action within their official exercise of power may be subject to prosecution under 18 U.S.C. § 1346, which could result in jail time.  This type of crime is called "Honest Services Fraud."

The Seventh Circuit Court of Appeals held in U.S. v. Bloom, 149 F.3d 649 (7th Cir. 1998), that the misuse of office for private gain is the line that separates run of the mill breaches of fiduciary duty from a federal crime.  Put another way, this line separates a civil lawsuit (a breach of fiduciary duty) from a federal lawsuit with the potential for jail time.

Pension Increase May Be Retracted in Orange County

An article in the Sacramento Bee reports that Orange County is considering a proposal to retract an increase of pension benefits granted to public safety employees in 2001.  Orange County believes that this increase is an unconstitutional debt and illegal gift of public funds.

If Orange County follows through on this proposal, they surely will be subject to litigation from the pension plan members asserting an improper denial of their vested or otherwise guaranteed benefits.




Brocade CEO Guilty in Stock Option Backdating Case

On Tuesday, as reported on the Mercury News website, the CEO of Brocade Communications System was found guilty on all ten counts related to stock option backdating charges.  Here's an article from the Wall Street Journal.

Backdating is where a company retroactively sets a stock option grant date to a date when the stock was trading at a lower price so that the option is already “in the money” when an employee (typically an executive) receives the grant.

Apparently the CEO of Brocade did not benefit financially from the backdating scandal at Brocade.