Compliance July 27, 2005

Appeals Court: 403(b) Funds Can't Be Shielded in Bankruptcy

July 27, 2005 (PLANSPONSOR.com) - A federal appeals court has ruled that a Texas educator still owes his ex-wife alimony from his 403(b) retirement account despite his having filed for US Bankruptcy Court protection.
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The US 5 th Circuit Court of Appeals upheld rulings by both a US Bankruptcy Court judge and a federal District Court jurist that the amount Joseph Coppola owed his ex-wife Sheri Lyn Beeson constituted a plan loan and was to be considered a qualified plan distribution. Because of that finding, those funds no longer qualified as being part of the 403(b) and, therefore, could not be protected under Texas and federal bankruptcy law, according to the rulings.

According to the appeals court, Coppola and Beeson divorced in October 1999 with Coppola ordered in the divorce court order to pay Beeson a total of $212,000 in alimony in monthly payments. As security for that debt, Coppola assigned funds from his 403(b) plan from the Texas Teachers Retirement System, which totaled $640,000 when he decided to segregate the funds.

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But the agreement apparently fell apart in December 2000 when, according to the appeals decision, Coppola began withdrawing money from his account, filed a Chapter 7 bankruptcy case, and argued that his ex-wife no longer could get access to the money because his retirement account constituted part of his bankruptcy estate.

Beeson and the federal bankruptcy trustee challenged Coppola’s contention and won the argument before the bankruptcy court and the US District Court judge.

The opinion in Coppola v. Beeson   (In re Coppola), 5th Cir., No. 04-20311, 7/25/05) is  here .

Compliance July 26, 2005

Pension Bill Gets by US Senate Finance Panel

July 26, 2005 (PLANSPONSOR.com) - The US Senate Finance Committee has approved a pension reform proposal requiring companies to fully fund their defined benefit pension plans and giving airlines 14 years to pay off their pension obligations.
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The legislation now goes to the full Senate for a vote. The Senate Committee on Health, Education, Labor and Pensions has also held hearings and is working on a parallel pension measure, and a similar pension proposal is under consideration by the House Ways and Means Committee, Bloomberg reported.

“The fragile state of our nation’s pension plans has caught the attention of Americans everywhere,” said US Senator Charles Grassley (R-Iowa), Finance Committee chairman. The Congressional Budget Office estimates that companies underfunded their pensions last year by as much as $600 billion.

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An amendment added to the legislation Tuesday gives airlines 14 years to pay overdue pension obligations. Delta Air Lines Inc. and Northwest Airlines Corp., the third-and fourth-largest US carriers had asked for 25 years (See  Senate Pension Reforms Won’t Give Airlines Enough Time ). The rest of the 29,651 companies that offer defined-benefit pensions would have seven years to catch up on any backlog, according to the news report.

Also added to the measure Tuesday is a plan that would allow companies to offer cash-balance plans as long as they don’t discriminate against older employees. The 1,700 cash-balance plans already in existence have been in legal limbo since a 2003 federal court ruling that deemed International Business Machine Corp.’s plan illegal because benefits for younger workers exceeded those of older workers for the same employment period (See  IBM Strikes a Deal on Cash Balance Suit ).

The House version of the legislation, which is before the Ways and Means Committee, eliminates the use of credit balances for companies that are less than 80 percent funded.

The Senate measure approved Tuesday, the National Employee Savings and Trust Equity Guarantee Act, (NESTEG), would require companies to fully fund their plans or face increased penalties (See  Senate Bill Takes On Private Pension Pickle  ). The bill would also increase premiums that companies pay to the PBGC for insurance to $30 per plan participant per year from $17.

More information about the US House Republican pension plan is  here .

More information about the Bush Administration’s pension proposal is  here .

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