Compliance July 28, 2005

Appeals Court Sets Rehearing in Blackout Challenge Case

July 28, 2005 (PLANSPONSOR.com) - Appeals judges at the US 5th Circuit Court of Appeals have agreed to rehear as a group a case involving allegations of a mismanaged plan conversion against an employer and a TPA.
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The so-called en banc rehearing – in which all 16 Circuit judges hear a case together – has been scheduled for September 12. The sessions are relatively unusual in appeals courts and are generally reserved for issues in which unsettled portions of the law need to be definitively resolved in the particular area covered by the court – in this case, federal courts in Mississippi, Louisiana, and Texas.

The  5th Circuit order setting up the September session said one of the court’s jurists had asked for a poll of the whole court and that a majority of members voted to schedule the rehearing. The US Department of Labor (DoL) and the AARP filed legal papers supporting the move, according to a BNA report.

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The New Orleans-based appeals court ruled in March 2005 that two pilots for a commuter air carrier later acquired by American Airlines were not allowed to bring the suit under theEmployee Retirement Income Security Act (ERISA). Appeals judges upheld a ruling by a federal judge in the US District Court for the Northern District of Texas that the two pilots were pursuing their claims against American and Towers Perrin for their individual interests or on behalf of a small group of participants instead of for the plan as a whole (See  Appeals Court Upholds Suit Dismissal in Conversion/Blackout Case ).

Plaintiffs Michael Milofsky and Robert Walsh alleged in their original lawsuit against American and Towers Perrin that the transfer of assets in the savings and profit sharing plan at commuter carrier Business Express Inc. to the American Eagle $uper $aver Plan – and the accompanying plan transaction blackout – wasn’t finalized until months after the timeline set out in participant notices prepared by Towers Perrin. The pilots’ suit requested that any damages from asset losses they suffered because of the transfer delay be paid to the plan and allocated among individual participants according to their losses. The retirement plan conversion came about as part of American’s acquisition of Business Express.

The March appeals court ruling is  here . The case is Milofsky v. American Airlines Inc., 5th Cir., No. 03-11087, rehearing en banc granted 7/19/05.

Benefits July 27, 2005

Families Still Need Inheritance Transfer Talks

July 27, 2005 (PLANSPONSOR.com) - Only a third of baby boomers and the elder generation (age 65 and older) have talked with their families about inheritance and related financial planning issues, according to a new survey.
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A news release said the Allianz American Legacies Study found that the Elders (22%) are more likely than boomers (3%) to believe they owe their children an inheritance. Nearly 40% of the elder generation said it is very important to pass financial assets or real estate to their children, but only 10% of baby boomers feel the same. Allianz said about $25 trillion in wealth is to be handed down by the elder generation to their heirs, $7.2 trillion of which will go to the boomers.

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The study also revealed that the majority of the nation’s baby boomers (68%) and those from their parents’ generation (71%) say they feel highly confident discussing key elements of inheritance and legacy planning issues.

“Many families are not getting to the heart of the real issues,” said Mark Zesbaugh, CEO of Allianz Life, in the news release “If the conversation does not cover the four pillars people consider core to a true legacy – values and life lessons, instructions and wishes to be fulfilled, personal possessions of emotional value, and financial assets/real estate – the legacy conversation between the parent and the boomer child doesn’t happen in a meaningful or effective way.

According to the study, both boomers and those in the elder generation were uncomfortable discussing leaving an “inheritance” but both enthusiastically embraced the idea of leaving a “legacy,” because it captures all facets of an individual’s life – including their family traditions and history, sharing stories, values and wishes.

Passing along “values and life lessons” is overwhelmingly considered (by over 75%) the most important element of a legacy for both generations.

The ‘Turn to’ Child

An Alpha Child – defined in the study as “the child parents turn to first” – typically guides legacy planning. The profile of the Alpha Child is one who keeps the family connected and is a strong communicator. Some 40% with more than one child say they have an Alpha Child. Almost 50% of the boomers who are Alpha Children say it is their responsibility to initiate legacy discussions with their parents and 77% say they are comfortable in discussing legacy issues.

Performance-based distribution gives more to the child that has cared for the parent and less to the children that were a source of stress and conflict. This distribution plan is particularly favored by individuals with a high net worth. Some 71% of elders with a lower net worth felt that distribution should be equal; whereas, 54% of their higher net worth counterparts felt the same.

The telephone survey was conducted between April 21 and May 2, 2005 among 2,004 US adults, of whom 1,004 were baby boomers (age 40-59) and 1,000 were of the elder generation (age 65 and over). The online survey was conducted in the United States between April 22 and 27, 2005 among an over-sample of 278 baby boomers (age 40 to 59) and 345 elders (age 65 and over) who both have a net worth of over $250,000. On June 24th and 25th, Harris Interactive conducted 200 additional telephone interviews with a random selection of the original 2,004 telephone respondents. Some 100 additional interviews were conducted with adults aged 40-59, an additional 100 additional interviews were conducted with adults aged 65+.

More about the study is here .

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