Compliance December 26, 2013

California Judge Rules Against Pension Reductions

December 26, 2013 (PLANSPONSOR.com) – A California judge has ruled that the pensions of employees for the city of San Jose cannot be reduced, according to news reports.
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Judge Patricia Lucas of the Santa Clara County Superior Court found that due to California state law, the city of San Jose cannot require its employees to pay an additional 16% toward their pensions, says a news report from the New York Times. This ruling comes despite the 70% approval by voters in June 2012 of Measure B, which asked for these pension reductions.

The relevant portion of the measure would have required city employees, such as police officers, firefighters and others, to contribute more of their own money toward their pensions.

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While the ruling by Lucas does not allow for reductions in the pensions of San Jose city employees, it does allow for voter-approved reductions in both salary and some health benefits, says a news report from Reuters, adding that the ruling apparently recognizes the city’s need to balance its budget.

San Jose’s mayor, Chuck Reed, expressed concern that the ruling (and the state law that supported it) gives California cities, counties and government agencies little flexibility to control pension-related costs, say the news reports.

This is not the first time San Jose has been in the news concerning pensions for city employees. In April 2012, an appellate court found that the city’s Measure B was unlawfully worded to sway voter support and advised that it be edited to feature more neutral, unbiased language (see “San Jose Pension Ballot Wording Unlawful”).

Compliance December 26, 2013

DOL Seeks Removal of 401(k) Trustee in Illinois

December 26, 2013 (PLANSPONSOR.com) – The Department of Labor (DOL) hopes to remove the trustee of a 401(k) plan based in Elgin, Illinois.
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In December, the DOL filed a lawsuit, Perez v. Aguirre et al. (docket number: 1:13-cv-08948), in the U.S. District Court for the Northern District of Illinois, Eastern Division. The suit names Eugene Aguirre, as well as the Sunstrand Electric Company Inc. Employees 401(k) Profit Sharing Plan and Trust, as defendants.

The suit alleges that since August 2010, Aguirre, the sole trustee to the Sunstrand Electric Company Inc. Employees 401(k) Profit Sharing Plan and Trust, failed to administer the plan. This included failure to properly authorize distributions to plan participants and beneficiaries. As a result, participants have not been able to obtain distributions of their account balances, totaling $100,734, from the plan.

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It is further alleged by the DOL that in failing to administer the plan, Aguirre failed to discharge his duties solely in the interest of the participants and beneficiaries, for the exclusive purpose of providing benefits to participants and beneficiaries, and to defray reasonable expenses for plan administration, all of which violates the Employee Retirement Income Security Act (ERISA).

The suit asks that Aguirre be prevented from violating ERISA in the future by removing him from his position as plan trustee; removing Sunstrand from its position as plan administrator; permanently enjoining Aguirre and Sunstrand from serving as fiduciaries or service providers to any ERISA-covered plan; appointing an independent fiduciary to distribute the plan’s assets and then terminate the plan; and ordering Aguirre to pay all reasonable fees and expenses incurred by the independent fiduciary in administering and terminating the plan.

According the DOL, the plan had nine participants as of October 15, 2012.

The full text of the DOL suit can be downloaded here.

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