Compliance August 9, 2006

Court Denies Expectation of Privacy for Workplace Internet Access

August 9, 2006 (PLANSPONSOR.com) - The 9th US Circuit Court of Appeals has confirmed a lower court ruling that an employee accused of receiving child pornography had no reasonable expectation of privacy for his internet use on his workplace computer.
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In its opinion, the appellate court said other courts have consistently held that an employer’s policy of routinely monitoring employee internet use precludes a reasonable expectation of privacy. Employees of Frontline Processing were told of the company’s monitoring practices and warned not to use the company’s computer for personal activities.

Frontline employee Jeffrey Ziegler compared his workplace computer to a desk drawer or file cabinet, which were given Fourth Amendment protection in another court case. The government objected to that argument, saying Ziegler could not expect privacy on a computer paid for by his employer and installed with a firewall and a department of personnel to monitor internet activity, also paid for by his employer.

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The owner of Frontline’s internet service provider had contacted the FBI with a tip that a Frontline employee had accessed child pornography Web sites on a company computer. An FBI agent interviewed IT personnel at Frontline who confirmed they had seen instances of child pornography access by Ziegler in their routine monitoring activities.

The IT employees claim the FBI agent asked them to make a copy of Ziegler’s hard drive for use in a child pornography investigation, but the agent claims he did not make that request since one of the employees informed him that a backup had been made. The evening of the interviews, Frontline IT personnel obtained a key to Ziegler’s office and made two copies of his computer hard drive.

Frontline’s corporate counsel contacted the FBI and offered to cooperate and turn over Ziegler’s computer to the FBI, suggesting a search warrant would be unnecessary. Frontline provided the agent with the computer and one of the hard drive copies.

Ziegler was charged with a three-count indictment, including the charge of receiving child pornography. Ziegler filed a pretrial motion to suppress the evidence in the workplace computer, claiming his right to privacy under the Fourth Amendment. Ziegler cited the agent’s request to make a copy of his hard drive and the seizure of the computer without a warrant as violations of his Fourth Amendment rights. The district court in Montana denied his motion.

The opinion in USA v. Ziegler is here .

Compliance August 8, 2006

Appellate Cash Balance Ruling Applauded for being Succinct, Clear

August 8, 2006 (PLANSPONSOR.com) - Several retirement services industry observers on Tuesday applauded a federal appellate court ruling throwing out a decision involving IBM that declared cash balance plans to be illegal because they discriminated against older workers.
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Particularly if the 7 th US Circuit Court of Appeals refuses to reconsider its ruling in the long-running legal dispute involving IBM’s cash balance plan and the US Supreme Court turns away requests to hear the case, this week’s appellate decision should result in fewer cash balance programs getting frozen out of plan sponsor fear of potential legal liability, the observers said.

“Hybrid plans that already exist can breathe a little easier and will be less likely to freeze or terminate,” said Jan Jacobson, director of Retirement Policy at the American Benefits Council, in an interview with PLANSPONSOR.com.

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The unanimous appellate decision, written for the court by Circuit Judge Frank Easterbrook, flatly rejected the reasoning applied by Chief District Judge G. Patrick Murphy of the US District Court for the Southern District of Illinois in Murphy’s original ruling in favor of a group of IBM workers.

Easterbrook didn’t need a legal tome to crisply turn aside Murphy’s judgment because the surprisingly succinct 13-page decision got the job done.

“The judges said, ‘Is compounded interest age discriminatory?'” said Ethan Kra, chief actuary at Mercer Human Resource Consulting in an interview with PLANSPONSOR.com. “With good clarity, they said ‘No.’ It’s so obvious that (Easterbrook) didn’t need to waste more paper and ink.”

A key to Easterbrook’s argument in Monday’s ruling was his rejection of the notion that cash balance plans are hardest on older workers because younger workers have more time to build up pension interest credits.

“Nothing in the language or background of §204(b)(1)(H)(i) suggests that Congress set out to legislate against the fact that younger workers have (statistically) more time left before retirement, and thus a greater opportunity to earn interest on each year’s retirement savings,” Easterbrook wrote. “Treating the time value of money as a form of discrimination is not sensible.”

The pension observers said Monday’s legal development with some level of retrospective protection was particularly important when viewed in concert with the prospective cash balance protection offered by the recently passed pension reform bill. Legally, the 7 th Circuit decision is only controlling in the states making up the circuit – Illinois, Indiana and Wisconsin – but will be considered advisory by appellate courts in other parts of the country.

“The hope is that we can get past all these costly and disruptive distractions,” asserted Larry Sher, director of Retirement Policy for Buck Consultants.

Ari Jacobs , US Retirement Practice Leader for Hewitt Associates, was also jubilant that lower court decision had – at least for now – been taken out of the picture. “I think it’s great from a plan sponsor perspective,” Jacobs told PLANSPONSOR.com. “I’m just pleased we are where we are.”

However, Jacobs said the fact the lower court decision was ever put out has had lasting effects. “I do think the damage has been done by the original ruling,” she said. “It’s given certain parts of DB plans a bad name.”   Added Mark Ugoretz, president of the ERISA Industry Committee (ERIC), in a statement, “The swarm of litigation has caused many employers to throw up their hands in frustration at the prospect of years of litigation engineered by plaintiffs lawyers.  As a result, employers are becoming exceedingly cautious about putting in new plans and benefits and retreating from anything that might attract the plaintiffs bar.” 

Easterbrook referred to that issue in Monday’s ruling in a concluding paragraph widely hailed by the observers.

The appellate judge wrote:

“Litigation cannot compel an employer to make plans more attractive. It is possible, though, for litigation about pension plans to make everyone worse off. After the district court’s decision IBM eliminated the cash-balance option for new workers and confined them to pure defined-contribution plans. Whether that is good or bad (for employees or society as a whole) is not for us to say. What we can and do conclude, however, is that the decision may again be made freely, governed by private choice rather than legal constraint.”

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