Compliance August 26, 2010

Court Orders Lucent Employee Readmitted to DB Plan

August 26, 2010 (PLANSPONSOR.com) – A federal judge has ordered Lucent Technologies to readmit to its defined benefit pension plan an employee temporarily laid off, after finding the Lucent benefits committee had incorrectly blocked the employee’s efforts to get back into the program.
Reported by

U.S. District Judge Graham C. Mullen of the U.S. District Court for the Western District of North Carolina ruled that committee members had ignored a section of the plan documents for the Lucent Retirement Income Plan (LRIP) allowing such re-entry to the service-based DB program if Lucent rehired a temporarily laid-off employee within three years.

The committee had rebuffed plaintiff Lynn M. Vincent’s efforts to be readmitted based on a different plan document section that barred re-entry if the employee’s break in service was greater than six months.  “The Committee repeatedly ignored the plain language of its own plan, inadequately considered the LRIP by ignoring Section 6.6, inconsistently applied Section 4.1(a)(ii)(1), engaged in a poorly reasoned decisionmaking process, and operated under a conflict of interest,” Mullen declared. “The sum of these factors indicates that the Committees decision was unreasonable.”

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According to Mullen’s opinion, under the LRIP, a participant accrued benefits under the service-based pension program (SBP) or under an account balance plan formula (ABP). The SBP is Lucent’s traditional defined benefit formula, while the ABP is a separate cash balance retirement program that Lucent introduced in 1999. Employees hired after January 1, 1999, were required to enroll in the ABP.

Vincent worked for Lucent from June 1985 to September 2001, when she was involuntarily transferred to International Business Machines Corp. In July 2002, Vincent was rehired by Lucent and was enrolled in the ABP, but sought to re-enroll in the SBP.

After exhausting the plan’s administrative process, Vincent filed a lawsuit under the Employee Retirement Income Security Act (ERISA).

The case is Vincent v. Lucent Technologies Inc., W.D.N.C., No. 3:07-CV-240.

Administration August 26, 2010

Miami Pension Officials Lacking on Investment Controls

August 26, 2010 (PLANSPONSOR.com) – An auditor’s report has concluded that the internal controls policies and procedures in place at City of Miami pension funds, Employee Relations, and Risk Management Departments could be enhanced to address certain deficiencies.
Reported by

The audit report said that adequate internal controls were not in place to ensure that all possible investment strategies are being explored to mitigate excessive investment losses that create unfunded liabilities for the Firefighters and Police Officers Retirement Trust (FIPO) and the General Employees and Sanitation Employees (GESE) pension Trust that the city is required to fund.   

In addition, Investment Managers for the GESE pension Trust were not promptly terminated for not achieving the established performance thresholds. The audit indicated that six investment managers appeared on the watch and probation lists in the period October 1, 2007, to September 30, 2009, and two of the six were not properly monitored.  

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According to a Bloomberg news report, BlackRock Inc. and Atlantic Capital Management LLC went on a probation list in June 2009 and March 2005, respectively, Victor Igwe, the city auditor, said. Atlantic was dropped in April 2008, and BlackRock remains under contract.   

Managers are placed on a watchlist when their returns fall below certain targets. Those who remain on the watchlist for six months are then placed on probation. After a year on probation the fund has the option to end the firm’s contract.   

“It is unclear why the board would establish a minimum-performance requirement that is not promptly enforced, particularly when such lack of performance results in over $4 million of loss to the city,” Igwe said in the report.  

The report also said adequate internal controls were not in place to ensure that an asset/liability study for the GESE pension Trust was performed in a timely manner.   

The auditor’s report is here.

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