Compliance December 31, 2010

District Court Issues Order on Cash Balance Suit Damages

December 31, 2010 (PLANSPONSOR.com) – A federal judge has issued an order involving damages in a cash balance lawsuit – and it could be bigger than anticipated.

 

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In a press release, Alliant Energy Corporation noted that on December 29, 2010, Judge Barbara Crabb of the United States District Court for the Western District of Wisconsin issued an order concerning damages in a class action lawsuit against the Alliant Energy Cash Balance Pension Plan.  Earlier this year, Judge Crabb found liability in favor of the plaintiffs (see Alliant Tagged for Pre PPA Whipsaw Calculation).

Alliant said that it was “…studying the order and its impact on a parallel IRS proceeding,” going on to note that “the Plan preliminarily believes that the order may lead to total pre-tax damages in the $20 million to $23 million range, which does not include any award for plaintiff’s attorney’s fees or costs”.  The announcement acknowledges that the firm previously reserved $9 million in aggregate related to both the class action lawsuit and the IRS proceeding, and that Alliant “anticipates recording in the fourth quarter of 2010, the difference between the estimated damages (and appropriate plaintiff’s attorney’s fees or costs) and the amount previously reserved”. 

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Alliant Energy Corp. converted its traditional defined benefit plan to a cash balance plan in 1998. Under the plan, participants accrued a “benefit credit” equal to 5% of their salary, together with the right to an interest credit that is equal to the greater of 4% or 75% of the rate of return generated by the plan for the calendar year.  Crabb found that from 1998 to 2006, Alliant’s method of calculating lump-sum distributions violated ERISA because the interest rates used by Alliant did not result in a whipsaw calculation as required by ERISA at that time. The 30-year Treasury bond rate did not fairly represent the interest rates promised in the plan, the judge said. 

In the new announcement, Madison, Wisconsin-based Alliant noted that the December 29, 2010 order is not yet final and “the Plan believes there will be future proceedings that may impact this range”.  It also notes that the plan is evaluating potential next steps with respect to the order, including whether to pursue any appropriate appeals”.

Administration December 31, 2010

Pittsburgh Pressing to Prevent Pension Pick-Up

December 31, 2010 (PLANSPONSOR.com) – Putting Pittsburgh’s pension problems to bed is proving to be complicated. 

 

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Yesterday the city’s actuaries found a mathematical problem in the City Council’s pension bailout plan – forcing officials to redo the legislation with little more than a day left to head off a state takeover of the plan, according to the Philadelphia Enquirer.   

Under state law, the pension fund, now just 29.3% funded, must be 50% funded by 12:01 a.m. Saturday to avoid a state takeover by the Pennsylvania Municipal Retirement System.  

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The council had approved the plan Wednesday to dedicate about $414.7 million in parking tax revenues over 31 years to the pension fund, which officials believed would be enough to avert state takeover (see Pittsburgh Inches Closer to Pension Funding Crisis Resolution).  But the actuaries, brought in Thursday morning, thought otherwise, according to the Enquirer report, citing firefighters union president Joe King, a city pension board member.  Rather than voting to override Mayor Luke Ravenstahl’s veto of the plan, King said, the council must redo the plan, submit it to Ravenstahl again, and then override the new expected veto.    

In passing the plan, King said, the council miscalculated the “net present value” of the future stream of parking tax revenues, according to the Enquirer.  According to the report, the council will revise the bailout plan to take about $735.7 million in parking revenues over 31 years instead of the $414.7 million.  

Bloomberg notes that, under Pennsylvania’s hand, Pittsburgh’s annual payment to the plan may double by 2015 from $46 million this year and rise to $160 million in 2030, according to a state analysis.  Mayor Ravenstahl opposed the parking-tax plan because he said it won’t head off a takeover and will open a hole in future budgets, according to the report.  That said, his veto on December 29 gave the council enough time to act before today’s deadline.  Ravenstahl had backed raising $452 million with a long-term lease of parking facilities to a group led by JPMorgan Chase & Co., but the council rejected that plan in October.  

Pittsburgh’s pension system includes three retirement plans for about 7,000 active and retired firefighters and government workers. The accounts have only enough funds to pay benefits for three to four years, Ravenstahl said, according to Bloomberg.   

Moody’s Investors Service changed its outlook for the city’s A1 rated general-obligation bonds to negative on November 23, citing a potential rise in pension costs under state control.  

 

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