Compliance September 12, 2005

JPMorgan CoStocks K Plan Suit Dismissed

September 12, 2005 (PLANSPONSOR.com) - A court ruling in a case involving company stock in the K plan of JPMorgan Chase has brought to the forefront a key issue about whether stock plan participants can sue over a fiduciary breach under the Employee Retirement Income Security Act (ERISA).
Reported by

The issue of whether K plan participants who allege their employer imprudently acquired company stock for the plan can sue in federal court revolves around ERISA’s requirement that relief sought must be at the plan level and not just for one or a handful of employees, according to a BNA report.

In the most recent case, US District Judge Sidney Stein of the US District Court for the Southern District of New York ruled that the JPMorgan Chase participants were actually seeking individual gain rather than awards for the whole plan so their lawsuit under ERISA could not proceed.

Never miss a story — sign up for PLANSPONSOR newsletters to keep up on the latest retirement plan benefits news.

Stein agreed with JPMorgan Chase, finding that the participants were not suing to recoup plan assets, but were seeking to recover benefits to which the class members believed they were individually entitled to receive. According to the court, the alleged injury to the participants could only be redressed by awarding individual relief to each of the participants.

The JPMorgan participants alleged that the company and its plan fiduciaries breached their duties by imprudently investing in JPMorgan Chase stock, misrepresenting the status of JPMorgan Chase stock and negligently supervising those who were appointed to manage the plan.

Stein’s ruling joins a number of other federal court decisions that illustrate a disagreement among federal trial and appellate judges about whether the company stock cases can be filed under ERISA.

Some courts, such as the US 5 th Circuit Court of Appeals, have ruled that the retirement plan participants are barred from such ERISA suits (See  Appeals Court Upholds Suit Dismissal in Conversion/Blackout Case ) while the US 3 rd Circuit Court of Appeals has drawn the opposite conclusion ( Recovering Losses For Individual Participants Is RecoveryFor The Plan ).

Stein found support in the US District Court for the District of New Jersey’s unpublished decision in In re Schering-Plough Corp. ERISA Litigation.  In that case, the New Jersey district court found that because the 401(k) plan at issue was an individual account plan, any monetary relief would go to the individual accounts of each participant instead of to the plan itself.

The Third Circuit recently reversed the Schering-Plough decision, finding that the nature of the plan as an individual account plan would not mean that the plan itself did not sustain losses   ( Rulings Show Participants Invested in Co. Stock Have Recourse ).

The latest case is Fisher v. JPMorgan Chase & Co., S.D.N.Y., No. 03 Civ. 3252 (SHS), 8/25/05.

Administration September 11, 2005

FASB Set to Consider Sweeping Pension Reporting Changes

November 9, 2005 (PLANSPONSOR.com) - The Financial Accounting Standards Board (FASB) is moving closer to its goal of revamping current reporting rules for pensions and other post-retirement benefits with a staff recommendation that companies be required to account for pension plan funding in calculating net worth.
Reported by

In material expected to be the topic of board discussion at Thursday’s meeting that was prepared by FASB staff members and posted on the  FASB Web site , the agency said the proposed stem to stern review of pension and post-retirement benefits is not expected to wrap up until the end of next year.

Staff members recommended that the board accomplish the pension reporting revamping in several phases, starting with deciding whether postretirement plans’ funding status should be accounted for in a company’s financial statement.

Never miss a story — sign up for PLANSPONSOR newsletters to keep up on the latest retirement plan benefits news.

During the first stage, staff members recommended the board require that:

  • companies recognize in their balance sheet a net postretirement benefit asset or a net postretirement benefit obligation for each sponsored defined benefit plan equal to the difference between plan assets measured at their fair value and the projected benefit liability (pensions) and accumulated postretirement benefits obligation (other postretirement benefits), measured as of the measurement date. FASB staff members asserted, “That would ensure an employer reports in the balance sheet the economic funded or unfunded status of its defined benefit postretirement plans.”
  • Changes in the fair value of plan assets and the benefit obligation that are not currently required to be recognized in earnings (unrecognized gains and losses) would be reported as credits or charges through other comprehensive income (OCI).
  • an intangible asset related to any unrecognized prior service costs be recognized consistent with the current requirements in Statement 87 when an additional minimum liability is recognized.

According the report, staff members recommend that FASB save the major rulemaking heavy lifting for the second phase of the project. That’s when the agency would “reconsider comprehensively most, if not all, aspects of the existing standards of accounting for postretirement benefits.”

The report said any FASB rule changes should be undertaken in concert with international accounting authorities who are developing new standards for companies around the world (See The Bottom Line: Let It All Hang Out ).

«