Judge Overturns Benefits Denial in Accidental Death
Case
December 5, 2005 (PLANSPONSOR.com) - A federal judge
in West Virginia has thrown out a benefits denial by an
accidental death and dismemberment benefit plan administrator
who turned down death benefits to the widow after ruling the
participant's death was not an accident.
US District Judge Joseph Goodwin of the US District
Court for the Southern District of West Virginia said the
plan administrator was off base in ruling that participant
Earl Eckelberry should have foreseen that he could die when
he drove while drunk. Eckelberry’s car struck a parked
tractor trailer on the side of the road in March 2004 when
his blood alcohol level was .15 percent. According to
Goodwin, the administrator’s determination “defies
logic.”
Comparing drunk driving to various other situations in
which drivers are distracted, such as while talking on cell
phones, Goodwin said there was no evidence that such
drivers actually expect to die when they act negligently
while driving. “[A]lthough a person that gets behind
the wheel of a car while intoxicated increases the
likelihood of dying in a crash, it is illogical to suggest
that the driver reasonably foresaw that result,”
Goodwin wrote.
Eckelberry’s widow asked for $86,000 in
benefits from his employer’s accidental death and
dismemberment benefit plan. The plan administrator,
Reliastar Life Insurance Co., turned her down, citing a
provision in the plan that defined the term
“accident” as “an unexpected and sudden
event which the insured does not foresee.” According
to the court, Reliastar informed Eckelberry’s widow
that her husband had “put himself in a position in
which he should have known serious injury or death could
occur.”
Eckelberry sued Reliastar under the Employee Retirement
Income Security Act (ERISA), arguing that Reliastar had
acted unreasonably in denying her claim for benefits.
The court also noted that if it were to find that
Eckelberry’s death was not unexpected, then it would
open the door for insurers to exclude coverage for any
accident in which an insured engaged in some activity that
increased the chances of dying. “The fact that
negligence or a decision that makes an accident more likely
to occur exists does not mean that once the accident
occurs, that it was really not an accident,” the court
said.
The opinion in Eckelberry v. Reliastar Life Insurance
Co., S.D. W.Va., No. 6:04-cv-01185, 12/1/05 is
here
.
Despite Asset Gains, Contribution Increases, DB Plans
Struggle to Stay Even
April 12, 2005 (PLANSPONSOR.com) - In a year where
most plan sponsors appeared to be doing just about everything
"right," large defined benefit plans still struggled to stay
even, according to a new analysis.
Milliman Consulting’s 2005 Pension
Study
reported earlier today that the top 100 US companies with
defined benefit pension plans reported a 12.4% return on
assets in 2004, nearly 50% higher than the 8.5% median
expected return on those portfolios, which totaled some
$1.023 trillion, according to the report.
That marked the second year of surplus gains, following
three consecutive years of deficit returns during a period
(2000 – 2002) frequently referred to as the “perfect storm”
of soaring liabilities, steeply declining interest rates,
and slumping asset values.
A year ago, Milliman reported that those top 100 plans
enjoyed a 19.6% return (see
Milliman: Pension Assets Up 19.6% in 2003
). This year marks the fifth year Milliman has
produced this study.
Still, while the performance of the past two years could
well be characterized as a “return to normal,” the nation’s
private pension system is still struggling to recover from
the damage wrought by the storm.
Consider that while the aggregate pension deficit decreased
by another $10.4 billion in 2004 – on top of a $45.3
billion reduction in 2003 – that amounts to just a fraction
of the $391.5 billion in surplus assets lost during the
2000 – 2002 period, according to Milliman.
Moreover, while more than 20% (22) of the top 100 companies
were in a pension surplus position in 2004, two more than a
year ago – that was still well short of the 85 in the
pension funding black in 1999.
Like a stunned boxer after a knockdown, those top 100
pension plans are slowly, sometimes painfully, picking
themselves up off the mat.
According to Milliman, in 2004, the average funded ratio of
those plans was 90.5%, up from 88.8% a year ago, and well
up from the 82.6% average recorded in 2002.
With respect to accumulated benefit obligations, which do
not take into account projected increases in future
compensation, the aggregate funded ratio for the group rose
from 95.6% in 2003 to 98.1% last year, according to
Milliman.
Much of that gain has come the hard way, via increased
contributions.
Milliman notes that a third of the companies surveyed
increased their contributions in 2004 by more than 50%,
while half as many decreased contributions by that amount
following significant contributions in 2003.
Among the 59 firms that increased their contribution, the
median increase was 57%.
Excluding General Motors (which contributed $19.1 billion
in 2003 and just $0.9 billion last year (see
Back from the Brink? GM's Pension Works its Way Back to
Funded Status
), Milliman notes that employer contributions increased to
$40.7 billion from $37.8 billion in last year's report.
John Ehrhardt, a Principal and Consulting Actuary at
Milliman, noted that the number of companies increasing
their contributions in 2004 was actually a bit less than
one might have expected - but told reporters in a press
briefing that there was anecdotal evidence that some plan
sponsors may have delayed making contributions last year
based on word that the Bush Administration's pension reform
proposal would restrict some of the accounting flexibility
for carryforward on those contributions.
New Realities
Plan sponsors responded to some new market realities and
reports of heightened regulatory scrutiny by reducing both
the discount rates and expected rate of return assumptions
in 2004.
The median discount rate used by the top 100 was just
5.75%, compared with 6.11% in 2003 (and 7.50% in 2000),
while the median expected rate of return dropped to 8.50%
from 9.50% in 2000.
Nearly half (45) of the firms lowered their expected rate
of return, on top of the drop in assumptions made by
three-quarters of the firms in 2003, according to Milliman,
which drew its numbers from public financial statements of
the firms.
Still, 20 companies continued to use an expected rate of
9.0%, a number that SEC staffers have indicated might
require justification (see
Pension Reporting Draws SEC Criticism
).
The previous year 27 companies used an assumption above
that level, while 70 did so in 2002 and 84 in 2001.
Those lower discount rates helped drive liabilities
higher in 2004, increasing 8.3%, after increases of 11.4%
in 2003, 10.8% in 2002, and 7.2% in 2001.
Beyond changes in assumptions and some additional
funding, plan sponsors evidenced no real shifts in their
broad-based asset allocation strategies.
For the most part, the trend was to use income from fixed
income investments to pay benefits, while the overall
allocation to stocks moved from the low 60s to the high
60s, consistent with historical trends.
Shifts are occurring within those broad classes, with money
moving from value to growth, and from domestic to
international holdings, among other shifts, findings that
echo the results of the 2004 PLANSPONSOR/Fidelity study of
defined benefit plan practices (see
Funding Drives
).
Asked about the frequently discussed idea of a shift of
more assets to fixed income as a means of better matching
assets to liabilities, Ehrhardt and John A. Cardinali, a
senior consultant at Evaluation Associates, dismissed the
notion.
"People are talking about it, but that's all," said
Ehrhardt, noting that doing so for many would amount to
locking in their pension expense, rather than benefiting
from rising equity asset values to close that gap.
"Companies are still managing the level of their expense,
not the volatility of that expense," Ehrhardt
explained.
Milliman reiterated that the experience of the past
two years constitutes a "return to the baseline," and noted
that defined benefit plans should be expected to cost the
employer at least 5-10% of payroll.
"The overfunded status of these plans during the
1990s was a temporary anomaly," according to the survey's
authors.