Compliance July 25, 2005

Senate Bill Takes On Private Pension Pickle

July 25, 2005 (PLANSPONSOR.com) - Two leaders of the Senate Finance Committee have introduced a bipartisan attempt to provide some relief, and some reforms, for the nation's private pension system.
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The National Employee Savings and Trust Equity Guarantee Act, or NESTEG, was unveiled on Friday by Senators Charles Grassley (R-Iowa) and Max Baucus (D-Montana).   While the legislation contains a number of modifications to current pension funding rules, it includes nothing specific relating to the troubled airline industry (see  Senate Pension Reforms Won’t Give Airlines Enough Time ), specifically an elongated time frame to shore up current anemic funding levels.   A Republican staffer who briefed reporters said airline aid remains “an open issue,” according to Cox News.

The staffer, who declined to be named, according to the report, said there is “general support” among senators for helping carriers. But a few lawmakers remain opposed, so the two sides will have to hash it out tomorrow when the committee decides the massive bill’s final wording.

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The bill would:

  • Raise insurance premiums paid to the Pension Benefit Guaranty Corp., which insures private pension plans, from $19/worker a year to $30/worker.
  • Lift pension funding targets to 100% of projected liabilities from the current 90%.
  • Require the use of a more cautious formula to calculate pension funding obligations, which would be amortized over seven years.
  • Require the valuation of plan liabilities to be based on rates of corporate bonds whose duration mesh with the expected retirement dates of plan participants.
  • Includes an “at-risk liability for financially troubled companies” provision that requires companies that have held junk bond status for several years without improving their financial health to reflect the costs of early retirement in their liability measurements.
  • End the practice of “smoothing” pension numbers.   Critics of smoothing say the practice can camouflage severe insolvencies, while proponents have argued that smoothing is a valid means of dealing with long-term pension liabilities.   They have also been concerned that eliminating smoothing would greatly exacerbate funding results, and wreak havoc with corporate financial statements.

401(k) Provisions

Additionally, the bill has a number of 401(k) provisions, including requirements to:

  • Allow workers with three years of service to be able to diversify their holdings of company stock;
  • Provide a safe harbor for employers who chose to offer make investment advice available to plan participants.

The Senate version does not yet deal with the issue of cash balance plans, which was part of the discussions in a recent bill passed by a House subcommittee.

“We need to fix the problems within our control,” Grassley said Friday. “One reason for pension erosion is poor funding rules. Companies accept the tax breaks that come with offering pension plans, but pension funding rules allow companies to avoid fully funding them for their workers.”

Added Baucus: “The pension bill we have unveiled [Friday] takes strong yet measured steps to strengthening the private pension system….The hard lessons of corporate scandals and airline pension plan terminations should be applied to build a better, more secure future for hardworking Americans.”

In June, the House Education and the Workforce Committee passed its version of pension reform, the Pension Protection Act (HR 2830).   In addition to a number of pension reforms, that bill also included an investment advice proposal (see  Latest GOP Pension Reform Bill Includes Advice ).   That bill included no special relief for airlines, either.  

The Joint Committee on Taxation “Description Of The Chairman’s Mark Of The ‘National Employee Savings And Trust Equity Guarantee Act Of 2005,’ is online at 

Compliance July 22, 2005

Appeals Court Affirms Decision For Alaska Airlines In FMLA Case

July 22, 2005 (PLANSPONSOR.com) - The US 9th Circuit Court of Appeals has upheld a district court's decision that an employee's absence to make a trip across the country to retrieve a family vehicle was not a protected absence under the Family Medical Leave Act (FMLA).
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According to the  court opinion , H. Charles Tellis requested two weeks off work from his employer, Alaska Airlines, to care for his wife who was having difficulties with her pregnancy.   His supervisor told him to obtain forms from the company’s Health Benefits office for FMLA leave.   Tellis did not show up for work on July 4, 2000, but instead left a form requesting leave for July 5 through 7.

He called the Health Benefits office on July 5 to request specific forms for FMLA leave.   When his vehicle broke down on July 6, he decided to fly to Atlanta to obtain another vehicle he owned and drive it back to his home in Washington state.   During the return trip home, he called his wife numerous times on his cell phone.   Tellis argued to the court that the trip to retrieve the vehicle and the phone calls to his wife provided psychological comfort and reassurance to his wife as specified in the FMLA.

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When Tellis did not show up for work on July 11, the airline tried to contact him without success.   On July 18 it terminated him for his unexcused absences.   Tellis and his union filed a grievance over the termination and the airline agreed to reinstate him if he agreed to the placement of a disciplinary letter in his employee file for one year.   According to the opinion, Tellis refused the offer.

He filed a lawsuit against the airline with the US District Court for the Western District of Washington.   The district court ruled in favor of Alaska Airlines, and Tellis appealed the decision.

Senior Circuit Judge David Thompson, noted in the appeals ruling that Tellis’ acts did not meet the requirements for actual care in the FMLA.   In his opinion he said, “Having a working vehicle may have provided psychological reassurance; however, that was merely an indirect benefit of an otherwise unprotected activity – traveling away from the person needing care.”

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