Compliance March 24, 2010

Stock Drop Procedural Appeal Allowed by Court

March 24, 2010 (PLANSPONSOR.com) – A federal judge in Tennessee has allowed First Horizon National Corp. to ask a federal appellate court to resolve a still murky procedural issue in stock drop cases.
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U. S. District Judge S. Thomas Anderson of the U.S. District Court for the Western District of Tennessee cleared the way for First Horizon lawyers to ask the 6th U.S. Circuit Court of Appeals to decide whether courts can now expand the “presumption of prudence” standard already common when cases are decided on their merits to earlier when rulings are being rendered on the initial court filings.

The First Horizon lawyers argued federal judges around the country have been split on the issue.

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Because the law gives company stock plan sponsors the presumption that their decisions were prudent, stock-drop plaintiffs have to show that prudence presumption should be disregarded in light of a company’s pending financial collapse or by arguing that no other reasonable fiduciary would have taken the same steps as the stock-drop defendants including offering company stock at all.

Plaintiffs contended that First Horizon breached their duties by continuing to offer company stock in its defined contribution plan when it was no longer a prudent investment. They further alleged that the defendants breached their duties by not giving the employees complete and accurate information about First Horizon’s financial position.

Between 2003 and 2007, according to the class-action suit, First Horizon greatly increased its exposure to risky home, commercial, and real estate construction lending. As a result, the suit charged that First Horizon shares dropped almost 90% during the time covered by the litigation.

According to the court, as of December 2005, more than 50% of the plan’s net assets of $317,598,814 were invested in First Horizon stock.

The case isSims v. First Horizon National Corp., W.D. Tenn., No. 08-2293-STA-CGC.

Compliance March 24, 2010

Cuomo Obtains Agreement with Railroad on Disability Reforms

March 24, 2010 (PLANSPONSOR.com) - Attorney General Andrew M. Cuomo has announced that the Long Island Rail Road (LIRR) has agreed to reforms to address abuses of the occupational disability benefits system for retirees.
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According to the announcement, the LIRR has agreed to retain an independent examiner to design a compliance program and recommend controls at the LIRR. The moves are to help address the problems with the occupational disability benefits that were uncovered by the Attorney General’s investigation and highlighted in a public hearing in Long Island conducted by the Attorney General and attended by five members of Congress.      

In addition to designing a compliance program and recommending controls, the independent examiner will also, at a minimum:

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  • Review, and to the extent necessary, revise the current ethics training program at the LIRR to ensure that proper training is being given to all LIRR employees relating to the problems with occupational disability benefits that were uncovered last year;
  • Review the organization of the LIRR pension office and the retraining of its employees;
  • Review, and to the extent necessary, improve or expand the functions of the LIRR compliance unit that the LIRR created in the wake of the OAG’s investigation;
  • Examine the U.S. Railroad Retirement Board (RRB) occupational disability benefits application and review processes and recommend measures designed to reduce the number of inappropriate applications for, or awards of, occupational disability benefits; and
  • Assess the LIRR’s monitoring of on-the-job safety, accident, injury, and medical issues.

     

The announcement said that more than 90% of LIRR retirees applied for disability benefits from the RRB to supplement their pension — a disproportionately high percentage in relation to other railroads — and the RRB approved almost every application for the benefit. The investigation also exposed a cottage industry that has developed among certain doctors and consultants to assist LIRR employees in exploiting the system.      

Although the awarding of occupational disability benefits is controlled by the RRB (see Railroad Board Reportedly Embraces Disability Reforms), the LIRR has agreed to take steps to ensure that it is doing its part in curbing any abuse.      

A copy of the agreement is here.

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