Court Dismisses Claim Against Solis for PPA Provision

A federal district court dismissed claims by defined benefit (DB) plan participants over the removal of an early retirement provision due to the plan’s critical status.

Two participants of the Washington-Idaho-Montana Carpenters-Employers Retirement Trust filed a complaint against U.S. Secretary of Labor Hilda Solis, alleging that the elimination of the subsidized early retirement option of their retirement plan violated the Due Process Clause of the Fifth Amendment and that the distinction between early retirees already in “pay status” and those not yet retired amounts to a violation of the equal protection component of the Due Process Clause.  

The U.S. District Court for the Eastern District of Washington said the participants failed to demonstrate any state action, which is a necessary predicate to a suit alleging due process and equal protection claims against the Secretary. “The  mere  existence  of  the  provisions  in  the  PPA  (Pension Protection Act) allowing  the elimination of adjustable benefits does not amount to state action necessary to sue the United States,” said the court.  

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According to U.S. District Judge Lonny R. Suko’s opinion, after suffering  severe  economic  losses,  the  plan  sponsor  adopted  a Rehabilitation  Plan  designed  to  enable  the  plan  to  emerge  from  critical  status, pursuant to Employee Retirement Income Security Act (ERISA) § 305(e)(3)(A), 29 U.S.C. § 1085(e)(3)(A), which was added to ERISA by the PPA. Under the statutory scheme, the Secretary does not select or create a rehabilitation plan or a default plan for a plan sponsor. Instead, pursuant to ERISA § 305(e)(1)(B), 29 U.S.C. § 1085(e)(1)(B), the plan sponsor, here the Board of Trustees, must provide the bargaining parties with schedules showing revised benefit structures, and must designate one of those schedules as a default schedule should the bargaining parties fail to adopt a rehabilitation plan.   

Suko said there appears to be no role for, or involvement by, the Secretary of Labor in this statutorily mandated process of selecting or adopting a rehabilitation plan and there is no evidence the Secretary played any such role in the present case.

In addition, Suko found that the participants have not shown a fundamental, constitutionally protected  right  that early retirement  benefits  exist  for  them  to  have  suffered  a  “taking”  in violation of the Due Process Clause of the Fifth Amendment. Although ERISA does generally protect a participant's interest in a contractually provided early retirement benefit, Suko noted, Congress provided a limited exception  to  that  protection  when  it  enacted  the  PPA,  which  provides  that a pension plan in critical status may eliminate early retirement benefits for those who, like Plaintiffs, have not yet retired and entered pay status.

The court dismissed the claims, finding the U.S. has taken nothing for its own use and has only imposed an obligation, which is within its power to impose as part of ERISA's comprehensive regulation of employer-provided pension plans. Suko added that the PPA was an amendment to ERISA's comprehensive regulatory regime designed to protect normal retirement benefits from the problems caused by defaulting defined benefit pension plans.

The opinion in Arendt v. Solis is here.

Americans Recognize Need for Financial Plan

Americans understand they have more responsibility than ever for their retirement security, but they expect the government to provide a social safety net. 

According to the survey findings from the Certified Financial Planner Board of Standards Inc., 82% of Americans recognize the urgency of creating a financial plan. Additionally, nearly 60% of respondents said they would benefit from the counsel of a financial planner or adviser.

Three key insights from the survey show that Americans struggle to balance short- and long-term concerns, and are aware of a changing economy.

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  •  Survey respondents hold themselves accountable for their own financial security, but said they look to the government for an individual safety net. They also believe strongly that the government has a role in protecting people from fraud and abuse.

  •  Americans are divided on how they are faring in their personal financial situation as compared to one year ago. However, Americans express more optimism for their future financial situation.
  •  Aside from the immediate concern of filling up their gas tanks, the majority of Americans’ concerns center on longer-term issues like saving for retirement and reductions in federal benefits. Outliving assets and living with increased financial risk is top of mind for a subset of Americans.

The survey's findings also show that age, income, ideology and race play an important role in shaping Americans' views on their own personal economic situation:

  •  When it comes to providing financial security, 67% agree they have sole responsibility for their financial future, but Americans by a large margin want the government to provide some sort of safety net (72% for Social Security, 68% for Medicare).

 

  •  More than two-thirds of Americans (67%) believe it is the government's duty to protect investors from fraud and abuse.
  •  Americans are conflicted when it comes to their financial security: Many (44%) don't feel any better about their financial security than they did a year ago, and nearly a quarter (23%) feel more negatively toward their financial situation.  But half of Americans (51%) are optimistic their financial situation will improve over the next year, and less than one in 10 expect it to decline. 

  •  Over the next year, 79% of blacks and 76% of Hispanics expect their financial situation to improve. Less than half of whites (43%) expect their situation to improve.

  •  Those identifying themselves as black or Hispanic are far more positive about their current financial situation than whites, with 41% of blacks saying they are more positive now than a year ago, and 43% of Hispanics saying the same.
  •  Those identifying themselves as "liberal" register the highest degree of optimism at 62%; 44% of those identifying themselves as “conservative” expressed such optimism.

  •  Daily financial concerns are top of mind for most Americans; among the primary concerns: filling up their gas tank (54%), securing and paying for health insurance (46%), making their housing payment (39%) and getting or keeping a job (38%).

  •  Securing and keeping a job is of paramount importance to young people (18-34), with 51% of women and 55% of men expressing this as a major financial worry.

  •  Long-term issues weigh heavily among respondents, with 49% saying they are troubled about their retirement savings and 48% concerned about a reduction in government benefits. Only 40% of all Americans believe they will be able to retire by 65, and only 27% of males 18-34 say they will be able to retire at that age.

  •  A third of Americans express concern that they will outlive their retirement assets, and nearly two in five feel their financial security is more at risk than ever before.

  •  Similarly, 72% of older women (65 and older) express concerns about reductions in government benefits like Social Security and Medicare, while just 33% of women ages 18-34 share that concern.

  •  Those with incomes of less than $35,000 are more concerned with securing and paying for health insurance (58%) and a reduction in government benefits (58%) than those in higher income brackets, with only 26% of those making $100,000 or more a year concerned about their health insurance needs.

 

The survey was conducted by KRC Research from March 1 to 4, 2012, via telephone among 1,015 Americans ages 18 and older.

The full report for the Shifting Economy Survey is available here.

 

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