Compliance May 8, 2009

Law Firm Can Proceed With 401(k) Consulting Suit

A federal judge in California has rebuffed demands from JP Morgan Chase and Co. that it dismiss a lawsuit alleging mistakes that could imperil the tax-favored status of a San Francisco law firm’s profit sharing/401(k) plan.
Reported by

U.S. District Judge Samuel Conti of the U.S. District Court for the Northern District of California said he was not convinced the statuatory time limits for moving forward with the claims from Shartsis Friese LLP had expired by the time the January 2008 case was filed. The law firm’s allegations against Chicago-based benefits consulting firm CCA Strategies carry a two or three-year statute of limitations under California law, according to the court.

The crux of the law firm’s allegation is that a consultant with CCA (which was acquired by JP Morgan in November 2006), Tim Mahannah, made mistakes in the amounts he determined would be allowable for plan participants to defer into the plan. The firm hired CCA in 2001 to get advice about “the optimum manner in which (the firm) could maximize its partners’ contributions to the plan, minimize costs to (the firm) and remain in compliance with applicable laws,” according to the court.

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

Shartsis Friese severed its relationship with CCA before it was acquired in 2006 but didn’t discover the error until early 2007.

Different Formulas

Rather than base his calculations on a single-tiered contribution formula, the law firm alleged Mahannah used a three-tiered formula. Mahannah applied a different formula for partners, “of counsel” lawyers, and staff, the suit alleged.

Now, unless the firm corrects the situation, its plan could be declared to be non-compliant by the Internal Revenue Service (IRS), the law firm said.

“Loss of the Plan’s tax-favored status may have significant financial implications for (the firm) and all of the Plan participants, and may result in substantial loss of retirement benefits for partners and other Plan participants,” Conti observed.

In arguing the suit should be dismissed because it was filed too late, JP Morgan argued that the firm “should have known” of the errors sooner than it did because the firm was designated as the Plan Administrator. The underlying issues and supporting data were not complex enough to be indecipherable to the law firm, JP Morgan claimed.

However, “The Court is unwilling to conclude on the current record,’ Conti wrote, “that these errors were so obvious to a reasonable fiduciary that (the firm’s) reliance (on CCA’s advice) was unjustified as a matter of law, or that SF was not entitled to rely on CCA’s advice.’

The ruling is available here.

The Markets May 8, 2009

Calif. Transportation Firm Suspends 401(k) Match

A California transportation, freight, and logistics company has become the latest employer to suspend its 401(k) match.
Reported by

Pacer Inc., of Concord, California, said it was putting into place a broad cost-cutting effort as a result of the recession. “The continued steep decline in the economy and further deterioration of our stock price during the first quarter contributed to both the first quarterly earnings loss in Pacer’s history and to the non-cash impairment write-off. We are vigorously implementing financial and commercial measures designed to turn these financial results around,” said Brian Kane, chief financial officer of Pacer, in a news release.

Among the steps being taken, in addition to suspending the match for 2009:

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

  • cutting 140 jobs
  • pay cuts for all employees
  • suspension of merit increases for 2009
  • reductions in capital spending
  • suspension of the quarterly dividend
  • elimination of any non-critical spending.

The efficiency drive comes as Pacer suffered its first-ever quarterly loss of $177.4 million on revenues of $358 million.

“We obviously had a very, very difficult first quarter,” Michael Uremovich, Pacer’s chief executive officer, said during a conference call to discuss the results. “A number of things hit us at once. But we are acting aggressively and remain confident about our prospects.”

«