Compliance March 25, 2009

Delphi Fiduciary Breach Suits against State Street Dismissed

A federal judge ruled that State Street Bank and Trust Co. was acting within its scope as a directed 401(k) trustee in its 1985 Delphi Corp. stock sales and cannot be held liable for a fiduciary breach.
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A ruling by Chief U.S. District Judge Gerald E. Rosen of the U.S. District Court of the Eastern District of Michigan in a case filed by 401(k) participants said plaintiffs accused State Street of violating the Employee Retirement Income Security Act (ERISA) in its decision to sell Delphi Corp. stock as part of its work in connection the Delphi 401(k) plans (see “Delphi Retirement Plan Participants Sue State Street’).

The 401(k) plan shares were sold October 5, 2005, three days before the auto parts company filed for bankruptcy protection (see “Delphi Closer to Clearing Bankruptcy Emergence Hurdles’).

According to Rosen’s opinion granting State Street’s request to throw out the suits, a key legal touchstone in the case is a provision in State Street’s agreements with the plans that its discretionary authority over dealing with assets in company stock funds was expressly limited as being “subject to the trust agreement and the written fund policy” for each Delphi investment account.

Plaintiffs’ lawyers argued that State Street had become a functional ERISA fiduciary despite the limiting agreement language by taking on investment management authority. Their “purported evidence” did not support their assertion, Rosen ruled.

Rosen asserted that State Street, acting in light of Delphi’s “imminent” bankruptcy filing, properly took steps to begin the stock sales when it did, despite the trust agreement and plan document provisions.

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Compliance March 24, 2009

GOP Congressmen Offer Savings Proposal

A group of Republican Congressmen have proposed a plan they say offers a shot in the arm for American savings.
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The Savings Recovery Act has been introduced by the House GOP’s Solutions Group for Savings Restoration – a group of Republican Congressmen led by U.S. House of Representatives Minority Leader John Boehner. According to an announcement, the proposal is designed to help Americans rebuild their retirement, college, and personal savings.
The blueprint includes:
  • Rebuilding Americans’ retirement savings by raising the contribution and catch-up limits for individuals and families.
  • Restoring college savings by extending the existing SAVERs Credit to contributions made to 529 college savings accounts, effectively reducing by up to half the cost of a family’s contribution to the plan.
  • Increasing retirement income by doubling the Social Security earnings limit from $14,160 to $28,320 and allowing more Americans to increase their income without being hit by the Social Security earnings penalty.
  • Providing tax relief for investors and seniors by immediately suspending the capital gains tax on newly acquired assets for the next two years, raising and indexing to inflation the amount of capital losses allowed against ordinary income to $10,000, and suspending taxes on dividend income through 2011.
  • Stabilizing worker pensions and helping employers invest in the future by temporarily providing an increased glide path for recognizing losses and two additional years to resolve pension funding shortfalls.
  • Preserving employee-controlled 401(k)s by blocking efforts to wipe out 401(k)s entirely and replace them with government-run accounts.
And, based on comments from the American Benefits Council, the bill also includes a three year extension of the current suspension of the required minimum distribution rules.
“Recent polling suggests that Americans’ concerns about their savings even trumps concerns about losing their jobs. Unfortunately, Washington Democrats have done nothing to address this savings crisis,’ noted House Minority Leader and Congressman John Boehner (D-Ohio) in an announcement. “In fact, Washington is pursuing policies that are causing Americans’ savings to evaporate more quickly, and some even advocate wiping out 401(k)s entirely and replacing them with government-run accounts. That’s unacceptable and not the solution Americans need at a time when they want to rebuild their retirement, college, and personal savings.’
In a statement the American Benefits Council said applauded the upcoming introduction of the Savings Recovery Act. “The Council believes that bold initiatives like this are critically needed to address the dire effects that the economic downturn has had on the retirement security of millions of Americans,’ said American Benefits Council President James A. Klein upon House of Representatives Minority Leader John Boehner’s (R-OH) preview of the bill.
The House GOP’s Solutions Group for Savings Restoration includes Rep. Howard P. “Buck’ McKeon (R-CA), Rep. John Kline (R-MN), Rep. Dave Camp (R-MI), Rep. Pat Tiberi (R-OH), Rep. Sam Johnson (R-TX), Rep. Ed Royce (R-CA), Rep. Michele Bachmann (R-MN), Rep. Lynn Jenkins (R-KS), Rep. Erik Paulsen (R-MN), Rep. Dean Heller (R-NV), Rep. Bob Latta (R-OH), and Rep. Brett Guthrie (R-KY).
More information on the House GOP’s solutions to restore Americans savings is available at http://gopleader.gov/savings/

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