Compliance February 20, 2009

AirTran 401(k) Seeks Assurances on Stanford Group Tie

Stanford Group Cos., the investment house run by disgraced billionaire R. Allen Stanford, has served as the financial advisor to AirTran Airways Corp.’s 401(k) plan – but participants don’t need to worry.
Reported by
According to the Atlanta Business Journal, AirTran, which used a director for Stanford Group Cos. as its 401(k) plan adviser, said its employees’ retirement plans are not in any danger. “There’s no exposure in any way,’ airline spokesman Tad Hutcheson told the paper.
The Houston-based investment advisory firm was accused of running a “massive and ongoing’ fraud, according to an emergency complaint filed February 16 by the Securities and Exchange Commission to halt the firm’s operations (see Another Billion-Dollar Investment Advisory Fraud Unfolds) .
The SEC’s complaint alleges the company misled investors to buy certificates of deposit and other products by misstating investment returns. “Stanford Financial Group is the investment advisor to the 401(k) plan,’ Hutcheson told the ABJ. However, “It does not manage or hold any of the money’ in the employee 401(k) plan, he said.
“I want you to know that none of the AirTran pilots’ retirement money is in any of the Stanford off shore accounts,’ Ron Burkhart, the president of the AirTran pilots union wrote to his fellow pilots, according to the report, “Our advisor is employed by a different subsidiary of the Stanford Group. Our accounts are with Fidelity as the bookkeeper and the different fund choices we have do not include any Stanford funds.’
The adviser, Stanford Group Company of Atlanta, Georgia, provides guidance to AirTran employees regarding about two-dozen Fidelity-branded or managed mutual funds offered in the airline’s 401(k) program.
“We have been assured by Fidelity that there are no Stanford-related investment products involved in the mutual funds our employees are invested in,’ Hutcheson said, adding the airline is “carefully monitoring’ the situation.
The Markets February 20, 2009

Coca-Cola Moves to Cash Balance Plan

The Coca-Cola Co. is adopting a cash balance pension plan for new and current employees, according to a news report.
Reported by

Under the cash balance plan design, employees will receive annual age-weighted credits equal to a percentage of pay, starting at 3% and increasing with age. Employees’ cash balance plan accounts also will be credited with interest, but Coca-Cola has not yet decided on the interest-rate formula it will use, Business Insurance reported.

The plan will be offered to most U.S. salaried and hourly employees hired as of January 1, 2010, and employees currently in Coca-Cola’s traditional final average pay plan will earn future benefits in the new plan the same date.

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While many employers have made a move away from defined benefit pension plans to offering only defined contribution retirement plans to employees, Coca-Cola executives rejected that idea, according to the news report. “Offering a secure and risk-free benefit to employees is very important to us,” Sue Fleming, director of global benefits at Atlanta-based Coca-Cola, told Business Insurance.

Fleming said the appeal of a cash balance plan for an increasingly mobile workforce is that benefits, which are based on career average pay, accrue faster than they do in traditional plans, in which employees have to work many years before accruing significant benefits.

Watson Wyatt Worldwide worked with Coca-Cola on the cash balance plan design.

The Pension Protection Act freed employers to offer cash balance plans without fear of litigation, after some companies who adopted the plans had been sued for age discrimination (see “IRS Applies PPA Changes to Cash Balance Regs’). Other big employers that adopted cash balance since the enactment of PPA are MeadWestvaco Corp. of Richmond, Virginia; SunTrust Banks Inc. of Atlanta; and Dow Chemical Co. of Midland, Michigan, according to the news report.

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