The Markets February 20, 2008

S&P Releases Indian Equities Shariah Indexes

Standard&Poor's launched two new investable Shariah indexes for the Indian equities market - the S&P CNX 500 Shariah and S&P CNX Nifty Shariah.
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Standard & Poor’s launched two new investable Shariah indexes for the Indian equities market – the S&P CNX 500 Shariah and S&P CNX Nifty Shariah.

The new Shariah indexes are derived from the S&P CNX 500 and S&P CNX Nifty indexes, which are considered the leading gauges of the Indian equity market, according to an S&P announcement.

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The S&P CNX 500 covers more than 90% of the total market capitalization and more than 80% of total traded volume on the National Stock Exchange (NSE), and is the complete benchmark for the Indian stock market. The S&P CNX Nifty represents the largest and most liquid companies listed on the NSE.

Each of the new indexes typically covers over 60% of the market capitalization of the parent index, though this can vary depending on the number of companies found to be compliant, the announcement said. Historical performance analysis, however, indicates that there is a high level of correlation between the underlying indexes and their new Shariah compliant versions.

The S&P CNX 500 Shariah comprises 263 companies with a market capitalization of In Rs 13,196 billion, while the S&P CNX Nifty Shariah comprises 40 companies with a market capitalization of In Rs 9,832 billion.

Standard & Poor’s Shariah Indexes are screened by Ratings Intelligence Partners, a Kuwait-based consulting company specializing in the Islamic investment market.

S&P Shariah Indexes undergo sector and accounting-based screens that exclude businesses that offer products and services which are considered unacceptable or non-compliant according to Shariah-law, such as advertising and media, alcohol, financials, gambling, pork, pornography, tobacco, and the trading of gold and silver as cash on a deferred basis.

More information is at www.shariah.standardandpoors.com.

Compliance February 20, 2008

Court Clears CIGNA of Cash Balance Wrongdoing

A federal judge in Connecticut has joined with most of his colleagues around the country in ruling on a seven-year-old lawsuit that CIGNA Corp’s cash balance plan is not age discriminatory.
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U.S. District Judge Mark R. Kravitz of the U.S. District Court for the District of Connecticut ruled after conducting a seven-day non-jury trial that the CIGNA plan did not run afoul of the Employee Retirement Income Security Act’s (ERISA) anti-backloading prohibition. What the plaintiffs saw as age discrimination, Kravitz asserted, was only the transition from a traditional pension plan that was heavily age-favored to a cash balance plan that was “still age-favored but less so.”

In terms of an ERISA Section 204(b)(1)(H) violation, Kravitz agreed with CIGNA that in determining the “rate of benefit accrual,” courts should focus on what an employer puts into a plan, rather than what an employee takes out of the plan at retirement. Kravitz pointed out that while federal courts have differed on the issue of how to define “rate of benefit accrual,” the large majority of courts that have found that the phrase should be defined by looking at employer “inputs” rather than employee “outputs.”

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Also, Kravitz admitted, when there is wear away, even though the employee continues to work for CIGNA and continues to receive benefit credits, the employee’s expected retirement benefits have not grown beyond what the employee was entitled to before the conversion. The court next rejected the participants’ argument that the plan violated ERISA’s anti-backloading rule, which prohibits employers from pushing the bulk of retirement benefits to their employees’ pensions until late in the employees’ careers.

CIGNA converted its traditional defined benefit plan to a cash balance plan in 1998. A group of participants filed a lawsuit in 2001 contending that the cash balance program was age discriminatory, violated ERISA’s anti-backloading rule, and resulted in the forfeiture of accrued benefits. The participants further alleged that CIGNA’s notice of the plan conversion did not comply with ERISA.

In December 2002, the district court certified the lawsuit as a class action consisting of approximately 25,000 CIGNA employees and retirees.

The ruling in Amara v. Cigna Corp., D. Conn., No. 3:01CV2361 (MRK), 2/15/08 is here.

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