Compliance December 23, 2009

House Bill Would Change Non-Discrimination Rules

A bill has been introduced in the U.S. House that would change how qualified retirement plans perform non-discrimination testing.

Reported by

The Retirement Fairness Act of 2009 (H.R. 4126) provides that:

  • Non-highly compensated employees who work part-time or don’t work a full year would be counted only as a fraction of a full-time employee for purposes of non-discrimination testing;
  • The testing would take into account only vested benefits of non-highly compensated employees, but all benefits of highly compensated employees; and
  • Cross testing would not be allowed, and for cash balance plans, accrued benefits calculated as the balance of a hypothetical account (or substantially similar accruals) shall be treated as contributions.


Generally, defined contribution (DC) plans are tested on the amounts put into participants’ accounts, while defined benefit (DB) plans are tested on the annuity payable at normal retirement age for each participant. However, the current nondiscrimination rules allow cross-testing (testing a DC plan based on the normal retirement benefit that the allocation would support) or testing a DB plan based on the present value of the normal retirement benefit. With cross testing, a DC plan sponsor could provide higher contributions for increased service or age.

The Retirement Fairness Act of 2009 would allow the Treasury Department or Internal Revenue Service (IRS) to prescribe regulations allowing exceptions to the prohibition on cross testing, with certain conditions.

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Compliance December 23, 2009

Law Firm Trolls for Participant-Plaintiffs

While it’s hardly a unique occurrence these days, a law firm is reaching out to 401(k) participants in a potential “stock-drop” suit.

Reported by

Stull, Stull & Brody, which says it has “substantial experience representing employees who suffered losses from purchases of their employer’s stock in their 401(k) plans,” noted that a “class action has been commenced in the United States District Court for the District of Connecticut on behalf of those who purchased the common stock of Terex Corporation between February 20, 2008 and September 4, 2008.”   

An announcement calls for potential participant-litigants, noting that “if you bought Terex stock through your Terex retirement account and have information or would like to learn more about these claims, please contact us.”

According to the firm, the complaint charges that Terex and some of its executives and officers “violated federal securities laws by failing to disclose material adverse facts about the Company’s true financial condition, business and prospects.” The complaint alleges that defendants “failed to disclose: (i) that the Company failed to properly and timely account for impaired assets in its ‘Construction’ and ‘Roadbuilding, Utility Products and Other’ segments; (ii) that Terex was experiencing declining demand for its products in its Construction, Materials Processing and Aerial Work Platforms segments; and (iii) as a result of the foregoing, defendants lacked a reasonable basis for their positive statements about the Company and its prospects.” 

It goes on to note that on September 4, 2008, Terex announced that it was updating its “2008 full year guidance and providing quarterly guidance due to changing market conditions,” and that in response to these statements (which the law firm said “revealed various adverse factors negatively impacting Terex’s business”), the price of Terex stock fell $9.30 per share, or 20%, to close at $38.02 per share. 

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