Compliance December 31, 2012

Multiemployer Plans Could Use More Help

Pension Benefit Guaranty Corporation (PBGC) Director Joshua Gotbaum says some multiemployer plans could use more help to remain solvent.
Reported by

Testifying before the U.S. House Subcommittee on Health, Employment, Labor, and Pensions (HELP), Gotbaum said generally, plans are using the tools and authorities provided under the Pension Protection Act (PPA) to reduce costs, limit liabilities, and increase contributions steadily over time. They are also using their new flexibility under PPA to respond to market fluctuations and to reduce excessive stress on employers and participants. However, he noted, many critical status plans and some seriously endangered status plans are severely distressed and will need still further provisions to remain viable.     

According to Gotbaum, in the case of some of these ongoing plans, further contribution increases may be needed. He pointed out that because benefits generally cannot be reduced after they are earned, there is a natural limit to how much underfunding can be made up through reductions in benefits.    

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He testified that the PBGC’s multiemployer program has few assets: as of September 30, 2012, the program had total assets of $1.8 billion. As of the end of FY 2012, the multiemployer insurance program has $7 billion in booked liabilities.

(Cont’d...)

Gotbaum said some of the provisions of the PPA will sunset in 2014, which creates both the need and the opportunity to consider what changes are appropriate for the future. He said PBGC’s multiemployer program should also be reviewed as part of that discussion, noting that the basic contours of the program have not been modified in more than 30 years.    

“Some of the tools and authorities the statute provides that might be useful in certain circumstances are not useable in practice because of the agency’s lack of financial resources.  Both the program and PBGC’s finances should be analyzed as part of and in the context of the broader changes for multiemployer plans generally,” Gotbaum concluded.  

A replay of the hearing, as well as text of Gotbaum’s testimony, is available here.

Compliance December 31, 2012

Pension Group Concerned About Insider Trading

The Council of Institutional Investors has requested additional guidance from the Securities and Exchange Commission (SEC) to prevent insider trading.
Reported by

The Council, a nonprofit, nonpartisan association of public, corporate and union pension funds, and other employee benefit plans, foundations and endowments, expressed concern about the potential misuse of trading plans that are intended to satisfy the requirements of Rule 10b5-1 under the Securities Exchange Act of 1934. A Rule 10b5-1 trading plan is a program for the periodic purchase and/or sale of stock that provides executives a defense against charges of insider trading if they later trade stock while they know confidential, important information about their company.  

The Council said its concerns were heightened by a Wall Street Journal article entitled “Executives’ Good Luck in Trading Own Stock” that noted some company insiders may be adopting Rule 10b5-1 plans at a time that they are aware of material non-public information, which should preclude trades affected pursuant to such plans from being protected by Rule 10b5-1. According to the letter, the article also noted that some insiders frequently cancel or amend plans after they have been adopted, which raises questions regarding whether such plans were adopted in good faith, a prerequisite to a legitimate Rule 10b5-1.  

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It also appears that many plans adopted by insiders in reliance on Rule 10b5-1 allow trades to occur pursuant to such plans within mere days after the plan has been adopted, the Council said, which also raises questions about whether such plans were made in good faith and whether the insider could have been in possession of material non-public information at the time that the plans were adopted.

The Council requested that the SEC consider pursuing interpretative guidance or amendments to Rule 10b5-1 that would require Rule 10b5-1 plans to adopt the following protocols and guidelines: 

  • Companies and company insiders should only be permitted to adopt Rule 10b5-1 trading plans when they are permitted to buy or sell securities during company-adopted trading windows, which typically open after the announcement of the financial results from a recently completed fiscal quarter and close prior to the close of the next fiscal quarter;  
  • Companies and company insiders should be prohibited from adopting multiple, overlapping Rule 10b5-1 plans;  
  • Rule 10b5-1 plans should be subject to a mandatory delay, preferably of three months or more, between the adoption of a Rule 10b5-1 plan and the execution of the first trade pursuant to such a plan; and 
  • Companies and company insiders should not be allowed to make frequent modifications or cancellations of Rule 10b5-1 plans.  

The Council’s letter is here.

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