Compliance August 7, 2009

No Payment for Employee Who Died before Request was Received

The 3rd U.S. Circuit Court of Appeals has ruled that a plan administrator did not abuse its discretion in denying a disability retirement benefit payment to an employee who died before his payment application was received.

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In its opinion, the court said the plan explicitly granted the Committee the authority to create a requirement for receipt of the application before death and the requirement is not an unreasonable interpretation of the plan. “[T]he Committee has consistently applied the receipt requirement, it does not conflict with the Plan, and it is consistent with both the Plan and ERISA’s statutory provisions,” the court said.

The appellate court also determined the Summary Plan Description for the plan does not conflict with the main plan document, which is silent as to how applications may be presented to the company. It rejected widow Rosann Delso’s argument that the language of the SPD constitutes a reduction of rights or benefits, pointing out that it merely sets forth the procedures to be followed for presentation of a claim, as it is required to do by statute.

According to the opinion, James Delso was an hourly employee at Merck & Co. when he died suddenly on December 26, 2002, at 6:14 a.m. On December 24, while hospitalized, he signed a letter-application declaring his intention to go on disability retirement immediately and requesting a lump-sum payment of his pension under the Retirement Plan for the Hourly Employees of Merck & Co. Delso’s union representative delivered the application to Merck Human Resources on December 26 at 4:25 p.m., after Delso’s death.

The plan’s SPD included a rule that an application was considered received if it was (1) received by employee services by mail, delivery, or fax before the participant’s death; (2) mailed to employee services and postmarked before the participant’s death; or (3) received by a designated human resources employee before the participant’s death.

Rosann Delso argued that the receipt requirement was unenforceable because it was contained in the SPD but not in the plan itself and also because the committee’s interpretation of the plan was unreasonable. She argued that because of the Christmas holiday, she had no way to contact the company prior to her husband’s death and that she had done all she could do.

The court opinion is here.

Compliance August 7, 2009

SEC Announces Enforcement Initiatives

In a speech before the New York City Bar Association, marking the end of his first 100 days as director of the Securities and Exchange Commission Division of Enforcement, Robert Khuzami formally announced several changes to the Enforcement program.

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Compliance Week reported that under a newly implemented rule, the commission has now amended its rules to “delegate authority to the Director of the Division of Enforcement to issue formal orders of investigation.” In addition, Khuzami announced the formation of five specialized units within the Enforcement Division: asset management, structured products, municipal securities and public pensions, foreign corrupt practices, and market abuse.

A sixth specialized group focused on subprime mortgage abuses already exists, according to the news report.

A new Office of Market Intelligence will be created, responsible for collecting, analyzing, and monitoring the hundreds of thousands of tips the SEC receives each year.

Khuzami also announced that he will require his staff to get his permission in advance of any tolling agreements, in which subjects of investigations are asked to give the SEC more time to look into suspected misconduct than statute of limitations typically allow.  Such agreements are becoming far too common, he said, according to the news report, and might undermine the SEC’s “message of prompt accountability.”

The branch chief position, which is the lowest and largest tier of management in the Enforcement Division, is being eliminated. Khuzami said some current branch managers will become front-line investigators, and others may be promoted to the position of assistant director.

Khuzami’s speech is here.

The SEC is also advocating that it should be funded directly from industry fees. SEC Chair Mary Schapiro asserted such a system would let the agency tackle more complex investigations and put more resources into technology and attracting skilled financial investigators (see “SEC Head Pushes for Self-Funding Plan”).

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