Compliance December 9, 2006

Regulators Unveil PPA Changes to Form 5500

Federal pension regulators on Friday announced a series of proposed changes to the 2008 Form 5500.
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In a news release, the US Department of Labor’s Employee Benefits Security Administration (EBSA), the Internal Revenue Service (IRS) and the Pension Benefit Guaranty Corporation (PBGC) said that the proposals would implement changes to the annual reporting and pension funding requirements of the Employee Retirement Income Security Act (ERISA) and Internal Revenue Code enacted as part of the Pension Protection Act (PPA).

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The proposals also supplement a more general revision of the 2008 Form 5500proposed by the agencies in July 2006 . The supplemental proposal would replace the Schedule B (Actuarial Information) filed by defined benefit pension plans with separate actuarial schedules for multiemployer plans and single employer plans.

According to the announcement, the supplemental proposal also would add questions to the Schedule R (Retirement Plan Information) to collect new information on defined benefit pension plans required under the PPA.Finally, the supplemental proposal would establish the Form 5500-SF, which was part of the agencies’ July 2006 proposal, as the simplified report required by PPA for plans with fewer than 25 participants.

In the past, pension and welfare benefit plans required to file an annual return/report regarding their financial condition, investments and operations each year generally satisfied that requirement by filing the Form 5500 Annual Return/Report of Employee Benefit Plan and any required attachments.

The public is encouraged to submit comments on the proposed supplemental form revisions electronically by e-mail to e-ori@dol.gov or through the federal e-rulemaking portal at www.regulations.gov.Comments may also be submitted on paper to the Office of Regulations and Interpretation, Employee Benefits Security Administration, Room N-5669, U. S. Department of Labor, 200 Constitution Ave., N.W., Washington, D.C. 20210, Attn: Supplemental Forms Revisions.

General information about the Form 5500 is at http://www.dol.gov/ebsa/5500main.html.

Compliance December 9, 2006

Court OKs Class Action in Aon 401(k) Company Stock Suit

A federal judge in Chicago has certified as a class action a lawsuit against Aon Corp. over allegations 401(k) participants lost ten of millions of dollars when its overvalued company stock price collapsed two years ago.
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US District Judge Charles Norgle of the US District Court for the Northern District of Illinois turned away arguments by the company that many of the potential class members didn’t have the requisite legal standing because they had already taken distributions from their 401(k) accounts.

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“To hold that former Plan participants who have received final Plan distributions have no standing in this case would be to hold that these individuals have no right to sue, and therefore no right to this recovery. The court finds that such a holding would be contrary to the intent of the Employee Retirement Income Security Act (ERISA),” Norgle wrote.

The court added: “Assuming that Defendants have committed breaches of their fiduciary duty, and that these breaches indeed caused losses to the Plan, the amount of benefits former Plan participants and beneficiaries would have received when they accepted their final distributions from the Plan would have been diminished by the Defendants’ breaches. If the Plaintiffs are ultimately successful in this suit, former Plan participants will be entitled to recover these lost funds.”

The suit charged that Aon breached its ERISA fiduciary duty by having more than 40% of the plan’s assets in company stock between October 1998 and October 2004.

During that time, the participants alleged that Aon pressured clients to buy insurance from providers when doing so would maximize payment of contingent commissions. Not only that, but the suit claimed Aon inflated its revenues with “clawbacks.” That is where Aon allegedly provided discounts to insurers on the condition that Aon would recover those discounts by convincing its clients to deal with those providers.

According to the opinion, Aon made known its activities on October 14, 2004, causing its stock to plummet 30% within days.

In their lawsuit, the participants charged that Aon, its board of directors, and members of the plan’s administrative and investment committees breached their ERISA fiduciary duties by imprudently permitting the plan to hold Aon stock and by failing to provide participants with complete and accurate information regarding the risks associated with investing in Aon stock.

The case is Smith v. Aon Corp., N.D. Ill., No. 04 C 6875, 11/29/06.

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