xtremErisa - (xtremErisa.com / xtremErisa.blogspot.com)

Whether There's Any "There" There May Depend Upon What "May" May Mean

2012-01-14T09:41:00.005-05:00

This one made me smirk a bit, maybe because it brought back thoughts of Bill Clinton's classic apocryphal surmise, "It depends upon what the meaning of the word 'is' is." In Porkert v. Chevron Corp., an executive did not exercise his stock options before the expiration of the three-month period following the date his employment was terminated. A provision from the applicable documentation stated that the vested options “may be exercised within three months from the date of termination (but in no case later than ten years from the date of grant)". Thus, it would seem that the option expired, right?

What, however, may "may" mean? The plaintiff argued, presumably with a straight face, that “may” in the above-quoted provision was a precatory word that gave him the choice of exercising the options within the specified period or waiting until later to exercise them. The court thankfully "decline[d] to give th[e] contractual language . . . an implausible interpretation." Low bar, huh? Geez, query what the contrary result would have done to the potential interpretation and administration of any number of existing option documents.* Well, while you have to give people credit for making whatever arguments they can muster, in this case I guess there was just no "there" there.

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* How many existing agreements would be opened up for reconsideration? It's like opening up a flood of old criminal convictions when it's discovered that some purported defense lawyer with a bunch of clients wasn't really an admitted lawyer or that a jurisdiction's crime lab turns out to have been tainted. You even have to wonder about whether such an interpretation of "may" could have disrupted contract interpretation generally.

An XFINITY to Pay HSR Penalties for Stock Grants

2012-01-11T16:25:00.003-05:00

Some get their entertainment from Comcast's XFINITY line of products and services. For those who deal with stock grants where the resulting stock holdings have a very high value, however, a recent report, far from being entertaining, may be, to say the least, a bit sobering.

The issue relates to filing requirements that compensation lawyers may not see every day - the filing requirements under the Hart-Scott-Rodino Antitrust Improvements Act of 1976. Essentially, under HSR, a 30-day advance-notice requirement may apply in the event of certain acquisitions of voting stock. Under these rules, if certain dollar thresholds are met, an advance filing may need to be made with the FTC and the DOJ. The FTC takes the position that these rules can apply to transactions involving individuals. Concerns about possible HSR penalties in the context of executive compensation have been hovering in the background in some circles for years, but, like the airwaves, these concerns have largely floated about somewhat harmlessly in the ether.

Under the HSR rules, if the value of the securities acquired is $66 million or less, there is no reportable transaction. After $66 million, the transaction may need to be reported. Reporting obligations could attach to an individual if the individual has $13.2 million in total assets, and would apply regardless of the individual's assets if the value of the securities is more than $263.8 million. Critically for these purposes, one needs to aggregate value of the proposed transaction with the value of all prior holdings.

It may be argued that no takeover or other corporate transaction needs to be involved in order for a compensatory grant, standing alone, to be subject to the rules. Thus, if one surmises that these rules apply in the context of compensatory grants of voting stock, HSR issues could strike maybe almost as surprisingly as a Tebow pass at the beginning of overtime. (In addition, the FTC position is that the so-called "passive investor" exemption from these rules is not available to officers and directors.)

And while the HSR dollar thresholds are significantly high, the thresholds are - and this is important - by no means unreachable. In this regard, even assuming that a particular compensatory acquisition is below the $65 million amount, the aggregation rules can be tricky. For example, if an executive with sufficient assets already has $65.9 million in voting stock and is granted another $200,000 in voting stock, the filing requirements may apply.

The potential ramifications are not inconsequential. The acquiror must pay a filing fee of from $45,000 to $280,000 depending on size of the transaction, and there would need to be a 30-day waiting period before closing of the acquisition. More to the point here, penalties for failure to file can theoretically be up to $16,000 per day - $16,000 per day! - from date of acquisition.

So all of this now comes home to roost for Comcast and Brian Roberts, its CEO.* Indeed, he had once made an HSR filing, but apparently failed to realize that the filing doesn't shield acquisitions forever. The DOJ, at the request of the FTC, pursued the case, and he was accused of failing to satisfy the HSR filing requirements. The case was settled (concurrently with the filing of the action) for . . . $500,000.** Apparently, the maximum fine in the case could have reached to the neighborhood of . . . $7 million. Well, if you had any doubts as to whether these hopefully theoretical issues have real bite, I guess you don't have to wonder any more. Geez.

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* Presumably, he's not also the second baseman for the Baltimore Orioles.
** It hasn't been an overly good run lately for executives who haven't done a whole lot wrong. In November 2011, the one-time CEO of CSK Auto, Maynard Jenkins, settled a claim under the SOX compensation-disgorgement rules for $2.8 million - even though he was not even so much as accused of having engaged in any wrongdoing.

Notarizing Spousal Consent - More than Peanuts at Stake?

2011-10-14T14:31:00.007-04:00

So I come upon a Peanuts from the Sunday comics, one of the strips from the series about when Lucy holds the football for Charlie Brown as he tries to place-kick it, that was just reprinted in the papers, which reads as follows:

Lucy: I know you don't trust me, Charlie Brown . . . You think that I'm going to pull this football away when you come running to kick it . . .

Lucy: Well, here's a signed document testifying that I promise not to do it . . .

Charlie Brown: ?

Charlie Brown (to himself): It IS signed! It's a signed document!

Charlie Brown (to himself): I guess if you have a signed documenbt in your possession, you can't go wrong . . . This year I'm really going to kick that football!

Charlie Brown (attempting to kick the ball, missing, flying skywards and dropping the document): AAUGH!

Sound of Charlie Brown falling to the ground (as the document settles into Lucy's outstretched hand): WUMP!

Lucy (perusing the document): Peculiar thing about this document . . it was never notarized!

Charlie Brown (lying on the ground): * sigh *

My question is - how could Charles Schulz have been so precient so as to foretold the strategy so successfully (maddeningly?) used by the spouse in Alfieri v. Guild Times Pension Plan?!? There, a spouse was successfully able to assert beneficiary status, notwithstanding having signed a waiver, because of a defect in the notarization. See also Lasche v. George Lasche Basic Profit Sharing Plan; Hagwood v. Newton; Butler v. Encyclopedia Brittanica, Inc.; Burns v. Orthotek Inc. Employees Pension Plan and Trust (all being other examples of spouses trying to use this charming li'l strategy). Leave it to Mr. Schulz to identify this truth-is-stranger-than-fiction approach* to notarized documentation.

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* As Mark Twain said (or maybe this is a paraphrase), "The only difference between truth and fiction is that fiction has to be credible."

More Linguistic Machinations

2011-07-19T10:55:00.014-04:00

Here's a bemoaning of what's become of language as we all try to sound tapped in and otherwise expert. I've even seen plain humble ERISAfolk trying to keep up, as linguistic trends* get just oh-so-much cooler and cooler.

So, in listening to people try to communicate nowadays, where talking the talk seems to be a veritable Golden Ticket, I've assembled a glossary of terms that every lawyer should use in order to attain instant credibility. Here goes:

- "-ammed" (i.e., "slammed" and "jammed") - so busy you need to stop talking to me right now. The -ammed words are words that not only indicate a state of activity, but apparently inform the party to whom they are communicated that the speaker or writer is entitled as a matter of right to be free of whatever task is being considered for action. So, for example, if you ask someone to do something and you hear, "I'm slammed" or "I'm jammed", you will be committing a crime in some jurisdictions if you say something like, "Are you sure?" Or, "Is there any way that you could possibly work it in."

- "data dump" - the imparting of a chunk of information on someone. A cool tech reference, huh?

- "download" - a summary of the big picture, together with some detail as appropriate. Tech reference no. 2.

- "high altitude" - a general perspective. Sometimes, the concept can manifest itself with a specified distance off the ground, as in, "from 20,000 feet".

- "market" - other people. Actually, I sorta like this one. It conveys a notion that you're concerned with how other similarly situated people might approach your issue. Plus it makes you sound like you've got you're finger on the pulse. For example, you might say, "Well, I don't think the market would approach it that way."

- "on the ground" - there. We can't just say that someone's there; we have to say that someone's "on the ground".

- "opposite number" - other side; counterparty.

- "push back" - resist. Noun form: "push-back" or maybe even "pushback".

- "reach out" - try to contact someone, including, without limitation, by calling, emailing, visiting, speaking, etc. I truly believe that this phrase seeped into everyday conversation after the popularity explosion of NYPD Blue, where it seemed that everyone was always "reach[ing] out" to somebody. It's amazing to me that no one just gives someone a call anymore - we only . . . . reach out.

- "ping" - alert, remind, jostle, etc. Yet another cool tech reference, I guess.

- "space" - field, area. This is a biggie. No one just does anything anymore. You inhabit "space". So, for example, if I sold cars, I wouldn't be a car salesman; I'd be somewhere in the automotive space.

So how would all of this work? As they used to say in grade school, let's use the words in a sentence. First, the old way:

"Let me update you. The lawyers doing the actual negotiations are getting resistance from the other side, even though I think our position is reasonable. Can you please try to contact our private-equity people to let them know about the basics of what's going on here? - I'm too busy right now. Thx."

Now, the new, much (much) cooler way:

"Let me give you a quick download. The lawyers on the ground are getting all kinds of push-back from their opposite number, even though I think we're clearly in line with the market. Please ping our people over in the private-equity space and do a data dump from 20,000 feet - I'm really all kinds of slammed and jammed right now. Thx."

Now, doesn't the second version sound much more in the zone, in the sweet spot, in the . . . ? Well, you get the idea.

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* See also my earlier post on linguistic nomenclature.

Option Backdating, 409A, SOX and . . . "Suits"

2011-07-04T06:47:00.008-04:00

Someone has to endeavor to identify 409A, SOX and backdating references in television series, right? Well, I'm watching the pilot to the new show "Suits" and I come across the following pricelessness:

****
Gabriel Macht's Harvey Specter: I'm going to show you what a Harvard attorney can do. Pick a topic.

Patrick J. Adams's Mike Ross: Stock-option backdating.

Harvey: Although backdating options is legal, violations arise related to disclosures under I.R.C. Section 409A.

Mike: You forgot about Sarbanes-Oxley.

Harvey: The statute of limitations renders Sarbanes-Oxley moot post-2007.

Mike: Well, not if you can find actions to cover up the violations established in the Sixth Circuit May 2008.

Harvey: That's impressive, but you're sitting at a computer.

Mike: Playing hearts. Sorry, if you want to beat me, you're going to have to do it at something else.

Harvey: How can you know all that?

Mike: I told you - I like to read and once I read something I understand it, and once I understand it I never forget it.

Harvey: OK, look, this is all pretty fascinating stuff, but I'm afraid I gotta get back to work.
****

So what if we confuse 409A with SEC rules? So what if we throw in a nearly incomprehensible SOX reference? So what if, notwithstanding references to Skadden and the like, the show itself has very little to do with law firms? The fact is that we've now got a television show that in one scene mentions stock options, backdating, 409A and SOX - while at the same time maybe indeed even accurately reflecting just "what a Harvard attorney can do." Fun.

Slayer!

2011-05-06T15:30:00.014-04:00

SLAYER!!! Rock 'n' roll! Heavy Metal! Woo hoo!

And . . . ERISA?!?!?

What's the connection?

The connection is that there is a fairly wild line of authority relating to the question of whether state "slayer" statutes survive ERISA preemption. A slayer statute is generally a statute under which the murderer of an individual may not take as the beneficiary of the murder victim. (If you wanted to update the reference for more current sensibilities, I guess you could go with The Killers, as such statutes are also referred to as "killer" statutes.) Sounds utterly reasonable - but is it preempted? And, in addition, in the case of a tax-qualified plan, is it consistent with the requirements of Section 401(a) of the Internal Revenue Code?

Understandably, courts seem anxious to conclude that ERISA does not preempt state slayer statutes. See generally Hartford Life and Accident Insurance Co. v. Sabol, No. 09-CV-45 (E.D. Wis. Feb. 9, 2010) (surveying case law regarding the point). Similarly, the IRS does not seem anxious to disqualify tax-qualified plans for proceeding in accordance with state slayer statutes. See PLR 8322076 (Mar. 3, 1983); PLR 8905058 (Nov. 10, 1988), PLR 8908063 (Nov. 30, 1988); PLR 9008079 (Nov. 30, 1989); see also PLR 201008049 (Dec. 12, 2009) (IRA ruling).

All of this brings me to a case that doesn't technically involve ERISA and that doesn't precisely involve a slayer statute. It does involve life insurance and attempted murder, however, and is therefore close enough for me. To quote (or paraphrase (I'm not sure)) Mark Twain: "The only difference between truth and fiction is that fiction has to be credible." I think that any member of the Law & Order franchise would be embarassed to rip the following from the headlines.

So, to get to the case, Hartford Life and Accident Insurance Co. v. Cain,* No. 10-10907 (11th Cir. Feb 23, 2011) (marked as "do not publish" (ha ha))** involves a woman who (i) had an agreement with her estranged husband that she would be the beneficiary of his life insurance for so long as he owed child support, (ii) conspired to kill him in order to collect his life insurance and (iii) lost her rights to child support. Her rights to child support were revoked, and, eventually, he died. From prison, she claimed that, since he owed child support to someone, even if not to her, she should continue to be the beneficiary of the life insurance for which she conspired to kill him. Here are the facts of the case, as reported in state court and then in turn repeated by the federal court (bracketed text and brackets as in the federal case):

****
Over a four-month period, [the boyfriend], Mary Jean Cain, and her sons, Brandon and [Benjiman] Cain, conspired to murder Dean Cain, Sr., the ex-husband of Mary Jean and father of Brandon and [Benjiman]. The plot to murder Mr. Cain originated with Mary Jean, the motive being to collect a $460,000 life insurance policy upon the victim’s death. Various attempts to murder the victim proved unsuccessful. The conspirators first attempted to boil tobacco down to its poisonous form and place it in the victim’s tea. Because the tea was undrinkable, this attempt failed. Next, the conspirators purchased a gun with the intent to shoot out the victim’s tires and cause a fatal wreck; however, this attempt also failed. The group then decided to push the victim out of his fishing boat, knowing that he could not swim. This effort was abandoned after ten days because too many people were present. Finally, the conspirators decided to murder the victim in his home and later dump his body in the river. In furtherance of the conspiracy, an aluminum baseball bat, mask and gloves were purchased. Again, this plan went awry. After Brandon brutally beat his father with the bat, he left the house and announced to [Benjiman] that the victim was dead. Upon their return to dispose of the body, they found the elder Cain still breathing. The two men dragged the victim outside where he was left lying in a parking lot because they were unable to get him into the truck. The next day, the victim’s virtually naked and bleeding body was discovered. Although Mr. Cain survived, he suffers from serious, permanent, and disabling injuries.
****

You just can't make this stuff up.

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* Its' too bad they couldn't somehow get the name "Abel" into the Cain case.

** What the heck is the Hartford, with both of the cases cited herein, doing wrong?!?

Rangers Defeat Mets in the World Series of ERISA

2011-03-15T10:41:00.009-04:00

Recently, I did a post on the Mets' foray into ERISA-related patheticness via the Wilpons' involvement in the Madoff patheticness, to accompany (and maybe hasten) the Mets' on-field patheticness. Now there are two teams in the ERISA World Series, with the Rangers entering the ERISA fray.

The Rangers have become the most recent team, in connection with its own financial difficulties, to seek and (pursuant to a notice published in the Federal Register today) obtain a waiver from the 4204(a)(1)(B) escrow requirements under the multiemployer-plan rules. It looks like the post-Mets Nolan Ryan wins again, with the Rangers getting the ERISA waiver, while the Mets' Madoff fate remains completely unresolved. And, of course, on the field the Rangers are on an upswing notwithstanding their financial difficulties, while the Mets will be lucky to finish in the upper division for who knows how long.

But, after all, it's not really a fair fight - the Mets are a big-market team with big advantage and the Rangers are . . . . No, wait, I mean . . . . Oh, never mind! . . .*

We'll see how the Madoff thing goes. And, as to that baseball thing, wait 'til next century, fellow Mets fans!

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* My dear friend Steve R. points me to a Manhattan Mini Storage subway advertisement, apparently placed by a fellow long-suffering Mets fan (according to a NY Times blog identified to me by another dear friend Alan W.), which says, "Why leave a city that has six professional sports teams and the Mets?" It's hard to know whether to laugh or cry.

Norm! - A Wistful "Cheers" to Another Termination-of Employment Scene

2011-03-14T15:39:00.007-04:00

A while back, I did a post listing a number of movies, songs, etc., in which ERISA or ERISA-like issues make an appearance. The recent economic downturn caused me to recall another such appearance in the world of pop culture, this time in one of the greatest sitcoms of all time, Cheers. In the episode in question, The Executive's Executioner, Norm is chosen to be the employee charged with terminating other employees. Why? Because of Norm's extremely high level of empathy. I won't say more here, and, if you're interested in some right-on-the-money black humor relating to this unfortunate topic, check it out.

Charlie Sheen and . . . ERISA?

2011-03-08T13:59:00.009-05:00

Well, he may not quite have reached raising ERISA issues, but it was only a matter of time before Charlie Sheen got close. His recent employment termination under his employment contract raises several potentially fascinating contract-related points:

- We often worry about the conviction/commission dichotomy in the felony prong of the Cause definition. How different would the parties' relative positions here have been were the contract to have had a conviction-only standard? Indeed, the Sheen contract apparently says that the trigger is pulled when the "Producer in its reasonable but good faith opinion believes Performer has committed an act which constitutes a felony offense involving moral turpitude" (or if there is a conviction). The contractual ability of an employer or an employer's affiliate to make subjective judgments about matters like this, as opposed to there being an objective standard, can itself be enough to change the parties' relative positions if and when there is a . . . blow . . . up.

- Many of us assume that the felony prong is a fait accompli. In some negotiations, however, the employee's counsel may look for an express connection to there being detriment to the company, maybe beyond mere indirect reputational damage. It's a request that can raise eyebrows, but note how different the Sheen situation would be if his contract had a "conviction" standard rather than a "commission" standard.

- Some employees and their advisors worry about witch hunts, and whether contractual provisions will open doors or at least start to . . . crack . . . them open. Here, one may wonder whether Sheen was really terminated here for having given cocaine to one or more other people. The practical impact of the provisions in a contract, as well as the literal meaning of the words on the page, are worth considering. For example, when one negotiates any number of clauses regarding wrongful acts, is the question how much leeway the employee will have to do wrong, or is the question how much the employer will have in making the case for Cause (and, let's say, getting past a motion to dismiss or a motion for summary judgment). Arguably, the more the door is ajar, the greater the likelihood of settlement at lower amounts.

- Indeed, on the be-careful-what-you-wish-for front, will performers and other service providers in the industry now become concerned that their behavior could effectively nullify their contracts, even where their behavior cannot be tied to damage to the employer? Will there be an effect on the way contacts in the industry will read going forward? Well, on the one hand, maybe people will gravitate to the notion that this is an extreme case, and that these dynamics are not likely to be repeated; on the other hand, termination situations by their very nature can turn adversarial, and there is often no real way to tell who will try to do what to whom.

Anyway, what blog would be complete without reference to Charlie Sheen? So, there ya go. And, in conclusion - winning.

Dividend Equivalent Rights II, the 409A Sequel; and Toy Story 3, the Oscar-Nominated Sequel

2011-02-26T16:05:00.070-05:00

DIVIDEND EQUIVALENT RIGHTS - THE 409A SEQUEL

General Background

Dividend equivalent rights ("DERs") were specifically addressed in the 162(m) regulations regarding the question of whether the grant thereof in connection with an option grant disqualifies the option from favorable treatment as performance-based compensation. Not a whole lot of fuss was made about it at the time. Now we get DER II, set in 409A-Land, and, just when you thought it was safe to go back in the water (thanks, Jaws II), things get a little scary.

At their speeches and other presentations, Treasury and IRS officials have for a while been informally indicating concern under 409A about arrangements under which option-related DERs cut off once the option is exercised. Supposedly, so they say, in such a case the DER is somehow contingent in the exercise of the option.

A DER by its nature would, however, generally cut off on exercise of the underlying option, in that, once the option is exercised, the actual dividend then becomes payable. Thus, if there is really a problem here, DERs on options could be fundamentally at odds with the requirements under Section 409A.

The informal position being taken is confusing to me and I'm extremely surprised it's being taken. Unfortunately, the position seems to be being taken repeatedly, and in some circles is having a bit of a chilling effect on the granting of DERs connected to options. As described below, I think that the position is wrong, and indeed clearly so.

The issue arises under Section 1.409A-1(b)(5)(iii)(E) of the Treasury Regulations. Section 1.409A-1(b)(5)(iii)(E) provides that "the right, directly or indirectly contingent upon the exercise of a stock right, to receive an amount equal to . . . dividends . . . between the date of grant and the date of exercise . . . constitutes an offset to the exercise price . . . (generally causing such right to be subject to Section 409A)."

DERs and Section 162(m) - Happier Times

First, some history. Section 1.162-27(e)(2)(vi)(A) of the Treasury Regulations set out the predecessor rule, which applied, and still applies, for purposes of the exception for certain performance-based compensation from the $1 million limit on deductions under Section 162(m). The 162(m) rules state: "Whether a stock option grant is based solely on an increase in the value of the stock after the date of grant is determined without regard to any dividend equivalent that may be payable, provided that payment of the dividend equivalent is not made contingent on the exercise of the option." Treas. Reg. § 1.162-27(e)(2)(vi)(A) (third sentence).

The idea was that, if the option-related DER were to be made contingent on exercise, then the DER would effectively constitute a purchase-price reduction. And, if that's true, the option, even if otherwise granted at grant-date FMV, would nevertheless essentially be an in-the-money option not eligible for favorable treatment (as performance-based compensation) under 162(m). Treasury pithily described the foregoing, when it issued the 162(m) regulations that included this rule, as follows: "If the payment of the dividend equivalent is conditioned upon the employee exercising the option, the dividend effectively reduces the exercise price of the option, thereby causing the option to be nonperformance based upon its exercise." 60 Fed. Reg. 65,534, 65,535 (Dec. 20, 1995).

Historically, in those cases in which favorable 162(m) treatment was sought, the practical effect of this rule under 162(m) in at least some cases has been that the employer pays the DER up until the time the option is exercised, and keeps paying it throughout the term of the option until its expiration if the option remained unexercised. It would seem to be evident that, using that approach, the DER does not operate as a mere purchase-price reduction, as the DER would be paid when there's never a purchase under the option at all (i.e., when the option expires unexercised so that there's no purchase whatsoever under the option).

(Sometimes, in the case of certain more generous programs, the DER will be retained even if the option never vests. Other employers provide that the DER won't be paid if the underlying option didn't vest. But the question of whether to hold the DER back depending on whether the option has vested is a different matter than the one being considered herein - the key point here is that the DER is to be paid regardless of whether the option is exercised, and indeed regardless of whether the option is ever exercised.)

That all makes eminent sense - so far, so good.

DERs, Redux - A Scary 409A Sequel

409A then proceeds to make use of similar thinking in connection with requiring, for treatment as an option (or other stock right) not subject to 409A, that the option (or other stock right) not be granted in the money. Thus, as noted above, Section 1.409A-1(b)(5)(iii)(E) of the Treasury Regulations says that "the right, directly or indirectly contingent upon the exercise of a stock right, to receive an amount equal to . . . dividends . . . between the date of grant and the date of exercise . . . constitutes an offset to the exercise price . . . (generally causing such right to be subject to Section 409A)."

Conversely, Section 1.409A-1(b)(5)(iii)(E) expressly and properly confirms that, "A plan providing for a right to dividends . . . , the payment of which is not contingent upon . . . the exercise of a stock right, may provide for a deferral of compensation, but the existence of the right to receive such an amount will not be treated as a reduction to the exercise price . . . . Thus, a right to such dividends or distributions that is not contingent, directly or indirectly, upon the exercise of a stock right will not cause the related stock right to fail to satisfy the requirements of the exclusion from the definition of a deferral of compensation . . . ."

Treasury seems to have described all of this correctly when the 409A regulations were finalized, saying: "The final regulations adopt the rule that a right to a payment of accumulated dividend equivalents at the time of the exercise of a stock right generally will be treated as a reduction in the exercise price of the stock right, causing the stock right to be deferred compensation subject to the requirements of section 409A. The final regulations provide that an arrangement to accumulate and pay dividend equivalents the payment of which is not contingent upon the exercise of a stock right may be treated as a separate arrangement for purposes of section 409A." 72 Fed. Reg. 19,234, 19,242 (Apr. 17, 2007).

Still, so far, so good. Again, this all makes sense.

Now, how and why does it all go awry? The notion seems to have developed in some governmental circles* that contingency is somehow a two-way street. As the thinking apparently goes, if (i) the DER is impermissibly contingent on the exercise of the option where the right to retain already-accrued DER payments is contingent on the exercise of the option, then (ii) the DER is likewise impermissibly contingent on the exercise of the option where the right to receive new, continuing and additional DER payments is contingent on the non-exercise of the option. But this thinking turns the whole thing topsy-turvy; that is, in the foregoing clause (ii) it is the right to continue to receive additional DER payments (not the right to retain DER payments) that is contingent on the non-exercise of the underlying option (as opposed to contingent on exercise). So let's see if it is or should be true that a DER that is only paid if an option is exercised really is the same, on an analytical or policy basis, as a DER that turns off when the option is exercised.

Perhaps it's worth examining the fundamental difference between what the anti-contingency rule really addresses, and what is being suggested as being addressed by the anti-contingency rule. What you're not allowed to have is the following: option exercise --> retaining DER accruals. That would make the retention of the accrual "contingent" on exercise. It is suggested here, however, that the rule plainly does not (and should not) address the following: option exercise --> cessation of additional DER payments. Stated another way, "if A then B" ≠ "if A then not-C" (where (i) A is the exercise of the option, (ii) B is being able to retain accrued DER payments, and (iii) C is being able to continue the receipt of additional DER payments).

Thus, the regulation expressly and properly confirms that, "A plan providing for a right to dividends . . . , the payment of which is not contingent upon . . . the exercise of a stock right, may provide for a deferral of compensation, but the existence of the right to receive such an amount will not be treated as a reduction to the exercise price . . . . Thus, a right to such dividends or distributions that is not contingent, directly or indirectly, upon the exercise of a stock right will not cause the related stock right to fail to satisfy the requirements of the exclusion from the definition of a deferral of compensation . . . ." As can be seen, the reduction-in-price rationale is specifically baked into the above-quoted words of the 409A regulatory language itself, and the cessation of future additional DER payments simply does not involve a reduction in the exercise price of the underlying option. If there is no required exercise of the underlying option (no contingency!) in order to retain the DER payments , then there can be no putative impermissible exercise-price-reduction, which is the only thing the rule are or should be after.

In the case of a DER that turns off on exercise of the underlying option it's not the payment that's contingent on exercise - it's the nonpayment that's conditioned on exercise! They're just not the same thing. Maybe symmetry of equating the two is facially seductive - there’s often an equitable sense of that "what's good for the goose is good for the gander, even though different considerations may apply to the goose and the gander. Cf. my prior post on provisions in employment agreement relating to attorneys’ fees.

From an analytical perspective, the logic underlying this distinction is arguably steel-trap. Surmise that an option vested but then expires unexercised, and there were DER accruals linked to the option which will be retained by the optionee. In that case, the DER will have gotten paid (or will at least have vested) either at or before vesting** and yet the option never got exercised. Conclusively, then, last I looked at what "contingent" means, that DER just ain't contingent.

A lack of a policy problem naturally and inexorably follows. Indeed, there's not even any policy reason to try to engraft the other-way (dare I say "wrong way") directionality onto the contingency rule. As reflected right on the face of the Section 1.409A-1(b)(5)(iii)(E) rule, the question is whether there's a "reduction" in "exercise price", and that's just not a concern where it's nonpayment, as opposed to payment, that's contingent on exercise. Since the DER is retained regardless of whether the option is exercised, it simply doesn't act as a purchase-price reduction, and therefore doesn't implicate the price-reduction concerns underlying the 409A (and 162(m)) regulations.

The rule I’m suggesting here also has the advantage of being a rational one from a business perspective. It's at least sensible to pay the DER whether the option is exercised. It makes no sense, however, for the DER to be paid after the option is exercised. That's a double payment - the continuing DER, coupled with the actual payment of the real dividend on the actual stock. In this regard, one would hope, the tax rules just don't require the implementation of an irrational or otherwise silly program. Maybe having DERs be inherently inconsistent with 409A would make some sense if DERs were somehow evil or otherwise undesirable, such that they should be discouraged altogether. But I don’t think that DERs are somehow always "bad" by their very nature. The fact is - the rules do not require a DER to be structured irrationally. And the key is that it's not the payment of the accrued DER that's contingent on exercise; it's the continued payment that’s contingent on non-exercise. They're just not the same thing.

So maybe you're saying that this is sophistry on my part - a manipulative exercise in linguistic gymnastics. So maybe you’re saying, "Oh, c'mon, even if the stock might not go up right away, it's bound to go up someday." But that's not right. Is it possible, not only as a theoretical matter but as a practical matter, that a given option will fail to be exercised? Of course it is. First, plainly, the stock might not go up. Are we forgetting that stock does not always increase in value, maybe not ever? The internet bubble burst a long time ago, with the subprime crisis having followed, and it's now quite clear that, yes, stock can actually go down and stay down. Has anyone ever heard of attempts to reprice hopelessly out-of-the-money options? (See also Treas. Reg. § 1.162-27(e)(2)(vii) (ex. 3) (whether there will be net income is always substantially uncertain).) Second, even if a given stock would be destined or otherwise likely to go up someday, it might not be up at the time the option would otherwise expire. In this regard, an optionee will commonly wait until expiration to exercise (i) for tax reasons and (ii) so as to be able to continue to ride the investment in the underlying stock without having to make a capital investment (indeed, that's a hallmark of an option - the value of the option embedded in the optionality of the option). The compensatory landscape is littered with worthless, unexercised options - proof positive that the exercise of an option is anything but inevitable.

Summary

I think that, at the end, the analysis is ultimately quite straightforward and definitive, and can be demonstrated with the use of a baseline fact pattern. Take a vested option that is never exercised.*** Now assume a DER has been granted in connection with the option and the DER is paid (or vests) before or when the option vested. Assume further that, if the option is not exercised, the DER payment will be retained and, to make it easier, assume that the option is never exercised. On those facts:

- Has the option been exercised? No

- Will the option be exercised? No.

- Has the DER been paid and retained? Yes.

- Was the payment of the DER contingent on the exercise of the option. Uh - no.

Like I said, steel-trap.

I'm surprised that this has been made into an issue, even informally. I really think a technical misstep here is leading to confusion. To me, turning off a DER upon option exercise is fine under 409A, and, as asserted above, even clearly so.****

Now, in honor of the Oscars, it’s onto a more traditional kind of sequel . . . .

SEQUELS AND OSCAR NOMINATIONS - THE STORY OF TOY STORY 3

I noticed today (Oscar Day ‘11) that Toy Story 3, one of my favorite movies of all time, is nominated for best adapted screenplay. I have by this time been disabused of my flirtation, reflected in an earlier post, with the notion that TS3 will win the Oscar for Best Picture (go ahead, mock and otherwise laugh); however, the nomination for best adapted screenplay is fascinating. What is the source material on which the TS3 screenplay is based?

The answer lies in the fact that the rules aren't really clear regarding into which of the two writing categories (original, adopted) a screenplay goes. Apparently, according to one helpful post (assuming it's right), the actual name of the category is, “Best Writing, Screenplay Based on Material Previously Produced or Published” - thus explaining that a sequel which itself has no direct source material could somehow be considered adopted by virtue of having been based indirectly on the sequel's predecessor(s).***** Cool. And, of course, good luck to TS3 in this mainstream category!!
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* It's not clear that there's uniformity within the government on this.

** See also Treas. Reg. §§ 1.409A-1(b)(2), 3(e) (regarding deferred payment in the case of DERs connected with RSUs).

*** I can almost hear Henny Youngman intoning, "Take my wife - please."

**** The issue can be a big one where dividends are material, such as, for example, would generally be the case for options granted by REITs. But, whether the issue is economically a big one or a small one, the analysis should not get mucked up.

***** Cf. Treas. Reg. § 1.409A-1(b)(5)(iii)(E) (twice using the "directly or indirectly" concept to cover something with either character by the same rule) (thus (ha ha) bringing this post full circle).

A New Bernie on the NY Sports Pages - A Mad(off)dening ERISA Development for Mets Fans

2011-02-04T10:47:00.004-05:00

[Thanks to my dear friend, eagle-eye Mike S., for alerting me to the story discussed below.]

Maybe not since the J. Geils Band case have we seen a sports/entertainment ERISA litigation with as much substantive meat on the bones as the Wilpon 401(k) litigation reported in today's issue of the New York Times. (Well, speaking of meat, there was the interesting Michael Vick case, but that never really developed into authority.) As any long-suffering fan of the Mets (guilty!) knows, there is the well-aired theory that the Mets' recent woes are not wholly unrelated to the Madoff debacle, as a result of investments by the Wilpons with Madoff, including as a result of issues stemming from the efforts by the trustee for the Madoff victims to recover various amounts from the Wilpons.

Now, reports The New York Times, there's an ERISA case! From the story:

********
But the trustee's lawsuit, it turns out, is not the only one to accuse the Mets' owners of failing to meaningfully investigate Madoff.

Elyse S. Goldweber, the widow of a former employee of Wilpon's and Katz's corporate holding company, Sterling Equities Associates, has charged in a federal lawsuit in New York that the company, Wilpon and two other officers breached their fiduciary duties by offering employees the chance to invest their 401(k) plan with Madoff. By the time Madoff's scam had been uncovered, about 92 percent of the 401(k) plan had been invested with his fraudulent firm, all of it lost. Goldweber had $280,420 invested in her husband's 401(k), and it was wiped out, the lawsuit says.
********

Next we get actual, gen-yoo-ine ERISA quotes:

********
The lawsuit says that Sterling officers, as overseers of the retirement plan, were required to use "care, skill, prudence and diligence" in administering it, and to diversify investments "to minimize the risk of large losses, unless under the circumstances it is clearly prudent not to do so." But Goldweber's lawsuit contends that the officers - two of whom, the suit noted, were certified public accountants - fell far short of honoring that obligation.
********

Continuing on, the article identifies facts raising complex ERISA issues:

********
The lawsuit, which was filed last summer and covers about an eight-year period starting in 2000, cites example after example of instances in which other individuals and institutions over the years raised alarms about Madoff and his firm, Bernard L. Madoff Investment Securities, LLC.

Moreover, the Goldweber lawsuit noted that Madoff and his wife were investors in Wilpon's and Katz's real estate business at the same time Sterling Equities was offering his firm as an option in the retirement plan - something the suit says was never disclosed to employees.

"These reciprocal investments, and the close personal relationship between" the Madoffs "and the Wilpons created a conflict of interest so great that investing with Madoff should never have been an option for a 401(k) participant and likely caused defendants to purposely turn a blind eye to these red flags," the lawsuit contends.
********

And then come outlines of certain defenses one might expect to see in cases like this:

********
In interviews this week with other newspapers, Wilpon's lawyers have insisted it is simply unfair to blame Wilpon and others at Sterling for failing to uncover a scheme that government regulators and others missed for decades. The list of Madoff victims includes scores of savvy investors who evidently never suspected anything was amiss, despite the years of extraordinarily steady, profitable returns on their investments.
********

And what case involving 401(k) plans would be complete without (i) the selection/monitoring hot-button (finally now manifesting itself in regulatory language, after a history of the development of DOL litigation positions, in the recently issued 29 C.F.R. §§ 2550.404a-5(f), 2550.404c-1(d)(2)(iv)), and (ii) a foray into the land of self-dealing? So we get:

********
But the 51-page lawsuit filed for Goldweber asserted that senior executives at Sterling charged with administering the retirement plan - Wilpon, Arthur Friedman and Michael Katz - "failed to conduct adequate due diligence that would have alerted an investor that Madoff's 'investment strategy' was really a massive Ponzi scheme."

And the suit cited the findings of a government inquiry into the performance of the Securities and Exchange Commission, the agency that had chief oversight responsibility. The inquiry, done by the agency's inspector general, faulted the S.E.C. for missing repeated and obvious signs of trouble, but in doing so, it noted that any number of private investors or investment entities over the years had themselves come to regard Madoff's operation as suspect.

. . . .

The lawsuit contended that Sterling officers were not only negligent, but also conflicted. Madoff was an investor with Wilpon and Katz, as was his wife, Ruth. Over the years, Madoff and his wife have put millions of dollars into various Sterling entities. . . .

Picard has asserted in court papers there was no evidence that Madoff ever got anything in return for his investments in Sterling.

The lawsuit lists an array of reasons why Madoff's secretive operation might have raised curiosity or concerns.
********

I mean, there are some pretty intense ERISA issues here, ranging from detailed 404(a) and (c) issues to quite interesting issues under 406(b). And it looks like it may play out in none other than the sports pages!! This one might be worth watching with interest - and I guess you don't have to be an ERISA lawyer to think so.

P.S.: Go Jets! (That's right! - I NEVER give up!!)

The Story of Snohanumas

2010-11-16T14:32:00.002-05:00

I wanted to get a thought out there, grounded neither in ERISA nor pop culture but, rather, grounded in the Holiday spirit.* Silly? Sure, but - what the heck?

So there's Hanukhah, which starts off the Holiday Season, and Christmas, which ends it. And through it all, if things go right, there's a wondrous dusting of snow.

Why, though, should Hanukhah and Christmas compete for our attention? Shouldn't there be a single and joyous Judeo-Christian holiday that brings it, and us, together?

Well, here it is. It starts with the first day of Hanukhah, and extends all the way through Christmas day. It's called Snohanumas, and its name is comprised of "sno" for the festive beauty that snow brings to the Season, "han" for Hanukhah to signify its onset and "mas" for Christmas to mark its end.

Why shouldn't we get to celebrate and honor all of the elements of this wonderful time? Isn't the Hanukhah-through-Christmas season really what we indeed now have anyway? In recognition of this development, I present the following simple four-step Snohanumas Manifesto:

1. The menorah is displayed throughout the Snohanumas season. On at least one day during the eight days of Hanukhah, the candles of the menorah are to be lit. The Shamash candle (the center candle on some menorahs; the end candle on some others) should, most preferably, be used to light the others. Presents are given.

2. A Christmas tree is displayed throughout the Snohanumas season. Presents are placed under the tree on Christmas eve, and opened Christmas morning. At least one visit to Santa during the season is required.

3. The symbol for Snohanumas is the snowflake. Snowflakes are to adorn the portion of the house decorated to celebrate Snohanumas, and may be used to adorn the exterior of the house. Lights inside the home are required; lights outside the home are optional.

4. The mascot for the holiday is Frosty. He's happy, jolly and, of course, made of snow. He's not particularly Jewish or Christian (his close association with Santa is purely mythical), leaving him perfectly suited to lead the Holiday. You're permitted to sing "Frosty the Snowman" as often as you like, and each year a new Frosty of some type (toy, statue, candle, etc.) is to be brought into the home.

So, put on your secular (or quasi-secular) hats, and give your kids all of the elements of this wonderful Holiday season. Your children will have a glint in their eyes and a smile on their face, and, hopefully, so will you - nothing could make Frosty happier!

A Happy and Merry Snohanumas to you all!!

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* . . . although, as to pop culture, clearly informed by the O'Keefe creation bestowed upon us by Seinfeld (Festivus! (for the rest of us)).

Rounding Errors; With a Health-Care Postscript Under New 162(m)(6)

2010-10-03T14:38:00.024-04:00

(Note: I think there's a big M&A issue in the health-care arena, discussed below. So. if you want to skip over my initial dalliances, go (scroll) down to the end to the discussion of new Section 162(m)(6).)

Round Numbers

OK, so here's an ERISA lawyer's try at a Milleresque rant. I continue to be fascinated by the world's fascination with round numbers. I mean, when Alex Rodriguez earlier this year (finally) reached the milestone of 600 home runs and became the "youngest person ever to reach 600," hadn't he already become the youngest person ever to reach 599? I'll bet he was even the youngest person ever to reach 598. I remember when Bobby Bonds fell one home run short of 40 in a year when he had over 40 stolen bases, and missed out on being the first player to reach the "40/40" club (for 40 home runs and 40 stolen bases). Dare I suggest that he was, however, the very first member of the exclusive "39/39" and "39/40" clubs? Sometimes, I wonder why we don't bemoan that Joe DiMaggio's hitting streak fell tantalizingly close to reaching the elusive 60 plateau. We talk about people reaching six feet in height - should we stop doing so because as an underlying matter they're simply reaching 72 inches?

The effect of this focus, or mis-focus, is not without import. Two examples:

- In lieu of an analytical approach, draftspeople will throw round numbers into critical statutes. So, for example, the beloved 162(m) gives us a magical $1MM limit (see also below), as though the number were a platonic from. And 280G incisively talks about three times comp. (which, amusingly became almost a floor for severance for certain CEOs). How about that great bonding requirement in ERISA that focuses on the anachronistic $500K level (which has been amended in the PPA to reach that carefully pegged amount of $1MM under certain incomprehensible situations involving employer securities (all of which would be amusing if it weren't a bit sad))? Boy, the round-number lobby must just hate cost-of-living adjustments, such as those applicable in the case of tax-qualified plans, that, at the expense of roundness, actually keep some of the statutory limits current, relevant and at least maybe rational.

- Moving to a more accessible example, take the Oscars. They decided that five films for Best Picture were too few. And maybe that was so. So what's the right number? It must be the next milestone, right? So it must be 10. Unfortunately, I think, it was pretty clear that 10 was waaaaay too many. The movies bringing up the rear just didn't belong. Worse, who knows how having these stray movies skewed the voting, by causing a siphoning off of votes from other worthier nominees? SNL had a hilarious take on this, when it had a skit that started including old television shows and other absurd nominees in the list of nominated movies (I must have SNL on the brain). Hey - maybe the right number really was seven, or six or eight, rather than 10? Oops - HERESY - my apologies.*

Section 162(m)(6) - Health Reform (Unintentionally?) Meets M&A

So, while we're on the topic of provisions that have hard-dollar caps like the 162(m) we've come to know and love, we now come to new Section 162(m)(6), added by Section 9014 of PPACA (the Health Reform legislation). Here, we have the $500,000 hard-stop limitation on per-employee deductibility of compensation that applies, for years after 2012, to a company (public or private) that, in very general terms, has more than 25% of its premium income coming from premiums for health-care coverage that is "minimum essential coverage" (essentially, core health-care coverage). (For years before 2013, the situation is murkier still, in that it's not clear just how the rules will apply in the case of deferrals made before 2013 but for which the deduction would be taken after 2012.)

Now there's a scientific and carefully drawn limitation, huh? As with the TARP rules, and putting aside all the confusion about which companies are affected before 2013, the rule is an inflexible one, with no exceptions for performance-based comp. or anything of the sort (and there are provisions designed to address avoiding the rules through the use of deferrals).

Hey, there's an idea - let's fix the health-care system by designing a tax structure that maybe sorta somewhat discourages the best executives from staying at or coming to the insurance companies we're supposedly trying to improve by exerting some type of indirect downwards pressure on their compensation. Certainly, the companies can run themselves, and don't need any help from the best, high-paid executives. Really!?! (With a second set of apologies to latter-day SNL-ers Seth Meyers and Amy Poehler.) And, if that's not bad enough, let's make it be that any exceeding of the applicable limitations punishes the companies' shareholders and, maybe, policyholders. Really!? (Still ranting, I guess.)

But enough general venting. Let's forget for the moment any overall objections to the use of deduction limitations to effect compensation-related policy goals, and the almost random use of the $500K threshold, and the fact that the people left holding the bag could well be a bunch of shareholders and policyholders. Forgetting all that, this little Section 162(m) present has additional, and potentially very serious, problems.

Let's review what the statute was supposed to do - it was supposed to regulate the compensation of employees of health-insurance companies regulated by PPACA. A health-insurance company might heartily object to the new 162(m)(6) rules, but, ultimately, it will have to come to terms with the fact that, until changed, those are the rules that govern it and its industry. 'Tis what 'tis, I guess. OK.

But now take the following hypothetical:

- Multi-billion dollar company in some type of health-care business decides it wants to buy (let's say, 100% of) some $10,000 company is North WhoKnowsWhere, which gets $1000 in premiums a year, of which $250 is for minimum essential coverage.

- Buyer has some executives that are paid millions of dollars, and many employees making over $500K counting all compensation.

- The target company will be the buyer's first and only foray into the provision of actual insurance.

Uh oh. Has the acquiror just lost untold millions of deductions for the compensation paid to its executives and other employees? Maybe. Why?

Well, (i) the 162(m)(6) rules operate on a controlled-group basis (using the 414 rules, including both the ownership rules of subsections (b) and (c) and the other aggregation rules such as those relating to affiliated service groups), and (ii) the operative 162(m)(6) rule (A) has no express qualifier pursuant to which the gross amount of premiums that need to be received, either as an absolute matter or as a relative matter, in order for the $500K limitation to be triggered, but, rather, (B) operates on its face by reference to the percentage of premiums (however low the aggregate total premiums may be) which are for minimum essential coverage (or, in the case of deferrals in years before 2013, maybe even for a lower amount and wider range of premiums). So maybe deductions are lost across the board for the acquiror.

Is that really the result? If so, will someone (please) fix it? Could the solution be a regulatory fix, or would it have to be a legislative one? Who knows, who knows and who knows?

Even a risk of lost deductions in a case like this, however uncertain that risk may be, is awful, and could (i) on the buy side, impede a potential sale, or at least factor into pricing, or (ii) on the sell side, cause a company to want to jettison a business that collects premiums for minimum essential coverage, particularly it that's not the company's core business.

And, just to make it a bit worse, the parade of horribles may arise before 2013 even if there's only a dollar of premiums, and even if the premiums are for certain types of insurance not generally regulated under Health Reform.

Well, it's interesting - to me anyway - and we'll have to see if 162(m)(6) in its present incarnation indeed has any real impact in the transactional market. Maybe it just won't be considered relevant unless and until it affects, oh, 10 major deals. That seems like a nice round number, no?

__________________________________
* On an unrelated note, based on what may be the best trailer ever, at least since the one for Poltergeist II, it looks like The Social Network, even before I've seen it, may cause me to have to rethink my Oscar prediction for Toy Story 3. (Hey, The Dark Knight became one of my favorite movies of all time before I even saw it, based on a glimpse of the opening eight minutes alone, so there's precedent here.)

New Jersey!

2010-08-20T06:58:00.004-04:00

For a quick hitter, back to the You-Can't-Make-This-Stuff-Up Dep't, the following is from a recent SEC release:

****
The Securities and Exchange Commission today charged the State of New Jersey with securities fraud for misrepresenting and failing to disclose to investors in billions of dollars worth of municipal bond offerings that it was underfunding the state's two largest pension plans.
****

Can't you just hear Fred Armisen's Gov. David Paterson snarling, "NEW JERSEY!"

Telephony in the News - A Little Bit o' Mel Gibson, and a Big Scrivener's Error by Verizon

2010-08-13T20:07:00.009-04:00

Background

Sometimes, every now and then, something is just so (and I don't mean in the Rudyard Kipling sense). Maybe not very often, but sometimes. We can all posture and argue and contend and angle and position and claim regarding every little thing, but, sometimes . . . it simply is what it is. Cf. Jacobellis v. Ohio, 378 U.S. 184, 197 (1964) (Stewart, J., concurring) (". . . I know it when I see it . . . ." (referring to hard-core pornography)).

For example, regardless of whether people do things behind closed doors that they might or might not regret from time to time, can we at least agree that Mel Gibson wishes he had back those, er, a bit over-the-top phone calls? That seems like an inexorable and immutable truth, no?

With that underlying perspective regarding absolute truths in the realm of telephony, a recent telecommunications case seems to address the question of whether there is some sanity in the rules governing the ERISA world in which we live. The question at issue essentially boiled down to - when it comes to basic drafting, does it really have to be one big game of Gotcha, where everyone tries to find some linguistic nuance or error that unexpectedly confers or denies a payment or benefit, regardless of the obviously "right" answer? Or, maybe, just maybe, when a result is clearly right, the lawyers and judges won't muck it all up?

Well, the unanimously decided case of Young v. Verizon's Bell Atlantic Cash Balance Plan, Nos. 09-3872, 09-3965 (7th Cir. Aug. 10, 2010), shows that the idealists among us may not always be tilting at windmills - windfalls for silly little mistakes aren't always the rule of the day. Sometimes, I guess, someone can indeed look at a set of facts and say something along the lines of, "Hey, here, there's an obviously right answer, and we're gonna go with it."

A Drafting Error

In Verizon, echoing what will I suspect become quite apocryphal words from the recent case of Conkright v. Frommert, 130 S. Ct. 1640 (2008), the court in Verizon began by reminding us that, "People make mistakes. Even administrators of ERISA plans."* From that seminal and unassailable premise, the court declined to heap bunches and bunches o' money on plan participants that deserved not a penny of it. Hooray.

So, what happened in Verizon? Without getting into the nuances, a plain, simple and not-seriously-disputed drafting error (boy, do I feel for the guy who missed a stray clause here) would have, if propagated, caused a cash-balance benefit to be subject to an extra upwards multiplier. Intent was clear, as were all communications, that only one adjusting multiplier was to be applied. Frankly, I give the participant, or someone acting on her behalf, quite a lot of credit for finding this gaffe-y glitch. And, I guess, in this world, if you have an opportunity to take some poor soul - or company - to the cleaners, regardless of what's right or reasonable, ya go for it. (sigh)

Predictably, this little exercise in attempted flagellation then grew into a (ominous music, please) class action worth over a billion (!!) dollars. Easy case? An obvious grab for an unintended benefit based on manifest error. I guess it was easy, if you consider a "four-year, multi-phase litigation" easy. (sigh, again)
To the Seventh Circuit, the basic question became whether the courts are bound to follow plan language that is clearly nothing more complicated than a flat-out error. As indicated in Verizon, courts have long held open the possibility that common sense might somehow prevail "in the rare case where literal application of a text would lead to absurd results or thwart . . . obvious intentions . . . ."

And not only was the error in Verizon obvious, but it was also an error on which no one relied. "Prior to [this] lawsuit, no employee complained that opening balances should have been increased by an additional transition factor. For her part, [the named plaintiff] admitted that she never relied on the [errant] transition factor language . . . prior to [the Verizon] litigation." Well, she was honest about it, anyway.

Equitable Reformation

In light of all of this, the Seventh Circuit was inclined to allow the plan in Verizon to be reformed to its evident intent. There were several impediments to their getting there, though.

I don't know why, but the following struck me as particularly funny in its circularity: ". . . Seventh Circuit precedent provides less guidance on the accrual of a claim for equitable reformation under ERISA . . . - understandably so, since the cognizance of such a claim is an issue of first impression for [the Seventh Circuit]." Geez, funny or not, it seems like they came dangerously close to holding that the plaintiff's claim was not time-barred, but that the company's action to fix the error that gave rise to the claim was time-barred. They did not, however, reach that potentially odd and disconcerting whipsaw result. Whew.

Another potential impediment to the use of the equitable-reformation approach involved the good faith and clean hands, or lack thereof, of the plan sponsor. Now, if the basics of the case are not enough to send chills down your spine, wait till you get a load of this**: "[The plan sponsor] charged a single in-house attorney . . . with revising a critical provision of a multi-billion-dollar pension plan, apparently without critical review by another ERISA expert. It is baffling that a major corporation would not invest greater resources to ensure accuracy in the drafting of such an important document." (shud-DER)

Wow. There-but-for-the-grace, and all that rot. But, then, the sigh of relief (at least for the sponsor and, to be sure, the drafter) comes as the court continues, "Still, we cannot agree . . . that this institutional failure showed a lack of good faith."

Conclusion

The final lucid, almost elegant, summary sentence in Verizon? - "ERISA's rules for written plans are strictly enforced, but they are not so strict as to prevent equitable reformation of a plan that is shown, by clear and convincing evidence, to contain a scrivener's error that is inconsistent with participants' expected benefits." Hooray, again. Hip hip, even.

I guess we can hope that employers don't make the courts sorry for this appropriately common-sense approach. It would be unfortunate if the courts became reticent to do the right thing in the face of efforts to overuse the case where it doesn't belong. Having said that,*** Verizon seems to be obviously correct on its own facts, and its reasoning seems most appropriate in the context of obvious and gross errors leading to manifestly inappropriate results.
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* I'm brought back to the time when Pacino reminded us in ". . . And Justice for All" (albeit in an admittedly quite different context) that, "They're people. They're just people."

** To be spoken with the tone used by Jack for his Batman line, "Wait till they get a load of me."

*** Yes, I watch "Curb Your Enthusiasm."

Toy Story 3

2010-06-20T07:45:00.002-04:00

I have no ERISA tie-in for this one. Saw Toy Story 3 on opening day. One of the greatest movies of all time. Prediction - first animated best-movie Oscar. Enjoy.

Perfect (or Imperfect) Games and Retroactive Correction

2010-06-03T10:08:00.006-04:00

So with all of the recent work with 409A, Notices 2008-113 and 2010-6, and retroactive correction, including such backwards-looking notions such as rescission and other general principles, I now wonder* if the following presents a solution to the latest affront to history -

==========
Open letter to: MLB (Major League Baseball)

cc: Armando Galarraga, Gov. Jennifer Granholm,** James (Jim) Joyce

Problem solved: Effective as of June 2, 2010, and for the duration of the 2010 season, any team may through the use of instant replay challenge a play (but in no event balls and strikes [add any other applicable exclusions]) that would, if reversed, be the last play of the game, with the standard for reversal being the that which applies in respect of replay challenges relating to home runs; provided that the appeal must be logged before the next pitch is thrown or, if later, on the date on which this rule is adopted.
==========

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* I'm getting flashbacks, having watched, live, Tom Terrific's (Seaver's, for people too young) imperfect game.

** Her declaration that there was indeed a perfect game is très cool, but I respectfully submit that the fix proposed herein is more comprehensive.

"Good Reason" to Go to the "Lost" and Found?

2010-05-21T10:18:00.026-04:00

I. Finding the Right Analysis - Good Reason and the Timing of Vesting

OK, people, there are two 409A "good reason" analyses that are being commonly misconstrued in some circles, at least as I see it. One involves the question of whether the existence of a bad GR provision results in accelerated vesting even absent the occurrence of the GR condition. My answer: generally, no. The other is whether the occurrence of a good GR trigger, where the service provider does not pull the trigger, results in the SP's being vested. Here, the answer seems clearly to be no. Both of these points are discussed below.

1. “Bad” Good Reason and the Question of Early Vesting

Much has been made over the consequences of having a bad GR provision. The natural inclination is to think that you've essentially accelerated the vesting event. After all, what else could be the negative? To add to (what I believe to be) the confusion, there's a line in the final preamble that could be read to imply that bad GR does bring about accelerated vesting. Final Preamble, § III(J)(3) (third sentence) (containing language that could be read to expand the significance of an overbroad good reason definition provision to whether compensation is vested merely by virtue of the existence of the provision (i.e., before a good reason condition arises)), 72 Fed. Reg. at 19,247. Regardless, I think it’s clear that this result does not arise, at least where unilateral control over whether the condition is satisfied rests with the service recipient or is otherwise outside of the control of the service provider.

A closer look reveals that the significance of a bad GR definition is not that the service provider is deemed vested from the outset, but, rather, that the occurrence of the triggering event would result in deemed vesting at that time. I know I've gone over this issue in a previous post, but I want to use this opportunity to go through it again, particularly since I also want to discuss the vesting analysis where there's good GR in "(2)" below. Here's my analysis:

A. Vesting means there's no substantial risk of forfeiture. It means that, no matter what the SP does, what is done to the SP or how bad performance is, this compensation, for all intents and purposes will (or will in the discretion of the SP) be paid.

B. The key here is to understand that the idea of good GR is that the GR provision amounts to a contractual equivalent of a constructive (involuntary) termination. It's like having a liquidated-damages provision. That is, just like liquidated damages essentially substitute for a fight over how much a contact party might owe a counterparty in the event of a breach, a GR provision is a substitute for a fight over whether a SR's conduct is so egregious that the SR has in effect fired the SP. Thus (and we'll talk more about this below), GR has nothing really directly to do with vesting, but rather has to do with whether the SP has been putatively involuntarily terminated.

C. So let's take an example of bad GR. To make it a little easier, let's say that there's no employment contract at all, and, in particular, no salary assurance.*n.1* Now let's say further that the GR provision says that any reduction in base salary is GR, and let's assume that the payroll system is such that, as a practical matter, such a reduction can't happen by accident. Let's also assume that the facts will prove that this provision has been put in place in response to legitimate concerns on the part of SPs that they may be jerked around regarding their base salaries.

D. What do the regs. do with this? Arguably (and let's assume this is so for present purposes), the rules say that a slight reduction in pay, while maybe bad and legitimately the subject of protection provided by the SR, does not rise to the level of the kind of interference with the services relationship so as to support the contention that the SP has been constructively terminated if the SP exits as a result. And, arguably, that makes some sense. See also the discussion in “2” below regarding constructive termination.

E. But what has not happened, and what policy does not compel, is that the SP has somehow magically vested from the outset. Are we suggesting that the SP now knows that this compensation will be paid? Why? There's some kind of legitimate expectation of a future immaterial salary decrease? No way. The fact of the matter is that the SP has not vested. There is no inconsistency between this conclusion and the (correct) conclusion that, if a bad GR condition occurs and the SP later pulls the separation trigger, the SP is not viewed as having been fired.

F. So then what is the significance of bad GR in the S-TD context? If I’m right that there's no accelerated vesting, who cares? Well, someone cares. The correctly identified issue regarding S-TDs*n.2* is that bad GR causes you to lose S-TD treatment, and, in fact, causes you to lose S-TD treatment ab initio. Why? Because of the hypothetical, time-bending (some might say Alice in Wonderland) nature of the S-TD analysis, that's why.*n.3* To illustrate, suppose that (i) you have the salary-based bad GR provision I suggest above, (ii) salary is cut, (iii) the SP decides it's not so bad and stays put, (iv) five years later the SP is really fired, and (v) severance is promptly paid in a single sum. The idea is that, because the S-TD regulations talk in terms of the first time the substantial risk of forfeiture lapses, you never "un"-vest something that vests (in effect, by focusing on initial vesting, the regs. moot out the question of un-vesting), the vesting occurred at the point in clause (ii),*n.4* and, viewed through that prism, the payment in clause (v) is way too late. In this case, the plan is viewed as providing for this delayed payment, because the foregoing procession of events could transpire under the terms of the plan as written.*n.5*

G. It sorta has to be right that the effect of a bad GR provision is thus confined. If, conversely, there is actual accelerated vesting, then, for example, there was also the inability during transition to fix the bad GR definition, because, tautologically, the SP had already vested merely as a result of the very provision that needed to be fixed. That has to be wrong, as it was clear that bad GR was permitted to be fixed prior to vesting (a contradiction in terms if my analysis above of the effect of bad GR is not correct), and doing so would not have been possible if you surmise that bad GR accelerates vesting. See IRS Notice 2007-78, § IV(A) (Sept. 10, 2007), revoked and superseded in part, modified in part, IRS Notice 2007-86 (Oct. 22, 2007). Indeed, I understand that it was this conundrum that caused some in Treasury/IRS to agree that bad GR does not generally result in accelerated vesting.

H. While S-TD is the most significant purpose for which this question is relevant, particularly since we're now out of transition, the question is by no means moot. For example, whether or not you're vested could have a big impact on the inclusion analysis in the case of noncompliant deferred comp. There are, therefore, multiple reasons to zero in on the proper analysis.

I. Having said all that, I concede that there are cases cases in which a bad GR provision maybe does vest you out of the gate. For example, there could be a hair trigger that is so xtreme that it is effectively beyond the control of the SR. To illustrate this case, let's say that the SP can walk if on any morning coffee is late by five minutes. As the eventuality of that occurrence is probably virtually certain, the compensation is destined to vest early and may therefore be regarded as vested now. Here, the parties probably would say that, yes, the intent was to get the SP vested deferred compensation. Not an overly usual real-world fact pattern, I submit, but a useful illustration nevertheless.

J. Another permutation is the hair trigger that is within the control of the SR. As an example of this permutation, imagine a GR provision that says that if the SR moves the SP's parking space two slots over there's GR. Now that's probably woefully short of good GR, and is involves a low threshold of change; but it really can't, or at least isn't likely to, happen by accident. Here, the SP has no reason to expect or assume early vesting (absent an agreement or understanding), even though the hair trigger is easily pullable by the SR. The analysis on this one is a bit peculiar. The argument is that the SP isn't vested because, while the parking condition amounts to almost a discretionary vesting condition in the hands of the SR, it's still in the hands of the SR. On the other hand, the 409A regs. seem to eschew the notion that a condition can be unrelated to the purposes of the compensation, and still be a vesting condition. Here, though, the question is whether the discretionary accelerator actually causes a vesting acceleration before the condition occurs, not whether the condition is a good vesting condition. Indeed, if the provision were a vesting condition rather than an accelerator, would there even be a legally binding right at all? My brain hurts, and I don't care anymore about this hypothetical (maybe, instead of ”good” or “bad" GR, we’ll call this “ugly” GR?); once again, I don't really think it's overly real-world to imagine a condition that's as far away from the purpose of the compensation as this one is. For the record though, I ultimately do not think the SP is early vested in this case until the parking spot is actually moved.

2. “Good” Good Reason and the Question of Early Vesting

On the other side of this coin, there's also confusion as to what if anything transpires when a good GR condition occurs but the SP doesn't pull the separation trigger. Some wonder whether the individual has vested at that point. Let's go through that one, too.

A. The regs. provide that a service provider’s separation from service for GR may qualify as an involuntary separation from service, effectively viewing a termination therefor by the service provider as being a constructive involuntary termination. Treas. Reg. § 1.409A-1(n)(2); see Final Preamble, § III(J)(3), 72 Fed. Reg. at 19,247; see also Treas. Reg. § 1.409A-1(m) (separation pay provision also implicating the “good reason” issue). As discussed further below, it seems clear that the regulatory characterization of a good GR termination as being a constructive involuntary termination leads inexorably to the conclusion that the occurrence of the GR condition does not amount to a vesting event. While the regs. and the preambles unfortunately do not flat-out come out and say so, they do come close. In particular, the final preamble, while maybe not entirely clear and specific on this point, does seem to confirm that a benefit available only upon separation for good GR may “be treated as subject to a substantial risk of forfeiture,” Final Preamble, § V, 72 Fed. Reg. at 19,251, in which case it would then seem to follow that the mere occurrence of a good GR condition does not result in vesting.

B. So when does the vesting occur? Vesting would be viewed as occurring upon the actual termination for GR (i.e., the applicable constructive termination). If the constructive involuntary termination is the vesting event, then, until there is a separation, there is by definition no vesting event. The occurrence of the good GR condition is not treated as giving the person the vested right to quit and take severance; rather, the constructive involuntary termination - which requires there to be a termination - is the vesting event. Stated another way, absent the SP's pulling of the separation trigger, when the good GR condition occurs, nothing yet has happened in the world of 409A.

C. That's why the SP’s failing to quit leaves the whole GR condition as a nullity for 409A purposes. It's the actual voluntary termination itself which becomes, 409A-wise, a deemed involuntary termination giving the SP the right to the payment - and which in turn is therefore the vesting event. Consistently with this analysis, there was no prior vesting event, notwithstanding the occurrence of the GR condition. In effect, the occurrence of the condition merges with and into the later departure to result in one single constructively involuntary separation, and the separation is thereby not viewed as a two-step process involving (i) a vesting condition and (ii) a subsequent voluntary termination.

D. I submit that, frankly, this has to be the case. If I'm wrong about the above, then even a good GR provision would always kibosh S-TD treatment ab initio. Why do I say this? Why isn't it possible that a person can be considered to have vested when the good GR condition occurs, without doing damage ab initio to S-TD characterization? For example, maybe you would suggest that, if the SP doesn't pull the separation trigger, the eventual payment isn't S-TD, even if it were otherwise, on the basis that the payment is made too late after the vesting date. Then, you might argue that there is nothing inconsistent with (i) that result and (ii) a preservation of S-TD status for the arrangement if none of that actually comes to pass.

E. But that argument, to me, patently misconstrues the rules. As discussed above, the S-TD analysis is a form-based, highly technical, hypothetical inquiry. So, for the S-TD analysis, you don't generally worry about what really happened because you may have lost the game from the outset on the face of the documents.*n.6* The reality is that, if a payment made after an involuntary termination which follows (sufficiently) long the occurrence of a good GR condition followed by an unpulled trigger is not an S-TD, then the result is that no payment under the plan can ever be an S-TD. In other words, even a good GR provision would kibosh S-TD status ab initio - an obviously incorrect result.

F. Maybe you're asking why I'm saying this? Why would S-TD status be lost altogether merely because it would be lost if a good GR condition occurred and the SP didn't pull the separation trigger? I say it precisely because, at the risk of repeating myself, the proper S-TD question generally is whether the payment could be made late (or, in the vernacular of the 409A regs., whether the plan provides for deferred payment), not whether the payment was made late. To illustrate, I'll go back to the procession of events in "(1)(F)" above, slightly modified to make this point. Suppose that (i) you have a good GR provision under which a material reduction in compensation is GR, (ii) salary is cut, (iii) the SP decides it's not so bad and stays put, (iv) five years later the SP is really fired, and (v) severance is promptly paid in a single sum. If the event in clause (ii) were a vesting event, then the payment in clause (v) would be a late payment, and that possibility - the mere possibility - would foreclose S-TD treatment from the outset. As a result, even a good GR provision would result in the unavailability of S-TD treatment. Since that's wrong, and clearly so, we can conclusively confirm the inference that the event in clause (ii) simply cannot be a vesting event. Sometimes working back from a conclusion we know is true to disprove an errant premise works, and I would suggest that this is such a case. Res ipsa loquitur, and all that rot.

II. Still Lost? Well, You’re Almost Found

So, hopefully, you agree with my analyses above and now feel less . . . Lost; which reminds me (yeah, yeah, I know there’s no valid transition here) of the impending finale of that fine show. We're just about at the end, and, after a whole bunch of excess episodes brought about by ABC's insistence on dragging this thing out too long, Lost seems to have . . . found . . . its footing. The last couple of episodes have been terrific television, and quite interesting.

Now that the Last Episode (as they called it, but it was the Last Episode Before the Series Finale Event, or something like that) has come and gone, but, while we're still before the Series Finale Event, I want to go on the record with where I think this is heading.

As a preliminary matter, J.J. Abrams is cool. The new Trek was cool. See my prior post. This has been a fun ride. And, yes, I completely get it that I probably belie my lack of coolness by asserting that Trek and Lost are cool.

As to what I think about the Series Finale Event, I think that the surviving core characters will go on living in the flash-sideways alternative timeline (think Abrams watched Star Trek much?), but with full and current memories of the Island time line in which most of the series took place. It's sorta like - what if you got to understand what you'd be like in a Lord of the Flies-type reality, without ever having to live that reality through? Dare I say - fascinating.

I think that the idea is that the Island - or Jacob, or whatever - knew that one of the people on the fateful Oceanic flight would be a good fit for Jacob's role, and, in whatever parallel dimension made sense, created a world in which the key pool of people would get to a point where one could be selected to attend to the future of the Island. It now seems clear that taking care of the Island is important because, in some LRon/TomCruise-like fashion, there’s an emanation from the Island which shouldn’t be disturbed that fuels the souls of the world's inhabitants. And it looks like the winner is Jack, which in some ways makes sense as he seems, more than any of the others, to be at odds with his regular earthly existence.

If I'm right, Jack now has to be pulled from his home in the flash-sideways world and be brought to the Island in that timeline, because at some point . . . and I think this is the key . . . the Island timeline that's been at the heart of the series will discontinue, and merge into the flash-sideways timeline.*n.7* In other words, the characters will have all their memories, from both timelines, but will live on only in the flash-sideways timeline. This is not a Dallas-type cheat or a Newhart-type device - the timeline we've all followed doesn't disappear nunc pro tunc; it merely stops. Just as things in the past don't marginalize because they aren't any longer occurring, the Island timeline happened, and will always have happened, in an overlapping dimension. But, I’m guessing, it won’t continue. When you think about it, it's people’s memories of the past that give the past its continuing reality, and this discontinued timeline will, I'm suggesting, be fully recollected by its participants, without being denigrated by its own cessation.*n.8*

So a central question will be - how to get Jack back on the Island in the flash-sideways reality? Here's my guess. As a first step, Jack's parting shot to Locke will be to operate on Locke so that he can walk. Jack then gets on another Oceanic flight to the Island (maybe as arranged by Desmond?). The flight (here we go again, to paraphrase Mr. Coverdale) crashes back on the Island. So there Jack be.

I wouldn’t be surprised if Hurley becomes the new Widmore, puppetmastering the world from a stateside perch in concert with Jack so that the Island, and ergo the world, remain safe. And, hey - remember that someone always needs to be the caretaker (unlike in The Shining, Jack (!!!!) was not always and will not always be, the caretaker (ha ha)), but that Jack is not immortal.

When the latest plane crashes, there'll be a new crew from which Jack, the new Jacob, will select his eventual replacement. With Jack gone, I see Kate winding up with Sawyer, which seems right, and Aaron, in a role much less significant that might’ve been, winds up as their kid. Maybe Aaron winds up as some kind of significant reincarnation of someone or another. He is a blood relative of Jack's, so maybe there's an angle there. I admit it - at this point, I'm just flailing.

What should be made of the significance of a death in the Island timeline? It seems wrong that death would be a total irrelevancy, although it seems even more clear that death on the Island does not result in death in the flash-sideways timeline. My guess: if there's a death on the Island than the consciousness of the person who's died does not in the flash-sideways fully acquire the memories of the Island, although there may be some general sense of having been in the world of the Island. Jin and Sun maybe just simply go their own way in the flash-sideways world, possibly with some kind of vague Heaven Can Wait inkling of some kind of connection with each other. Sayid? I'm not sure if he's dead or alive, at all. But, maybe more importantly, if I'm right as a general matter on this, Juliet (in that she died on the Island) won't have any memory of the Island, further solidifying the Kate/Sawyer relationship.

Desmond will somehow wind up with Penny, the love of his life/lives; he's been living in multiple simultaneous dimensions for some time now, anyhow, and I’m guessing that this aspect of his existence accounts for his eerie and relaxed comfort level. As an aside, I thought Desmond’s question, "What is the point in being afraid?", in response to the question from "Locke" to Desmond as to why Desmond wasn’t scared, was priceless.

And what of Locke? I think that Locke stays alive, qua Locke, unaware (in that he died on the Island) of the specifics of the Island existence. I think that this result somehow leaves Jacob’s brother without a body, thus causing him to take Ben’s visage. Ben’s come over to the dark side anyway, so - why not? Eventually, he would presumably take the visage of one of the new Island inhabitants, as he did Locke’s. I do think that Jacob’s brother has to stay in esse, whether as black smoke (forgive me, but I won’t use the phrase, “Smoke Monster”) or as a human incarnation, because the risk he poses to the light at the center of the Island is, after all, Jack's new raison d'être.

Good stuff, although I have to admit that I am not looking forward to Lost II. “II” tired, I guess. Good night.
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1. Personally, as I've noted in a previous post, I think that the analysis of a provision under which an immaterial reduction in compensation is GR should be much different in the face of a contractual obligation not to reduce salary to any extent.

2. There are other and more straightforward adverse results to having a bad GR definition, such as compromising the plan's characterization as providing for payments only upon involuntary termination. See Treas. Reg. § 1.409A-1(n)(2); Final Preamble, § III(J)(3), 72 Fed. Reg. at 19,247; see also Treas. Reg. § 1.409A-1(m) (separation pay provision also implicating the “good reason” issue).

3. Temporal distortions abound! See also my prior ). As discussed in “II” herein, the concept plays a key part in the Lost wind-down. Given some of the time-benders brought to us by our old friend, 409A, I wonder whether maybe it was J.J. Abrams who gave us 409A and the temporal doozies it brought us - that would make about as much sense as anything else.

4. I still think that it might be possible to argue that, at least under certain provisions, the occurrence of the bad GR condition should not be viewed as a vesting event because, echoing a constructive-receipt analysis, the service provider would have to terminate (and forego future compensation) in order to benefit from the occurrence of the condition. But I acknowledge that we’re dealing with an SRoF analysis, not a CR analysis, and it does not appear that the two are being viewed analogously on this point by regulatory personnel.

5. Note that the foregoing would not be enough to truncate the extent to which you can slice and dice, if actual separation is early enough in the year, because the final regs. as technically corrected treat the time of payment emanating from the time of actual separation, effectively allowing you to take the actual termination date as it comes to you, and creating an exception to the approach that otherwise gives rise to the need to go down the Where's-Waldo find-the-bad-hypothetical route I go down above.

6. There are exceptions. If you've got a plan that would provide for S-TDs but for an actual late payment, then the actual lateness of the payment could cause it not to be an S-TD. But that's an actual-lateness question, whereas the question being explored in text is whether there's been a premature vesting event. (Also, note that, on another matter that causes enormous confusion, the plan does not have to foreclose late payment - it simply can't affirmatively provide for late payment. This is a straightforward clarification to the proposed rules, and example 2 of Section 1.409A-1(b)(iv)(iii) of the Regulations succeeds in leaving absolutely no doubt about that favorable result.)

7. We can leave for another day whether this merger of timelines is more or less interesting that the merger of a GR condition with and into a subsequent separation discussed in “2(C)” in the discussion in “I” above.

8. This almost (but not exactly) reminds me of the experience of the Dennis Weaver character in a mindbending Twilight Zone dream episode.

Overlooked Defenses and the Lessons of Schering-Plough, and Other Things Overlooked

2010-03-15T10:31:00.038-04:00

STEALTH DEFENSES, AND A POSSIBLE LESSON FROM SCHERING-PLOUGH

In case after case after case after case, courts decline to hold squarely that a departing employee's general release of all claims does not bar the employee's later attempt to bring a class action against a plan fiduciary for a breach of fiduciary duty. There's an understandable inclination on the part of some observers to assume that there must be some principle out there that prevents an employee from waiving out of ERISA fiduciary claims. A closer analysis, however, reveals that the courts are generally not holding that the employee cannot waive the ability to bring a claim, but rather are holding that the particular releases in question do not effect such a waiver.

This distinction may be critical. If practitioners assume that releases cannot foreclose a plaintiff from bringing an ERISA fiduciary claim, those practitioners might not endeavor to tweak their forms of releases so as to address the claims they would otherwise be trying to foreclose.

The analytical key is that the ERISA fiduciary claims that underlie the big class actions should probably be deconstructed technically as claims on behalf of the plan (as LaRue teaches), while the releases being held up as defenses to those claims are releases of the individual's own claims. Thus, it's not that an individual couldn't have contractually agreed not to bring ERISA fiduciary claims, it's that the individuals simply haven't contractually agreed not the bring the ERISA fiduciary claims. The drafting key, then, is to focus not only on the individual's release of the individual's own claims, but also on a covenant not to sue whereby the individual would expressly agree not to cause the plan to bring the plan's fiduciary claims.

The recent case of In re Schering-Plough Corporation ERISA Litigation, 589 F.3d 585 (3d Cir. 2009), creeps right up to the edge of foreclosing a plaintiff from bringing Section 502(a)(2) ERISA fiduciary claims on behalf of a plan. While the release language there is not quite enough to cause the court to get all the way there, it is enough to cause the court to conclude that there is enough of a cloud over the plaintiff's ability to serve as a class representative, based on typicality and adequacy grounds, that it remanded for a "rigorous" examination of the point.

Eventually, it is suggested here, a court will squarely hold that a covenant not to sue forecloses the bringing of a class action, and practitioners will see that releases can indeed accomplish that goal - but only if the release presented to the court on its face reaches claims brought on behalf of the plan. We may then start to see more releases nuanced more clearly to hit the mark. The defenses may well be there; it's just that maybe no one quite knows about them yet.

A GRAB-BAG OF THINGS OVERLOOKED

Missed Movies

Whenever I think of things no one notices, I think of movies I've seen that somehow manage to fly under the radar, but which I think deserve much more. Hot on the heels of the Oscars (restored to me by ABC and Cablevision so I didn't have to keep watching some overseas broadcast through the internet*), here's my list of the best movies that no one cares (or not enough people care) about, in my order of dismay:

• The Butterfly Effect - ignored by action/suspense/sci-fi/thriller types because of Ashton Kutcher, and ignored by Kutcher fans because it's an action/suspense/sci-fi thriller, it truly . . . flies . . . under the radar

• Wes Craven's New Nightmare - creative, original, suspenseful and creepy, it's lost as just another Freddy sequel, but in fact it's anything but

• White Nights - a very solid effort with Baryshnikov and Hines, altogether ignored

• Con Air - not an invisible movie, which is why it's not higher on my dismay meter, but not respected nearly enough as being one of the best of all the action movies

• Behind the Mask (The Rise of Leslie Vernon) - a cool and on-the-mark deconstruction of the horror genre (like New Nightmare, with Robert Englund), which, somewhat like Shaun of the Dead (but at the same time quite differently), manages to shift effectively from parody to and-we-mean-it

• 28 Weeks Later - a hugely underrated infected (as opposed to zombie) flick

• Americathon - well, even though the movie is awful, it's got my favorite Beach Boys song, which, like the movie, no one's ever heard of

Oscar Omissions

And here's my list of the biggest Oscar rip-offs that stick in my own personal craw* -

• No win for Osment in The Sixth Sense (were they kidding?!?) - if you ask me, it's the biggest rip-off of them all, even if Forrest's prodigal son didn't keep it up after The Sixth Sense; Michael Caine's wonderful acceptance speech all but acknowledged the Academy's folly

• No nomination (not even a nomination?!?) for DiCaprio in Titanic - oh, c'mon, like let's pretend that without him that movie doesn't set the box-office record; his subsequent body of work underlines the error of this omission

• No win for DiCaprio (there he is again) in Gilbert Grape - I honestly thought he was a disabled actor, until I saw him interviewed months later

• No win for Sellers in Being There (and far too few nominations for the movie) - while Rain Man-type roles may be easy marks (although maybe not for Sean Penn or Juliette Lewis), this one was special

• No nomination for Cruise in Rain Man itself - I thought he was better than Hoffman

• No win for Cruise (another appearance for him, as well) in Born on the 4th of July - and they gave one to Julia Roberts for Erin Brockovich?!

• Alan Arkin over Eddie Murphy - sure Dreamgirls was overwrought and overlong, but EM's performance was the best thing about it - did they really have to punish him like this because of Norbit?

• Burt Reynolds for Boogie Nights - that would've been a pretty cool award, especially since he was so darn good

• Mickey Rourke for The Wrestler - not so much because he managed to be someone that couldn't be recognized for Mickey Rourke, even after you knew it was he, and not so much 'cuz he deserved to win; but just because the world needed to see and hear the acceptance speech that never was

• No Oscar recognition for Se7en - I guess they did their Lambs thing and were done

• No win for Brad Pitt in Twelve Monkeys either - another oddball role, so again maybe a relatively easy acting mark, but he still was amazing

• No win for Glenn Close ever (to repeat - and they gave one to Julia Roberts for Erin Brockovich)?!

• Pulp Fiction's failure, albeit an understandable failure, to take the top prize; and the failure to nominate Samuel L. therefor, particularly since Travolta got a nomination**

And While We're on the Subject of Oscar Omissions . . .

Here are three we-know-we-omitted-you-too-many-times awards - John Wayne, Martin Scorsese, Paul Newman

And, just for counterpoint, here are three not-so-upsetting results:

• One (and a tough one) they got ever so right - Hackman over Nicholson for Best Supporting Actor in Unforgiven

• Least upsetting (to me) Oscar shutout - The Color Purple (an amusing and seemingly endless procession of unwon nominations)

• Another un-upsetting omission - It's a Wonderful Life (I know people love it, but the omission works for me, that's for sure)

"Other" Versions of Great Songs

Continuing now onto music overlooked, here's a short list of "other" studio versions of great songs by the original artists that may be better than the version you know:

• Beatles - "Other" version of Revolution (i.e., Revolution 1) (which joins its counterpart, Revolution 9, on the White Album)

• Lynyrd Skynyrd - "Other" version of Free Bird (see also my earlier post referring thereto)

• Eagles - "Other" (reprise) version of Desperado (which joins its non-reprise counterpart on Desperado)

And for Those Who Can't Find Their Ginger Ale . . . (you know who you are)

And, finally, here's an anecdote that leads to a tip for what may be the most unknown ultra-cool soft-drink solution. So we're sitting in a Chinese restaurant and my son asks for ginger ale. In extremely broken English (sounds like the name of a band!), the waiter says that, while they didn't have any out-of-the-bottle ginger ale, he could make ginger ale by mixing Coke/Pepsi**** and Sprite/Sierra Mist. It took us a while even to get to the point where we felt like we know what he was saying, and, once we got to that point, we said we'd try it. Well, broken English and all, he was right. It tasted just . . . and I mean almost exactly . . . like ginger ale - maybe not as good as Canada Dry, but darn good. The trick is that you need to be at about 80%-90% Sprite/Sierra Mist. (And then, if you're doing this yourself with cans o' soda, you even wind up with a second glass of Coke/Pepsi!) One of the really cool things about this is that by using diet components you can easily generate diet ginger ale, which isn't that easy to find in restaurants. It really works - try it. And thank my kind Asian waiter when you do.*****

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* But, just the same, thanks to Justin.tv and Sky Movies for making the broadcast available!

** "Craw" - not to be confused with the mispronunciation made famous on TV's Get Smart.

*** How funny is it that Samuel L. Jackson is credited as "Black Guy" is Sea of Love? Another funny credit (also with a Samuel L. connection, albeit an attenuated one), which manages to reach back and put a funny spin on the movie scene to which it relates, is Kathy Griffin as "herself" in Pulp Fiction. So I guess that's really Kathy, not some character being played thereby, dealing with the whole Ving Rhames/Bruce Willis car accident. Hilarious.

**** Clips of SNL's "no-Coke, Pepsi" skits in my head.

***** By the way, I am aware that the homemade ginger-ale trick is a known thing (in that it's true, I wouldn't call it an urban legend), as opposed to information you can only get here - but I had not been aware of it, so I'm thinkin' maybe you weren't either.

Avatar

2010-01-12T15:24:00.004-05:00

So have you seen Avatar, released in December 2009 in time for the Holidays? It's about a world that goes a step beyond the world of The Matrix, in which, through the power of the mind, one can create a reality that otherwise wouldn't exist in the real world. The Avatar Advisory Opinion to which I refer above is Advisory Opinion 2009-04A. And Cameron's movie of the same name isn't bad, either.

Avatar - The Advisory Opinion

I give the DOL credit for dispensing with the Avatar request so efficiently, even with the change in administrations. The question essentially was whether the clear statutory rule that investment by a plan in a registered investment company does not cause the RIC's assets to be "plan assets" is somehow subject to question where the RIC involves asset-allocation techniques. Putting aside political questions, sometimes there really are straightforward answers manifest on the face of the statute. The DOL here easily declined to take existing wording and transport the wording into a world of alternative meanings. Well, the applicant got some news stories out of it, I guess.

Avatar - The Movie

More importantly, let's give James Cameron some credit for staying with his vision as technology evolved. Here, the question was whether clear technological impediments to the effectuation of his vision would ultimately stand in his way. Putting aside how much one does or does not like this movie, it is unquestionably a revolutionary and towering achievement. Cameron (unlike the proponents of the Advisory Opinion) was able successfully to create an entirely alternative world that previously existed only in his own mind. So now he has what look to be the two highest grossing movies of all time - quite an accomplishment (even if my beloved The Dark Knight looks to be heading to #3).

In Closing . . .

As can be seen, I'm pretty down on 2009-04A. I'm not sure much more need be said about it, other than to hope Congress doesn't do anything with any of the spurious reactions to it. See the 12/14/09 P&I story on certain post-Avatar (the Advisory Opinion) unfortunateness. Regarding the movie, just for the record, I think the accomplishment is as awesome as the buzz would lead you to believe. The story? I think it's not as bad as some of the critics would have you believe, nor as good as it would have needed to be to make the movie a pure classic. Compare Cameron's Avatar with Toy Story, which introduced brand new technology with a story that would have been spectacular if delivered by stick figures. And there were those whiz-bang moments (a la Happy Feet) where Cameron simply wanted you to see how cool he could be.

The Terminator, Aliens, Titanic, Avatar - wow. As for The Abyss? Let's just forget that one altogether, . . . or maybe just use the phrase to refer to the application that led to 2009-04A.

Merry 162(m)-as - An Early Christmas Present From The IRS?

2009-12-14T22:23:00.013-05:00

So for years some practitioners have bemoaned the need for a per-person limit under the option rules in the Section 162(m) regulations. After all, if there is a plan-wide limitation, than isn't it the case that no particular participant can be granted more than the gross limit? Treasury and the IRS expressly rejected that approach after specific consideration of the point, however, thereby forcing issuers to identify expressly, and seek shareholder approval of, a specific per-person limitation. See Treas. Reg. § 1.162-27(e)(2)(vi)(A).

Now comes PLR 200949005 (Aug. 18, 2009, rel. Dec. 4, 2009). If you were worried that a per-plan limitation was not sufficiently protective of the government's interests, then, as Jack said in Tim Burton's first Batman movie, "Wait'l they get a load of me." In the new ruling, awards were made in the form of performance units. The ruling states: "The Plan provides a maximum limitation on the dollar amount of an award that may be paid to a covered employee for any performance period. Under the terms of the Plan, the dollar amount payable to a covered employee may not . . . exceed Y percent of Corporation’s earnings before income taxes, as publicly disclosed . . . for the fiscal year ended immediately prior to the applicable payment date."

The plan required the establishment within the first 90 days of a performance period of a number of standards, including the performance period, the applicable goals, the applicable unit value and the maximum number of units that may be granted to any one participant. If a participant received less than the maximum number of units, the number of units issued to other participants would not be increased as a result.

On this record, the issuer asked for approval of a provision under which the Committee could delay the grant of a specific number of units until after the first 90 days of the performance period. In other words, the actual award could be deferred indefinitely, subject to the established maximums.

The logic of the request is understandable, particularly in light of the odd way in which Section 162(m) works. So many requirements of Section 162(m) can be worked around, if one is willing to endure the klunkiness of doing so. Harkening back to the option rule noted above, for example, you could satisfy the requirement for a per-person limit by saying that no participant may get more than the amount available under the plan,* if you were willing to go out to shareholders with such a provision and endure the resulting slings and arrows. But there was always a facade of required process. Thus, notwithstanding the foregoing, you indeed did need a per-person maximum.

Let's now come back to the kind of bonus plan at issue in the new ruling. If you wanted flexibility as to the ultimate amount of an award, you could have awarded everyone a pie-in-the-sky maximum, and then shaved everyone down in a surgical or otherwise contoured fashion using the ubiquitous negative-discretion authority bestowed by the regulations. See Treas. Reg. § 1.162-27(e)(2)(iii)(A) (second sentence). But, again, you would have to go through the cosmetic of large presumptive awards. One might have thought that Section 162(m) would at least require that cosmetic, even if substantively there was a potential work-around.

Surely, you couldn't just leave the actual award to each participant altogether unstated, right? I mean, that would be worse than retaining the prohibited discretion to increase the amount of the award in an untimely fashion in violation of the fundamental requirement relating thereto, see § 1.162-27(e)(2)(iii)(A) (first sentence), . . . right?

Well - wrong. The new ruling seems to say that all of that's just fine and dandy. Those spunky Democrats! Merry Christmas to all, and to all a good night.

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* Put aside for the moment some of the nuances surrounding the inability to add back canceled grants under the rules governing the per-person limits. See Treas. Reg. § 1.162-27(e)(2)(vi)(B).

And a Happy Halloween from the Eighth Circuit?

2009-11-05T12:01:00.004-05:00

So here's a question - you're managing an overfunded defined benefit plan (remember those?) and you want to let your guard down. You want to roll the dice a bit or push the limit of what you can do with ancillary (non-investment) motivations, and you figure you can do so because you're playing with house money. At least, you want to play around just with some of the excess. Or maybe you're just a touch careless, albeit unintentionally so.

What's the big deal? After all, participants and beneficiaries are going to get their money, without government help, unless the whole overfunded thing goes to heck in a handbasket and turns radically south. Yes? No?

You ultimately decide that you might well be on the wrong end of this one, so, as your feet get colder, you poke around a bit. And what do you find? You find that you may indeed have a friend or two in the Eighth Circuit with an ever-so-slightly delayed Halloween present for you. In McCullough v. AEGON USA, No. 08-1952 (8th Cir. Nov. 3, 2009), which follows the earlier decision in Minnesota Mining and Manufacturing, 284 F.3d 901 (8th Cir. 2002), the Eighth Circuit in effect seems to hold that one cannot violate the prudence rules with respect to the investment of excess assets. (Note that the widely discussed 3M case may well be wrong on both of the issues considered there.) Assuming AEGON is not reviewed en banc and reversed on rehearing, its confirmation of the 3M decision seems like a welcome development for those seeking to limit potential liability for investment decisions under a DB plan. On the other hand, it's maybe not so welcome for those trying to hold fiduciaries accountable for imprudent behavior (can you say, "PBGC"?).

You may want to be careful - real careful - before proceeding on the basis of 3M/AEGON, even in the Eighth Circuit. The reasoning is sufficiently suspect that you would draw comfort outside the Eighth Circuit from these cases at your own peril, and, even within the Eighth Circuit, I think you'd have to be at least a little concerned that any given case could be reversed by the nine old and young men and women in the black robes. (Stated another way, in honor of the dissenting judge in both cases, it's not clear we won't be saying, "Bye", to this rationale.) Having said that, the cases are certainly nice precedent if you need to use them defensively, and certainly a pain in the neck for the offense.

So: "Boo!" or "boo" or "boo hoo" - depending on your perspective.

Forfeitable Manager Compensation Under 457A - A Silver Bullet For Halloween?

2009-10-31T15:56:00.011-04:00

A question is bouncing around the market regarding what type of substantial risk of forfeiture is necessary before compensation will be subject to a substantial risk of forfeiture. This particular question boils down to the question of whether there needs to be a substantial risk that a service provider will voluntarily separate or be terminated in order for that SP to be considered unvested. If the SP is considered unvested, and if the compensation in question is paid while the service requirement continues in place, or immediately after it expires, then the compensation may be a S-TD and Section 457A will, as to that compensation, be much ado about nada.

To address this question, let's start by considering certain seminal principles. Any effort to do so, in matters relating to identifying substantial risks of forfeiture, must begin with a look to Section 83.

A person is considered unvested in compensation under 83 if the person is required to perform substantial services in order to be entitled to the compensation, and the risk of forfeiture is substantial if the condition is not satisfied. See Treas. Reg. § 1.83-3(c)(1)(second sentence). There is little if any doubt under 83 that this result is unaltered by protection against termination without cause. Were that not the case, there'd be a heckuva lot of unhappy CEOs with respect to the 83 treatment of their restricted stock. And, while we're at it, a whole bunch of payments that presumably are S-TDs for purposes of 409A would be deferred compensation after all.

Similarly, one does not do an inquiry under 83 regarding the likelihood the SP might quit (or be terminated, where there is no not-for-cause termination protection). It's not that we concede that the CEO might quit; rather, it's that we don't do the inquiry. Indeed, I would never want to do such an inquiry. It's sufficient that the SP has to perform substantial services in order to get the compensation - that's a substantial risk of forfeiture (regardless of whether there's a substantial risk that the SP won't be performing the requisite services). The -3 regulations under 83 are clear and express on this point.

And there should be no confusion regarding the 83 provisions requiring likelihood that the forfeiture provision will in fact be enforced. See Treas. Reg. § 1.83-3(c)(3). Those are provisions that get to whether the provisions will be enforced as written, not to whether there is a likelihood that the provisions will be activated (i.e., that a condition specified in the condition will occur).

So, if you want to make compensation subject to a substantial risk of forfeiture under 83, and you're willing to provide that services must be performed in order to get the compensation, where is the Achilles' Heal in the use of these bedrock principles to get there? Going through the principles discussed above, there will be potential manageable questions surrounding (i) the extent to which the services required to be performed as a condition to receiving the compensation are substantial, and (ii) the legitimacy of the provision itself in terms of enforcement of the forfeiture condition. The pitfalls, however, do not lie in some imagined and far less manageable notion of likelihood of forfeiture (e.g., of early separation).

Thus, there is a legitimate focus on whether services required to be performed as a condition to payment are substantial. If property remains to be liquidated at optimal times or in an optimal matter, services required in connection therewith would ordinarily be expected to be considered substantial. Ministerial administration of a shell company after all material investment activity has been completed might be a tougher case.

And there can be legitimate questions regarding whether a forfeiture condition will ever really be enforced against an SP. If that is a real concern in terms of controlled entities in the like, I suspect it will not be hard to find an investor or other counterparty who would be happy to enforce a forfeiture right if it had the power to do so.

Yet, some seem to be concerned that, in the Brave New World of 457A, a services condition, even if clearly requiring substantial services, and even if virtually certain to be enforced if tripped, is somehow insufficient to constitute a 457A SRoF if the forfeiture condition (i.e., an early separation) is not substantially likely to occur as a practical matter. Did something happen to disturb these bedrock 83 principles as applied under 457A?

I submit that, if it did, someone needed to tell us. Wouldn't you think that a change as fundamental as this would need to be (i) express or otherwise pretty clear and (ii) in this age of long-form prose preambles and similar introductory language, alluded to by Treasury or the IRS at least to some extent? Such a fundamental sea change in rules and analysis would hopefully not be effected on the basis of some vague legislative history, or feeling that something is askew in light of perceived statutory purposes. Where the game is changed under 457A is that the condition must be a services, rather than a performance, condition. But that difference doesn't poke a hole in the above analysis, which presupposes a service-based analysis. Frankly, I suspect that even the regulatory personnel involved with 457A don't think they made the fundamental change in direction that people are for some reason worried about.

So, if I've got a contract that says that my manager must continue to provide services in order to be entitled to receive previously accrued and otherwise vested fees, it would seem that an excellent case could be made in favor of the contention that my manager is not yet vested. Thus, any such amounts paid within the 457A S-TD period after that services requirement lapses would be - you guessed it - an S-TD (assuming that the payment would in all circumstances be paid within the S-TD period) and therefore outside of 457A altogether.* By the same logic, there'd be nothing wrong with viewing compensation as unvested and potentially outside of 457A if services were required to be performed to the point of (but not beyond) investor withdrawal or dissolution, either, so long as the fees in question were paid shortly after the applicable withdrawal or dissolution.

How far can this be taken? For example, how would the analysis apply in the case of an entity manager? In the context of an entity manager, the planning possibilities are admittedly broader, as, if the entity is respected, it may be possible to require ongoing services from the entity, even though its personnel might change over time. While it is possible to imagine being concerned about whether the entity might be looked through to the individual for these purposes, Treasury has thus far understandably shown a willingness and propensity to respect bona fide entities in the context of 457A. It's all pretty interesting.

Now, we all have our preconceived notions of what a statute or other rule is trying to address, but sometimes we maybe just need to get out of our own way a bit. To paraphrase Justice Frankfurter, it's not like we should be going to the statute only when the legislative history is unclear. Thus, maybe, for those managers willing to subject themselves or their entities to continuing service requirements there is - in honor of Halloween - a bit of a silver bullet here.

I recognize that we often consider structures that run against such preconceived notions as being abusive. But is there really any abuse here? Ultimately, if there is compensation that's not vested or potentially vested a year or more before it's paid, 457A doesn't reach that compensation - and in some sense shouldn't.

Having said all that, how steel-trap is all of this? I'm not sure. Technically, it does seem pretty strong. However, it's surely not consistent with what some people were thinking in terms of the way 457A works. Maybe the position is more comfortably taken in contexts that have greater intuitive appeal, such as in the case of a multi-year performance plan, as opposed to, on the other extreme, an accrued management fee which is otherwise vested. But, to me, the position may well be analytically strong across the board, as to all types of compensation, at least unless and until someone expressly changes the rules.** Will people act on this type of analysis? I'm not sure, but I wanted to throw it out there.

Maybe things aren't as messed up as feared? Scary, huh?!

Happy Halloween!!

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* Query whether the much of the whole "side pocket" fiasco could be addressed with approaches grounded in this analysis.

* If one is interested in exploring this alternative, and wants to hedge (no pun intended) one's bets, consider whether some type of periodic true-up might make sense, so that there might be the argument that the risk of being wrong is acceleration, rather than a 20% tax on compensation not susceptible of valuation.

Spoil the A-Rod, Spare the Banker?

2009-10-25T10:11:00.005-04:00

There is so much demagoguery when it comes to compensation lately. The problem: someone gets a whole bunch of money at a bank, and the world goes apoplectic. They're paid too much. Oh, these payments are simply outrageous. But, are they really?

I'd like to take a stab at some debunking by using a sports paradigm. Let's try the Alex Rodriguez story:

1. Alex Rodriguez gets $26MM for playing baseball.

2. That's outrageous, right?

3. So he should get less, shouldn't he? Let's say, oh, $11MM less. Now I'm not sure why it's $11MM. I mean, why isn't $3MM less? Or why isn't it $24MM less? Well, since we're not letting the market decide, I guess I get to decide, and I say he gets $15MM. So there.

4. And then who gets that excess $11MM that we've so effectively saved? Well, a Steinbrenner gets it, I suppose. And that's good? That's better? Well, no one seems to think so, so Alex Rodriguez gets to keep his money. OK, fine. That seems to make sense, and everyone agrees, because everyone's made piece that there's no way the big bad owners should benefit from an outside substitution of judgment for the judgment of the market.

Hmm - interesting. Would the answer be different if we liked the Steinbrenners more? Would the answer be better if the Steinbrenners were perceived as a public good? Would the answer be different if the Steinbrenners were someone else? Would the answer be different if the Steinbrenners were a lot of someone elses? Would the answer be different if the Steinbrenners were a lot of someone elses who could buy Yankees stock on the market? So Packer and Patriot players should be treated differently? Seems to me the answers should be no, no, no, no, no and no - we should no more want a nameless public shareholder to benefit from a transfer of wealth via the underpayment of a talented individual than we should want the Steinbrenners to do so.

The example can be applied to a banking situation. Imagine a nonpublic Investment Bank ('member those?), such as we had in the not-so-recent past - one organized as a partnership and owned by its partners. Now, let's look at the hypothetical story of Star Employee X:

1. X, an employee and not a partner (these are my facts, so X is an employee), gets $26MM for being a star investment banker.

2. That's outrageous, right?

3. So x should get less, right? Let's say, oh, $11MM less. Now I'm not sure why it's $11MM. I mean, why isn't $3MM less? Or why isn't it $24MM less? Well, since we're not letting the market decide, I guess I get to decide, and I say he gets $15MM. So there.

4. And who gets the excess $11MM? Well, I guess the Bank's partners get it. And that's good? That's better? (Maybe outrage makes some sense here if we assume a totally unfair and corrupt leaking of money out through the use of an old-boys-and-girls network; but, silly me, I'm proceeding on the assumption, absent facts to the contrary, that there's high pay because the money is deserved and is there, and indeed is there at least in part as a result of the services in question.)

Hmm - interesting. Would the answer be different if everyone stopped vilifying competent professionals across a broad range of financial and other advisory fields? Would the answer be different if we liked the Bank's partners more? Would the answer be better if the Bank's partners were perceived as a public good? Would the answer be different if the owners of the Bank were a lot of someone elses? Would the answer be different if the Bank's owners were a lot of someone elses who could buy Bank stock on the market? Should the answers be any different? Again, maybe the answers to these questions should be no, no, no, no, no and no - even aside from the basic recklessness of transferring wealth away from working people, we should no more want a nameless public shareholder to benefit from the underpayment of a talented individual than we should want the Bank's partners to do so. I agree that public shareholders generally need to be protected from abuse, but submit that it's folly to suppose that there's some non-market way to determine the dollar amount at which too much has been paid.*

And yet that's where people seem to go with this - bankers should be paid less, so the owners (i.e., the shareholders) can have more. In terms of the underlying principles of market-based fair pay for services, baseball players fought and won this fight culminating in the Curt Flood case. Do we now want to put bankers in that kind of a position? I guess the answer is: maybe so. (Note also that the result of pay constraint in the case of major financial institutions is even more ironic in some ways, as the shareholders who would benefit are largely institutions, so that the big bad owner that would benefit from underpayment is just another institution at which we're probably equally angry. The money, once it's there, has gotta go somewhere.)

If it is conceded that it might be odd for there be a push to transferring wealth to the owners, there is at least one other approach. Maybe now it's time for me to second-guess, and surmise that X isn't really all that good, and that money should be paid to some other employees - the ones who deserve it more. And I guess I should make those decisions - the decisions of who should be paid what. Because I know the answers better than the people running the companies. Well, maybe I don't. Maybe it's the government who does? Kenneth Feinberg certainly seems to think so. Yeah, that's it. Riiiiiight.** THAT's the ticket.***

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* I'm not here addressing the notion that taxpayer money might be coming in under the TARP and right back out as compensation, which is an unlikely scenario but, where applicable, a more troubling one.

** . . . as Bill Cosby would say.

*** . . . as Jon Lovitz would say.

Pop Goes ERISA, Part 2 - Casino, Gordon Gekko Redux and . . . ERISA

2009-10-08T12:26:00.009-04:00

An earlier post focused on ERISA-centric movies like Wall Street. Jonathan L.* alerts me to the fact that Casino is yet another ERISA-centric (preERISA-centric?) movie. It tells the story of a sports handicapper who is recruited by crime bosses to manage a casino in Vegas. The casino is built in part with the use of a loan from the Central States pension fund.** See also Hoffa. Note also that Wall Street references are particularly timely, with Wall Street 2: Money Never Sleeps in the works.***

Clearly, I should've already been aware of the ERISAfied aspects of Casino. Oddly, however, even though I'm a huge fan of the The Godfather, and particularly it's unscripted feel, I've never really connected with movies like Goodfellas and Casino (or even The Godfather: Part II).**** My loss, I'm sure, but I didn't want to miss it here.

Thx, Jon.

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* I'm glad there're "Jonathan" and "John", 'cuz it seems like 72% of everyone I know is named one or the other, and I'm glad there's some way, at least in writing, to distinguish one from the other.

** Sadly, notwithstanding the patent ERISA connections evident in the movie, I could find no Casino-related mention at all of Advisory Opinions 77-60/61 A, 77-62/63 A, 77-64/65 A, 77-66/67 A, 77-68 A, and 77-69/70 A, or of any of the many critical cases involving the Teamsters, or even to the backdrop of abuse and mismanagement connected with union and other funds against which ERISA was enacted - but maybe I didn't look hard enough.

*** I guess it won't be subtitled, "ERISA Amended" - it's now WAY outside the remedial amendment period.

**** Goodfellas, I know, is regarding by some as a top or near-top movie of all time. See, e.g., the Total Film and Time lists. As noted, for whatever reason, I just don't connect. Having said that, I am so happy that Scorsese finally got one for The Departed (even if it's distinctly mediocre, if you ask me). (Can you say "John Wayne" or "Paul Newman"?)

ERISAVickation - The Saga Continues

2009-10-01T08:40:00.002-04:00

A prior post noted the DOL's pursuit of Michael Vick for ERISA-related crimes. See also my other Vick post. For your reading pleasure, here's the sequel, from BNA:

****
DOL Announces It Has Obtained Judgment Requiring NFL's Vick to Restore Plan Assets

The Department of Labor announced Sept. 30 that it has obtained a consent judgment requiring National Football League player Michael D. Vick and his company, MV7 LLC, to repay more than $400,000 in restitution to MV7's pension plan (Solis v. Vick, E.D. Va., No. 4:09CV37, consent order 9/30/09). The consent order also requires Vick to forfeit any rights to benefits he has under MV7's pension plan. In addition, Vick has agreed to pay a civil monetary penalty to the Department of Labor, according to a department news release. Vick was convicted in 2007 of engaging in unlawful dog fighting. Prior to his conviction, Vick ran a celebrity marketing company called MV7.

. . . .

The consent judgment against Vick requires him to repay at least $416,461 in restitution to MV7's pension plan. The judgment permanently bars Vick from serving in a fiduciary capacity to any plan governed by ERISA.
****

By the way, I note some amount of surprise that the consent order "requires Vick to forfeit any rights to benefits he has under MV7's pension plan." I'm not 100% sure that such a result comports with what one would think is overall pension policy. Cf. Guidry v. Sheet Metal Workers, 493 U.S. 365 (1990). Just a thought . . .

Happy Birthday to . . .

2009-09-02T22:52:00.005-04:00

So today was ERISA's 35th birthday. Happy Birthday to ERISA. . . ?

Well, maybe. ERISA has done its share of good. It faced the daunting task of comprehensively regulating both the qualification and fiduciary aspects of both pension and welfare plans, reacting to crises in the fairness and stability of the system, on the one hand, and its trustworthiness (or lack thereof), on the other.

Is it perfect? Undoubtedly not. There're meddlesome micromanagement, sometimes incomprehensible complexity, counterintuitive results and unanticipated consequences. Let's take these serially. Congress might argue that it's meddling is justified by its conferring of what might be the largest tax subsidy in creation. Complexity might be forgiven after consideration of the breadth of regulation undertaken. Counterintuitive results may occur when remedial efforts prove to have overshot the mark. And unanticipated consequences arise when, well, either by affirmative error or by omission, they don't always get it quite right. Complicating the problems is that fact that the imperfections and mistakes can come from the legislative, executive and judicial branches.

But it's quite an ambitious attempt, and the basic framework seems intact. (Cool acronym, too.) So give ERISA a bit of a break. A preemptive reach probably unsurpassed by that of any other statute results in quite a challenge. That's a lot of potential gaps to leave, and a lot to get right. After a great many years, recent changes may finally have made inroads into addressing some of the imperfections in the system, but there's a lot of story left to be told. It's not a bad place to be, what with changing rules, an impenetrable lexicon, a lack of law and a presence of lore that continues to require expert judgment, an ever-increasing focus on issues of concern to key executives, and an evolution towards higher-profile, more mainstream issues.

Ultimately, there is some consensus regarding the positive side of ERISA. Its general fiduciary standards regarding prudence and use of the modern portfolio theory are lauded as models for fiduciary regulation. The statute is a starting point for so many other attempts to regulate employee benefits. There is so much well-intentioned legislation and regulation, and the area has attracted so many good people. Of course, it's also responsible for something sorta near and dear to me: my job and career.

Current challenges include the 401(k) crisis, exacerbated by the market crash and the move away from DBs; the regulation-nearly-out-of-existence of DBs; the question of whether ERISA's preemptive effect should have the unfortunate effect of leaving sympathetic claims in an abyss of no relief; and the question of whether localities can and should be able to react to the crisis in health care without a federal lead. If you consider an expanded "ERISA" as including executive compensation, you can add to the list of challenges 409A (and 457A); and the loss of faith in executives and the compensation process, resulting is all kinds of recent activity from the SEC, Treasury, and Congress. The ride should be, to use that ol' f-word . . . fun.

Maybe most importantly from my own selfish perspective, if I may harken back to some sentiments I expressed in my first foray on this site, I continue to believe that, as a general matter, there isn't a more open, inclusive, collegial and supportive group of practitioners out there. Many of us worry about right answers and mutual respect, rather than tearing down and diminishing each other. Client development for some of us consists of saying nice things about our competition, and hoping that (forgive the whole Zen/karma thing), somehow, the same will come back in the reverse direction. And to those not Of The Body - pfftht.

As suggested above, no one's likely to be making the case that ERISA is perfect. But it reaches for a high bar in an area increasingly recognized as being utterly critical to the fortunes of this country and its people. So, I guess, for all of its warts, ERISA may well indeed deserve a . . . Happy Birthday.

Some Oldies But Goodies - From ESOPs To Halloween

2009-08-31T07:23:00.012-04:00

ESOP's Indemni-Fables

The unwillingness of some to accept uncomfortable but arguably correct legal results in the plan-assets area continues with Johnson v. Couturier, No. 08-17369 (9th Cir. July 27, 2009). Johnson, and the later district-court case of Fernandez v. K-M Industries Holding Co., No. C 06-7339 CW (N.D. Cal. Aug. 21, 2009), are the most recent in a line of cases subjecting indemnification provisions to ERISA scrutiny, even where the company offering the indemnification is not a plan-assets entity.

This inquiry puts pressure on the question of what it means for an entity's assets not to constitute assets of plans that have equity interests in those entities. It should mean that you're dealing with the company, not its plan investors. If you have a less-than-25% fund, and you're dealing with it, you might as well be dealing with IBM. If you have a 100%-owned ESOP company, and you're dealing with it, you might as well be dealing with a 0%-owned non-ESOP company. That's what it means not to be plan assets - deal with it, no matter how uncomfortable it makes you. Or, sometimes, as we'll see, if you're the courts, don't - when it suits you not to do so.

The issue manifests itself frequently when an allegation is made that a corporate action taken by a plan-owned entity should be considered to be governed by ERISA's fiduciary standards. On the one hand, time and time again, courts correctly make clear that corporate actions not taken in ERISA-fiduciary capacities are not governed by ERISA, merely because of equity ownership by ERISA plans.*

This result makes sense. The fiduciary standards underlying ERISA's fiduciary provisions, which include its prudence and prohibited-transaction rules, have been referred to as being "the highest known to the law." E.g., Donovan v. Bierwirth, 680 F.2d 263, 272 n.8 (2d Cir.), cert. denied, 459 U.S. 1069 (1982). They are designed to constrain and otherwise regulate fiduciaries, not to allow operating companies to conduct business. Thus, it should not be surprising that the rules wouldn't operate humanely or sensibly in the context of the operation of a business. Indeed, the plan-assets regulations appropriately recognize this result by having operating companies, including specifically those wholly owned when owned by an ESOP or other single-employer individual-account plan with qualifying employer securities (all of which are referred to herein as "ESOPs," for the sake of simplicity), act in effect as a plan-asset blocker even where a plan acquires an equity interest therein. See DOL Reg. § 2510.3-101(c), (h)(3) (second sentence).

Now don't get me wrong - I'm not advocating technical interpretations of the plan-assets rules that make a sham out of the applicability of this most-important-of-important fiduciary statutes. I've seen people try to do nonsubstantive structuring to avoid plan-asset treatment and, often, I think it's the wrong answer, and maybe clearly so, to respect that kind of abusive structuring.

But here we're talking about a straightforward application of the rules as they lay. If it says you're not plan assets if you satisfy the 25% test then, absent shenanigans, you're not. If it says you're not plan assets if you're 100% owned by an ESOP, well, then, you're not.

Unfortunately, in the ESOP context, the view of some may well be - so what if the result is that we unduly discourage ESOPs . . . we don't like ESOPs, anyway. For years, anti-ESOPers have sought to find existing rules that could effectively make ESOPs unworkable from a practical perspective, notwithstanding clear congressional incentives and permissions in favor of the establishment of ESOPs. Now, maybe the ERISAfication of corporate decisionmaking hinted at in Couturier is the silver bullet sought by those seeking to mute, hinder or even altogether circumvent ESOP formation.

How does this state of affairs come to be? The courts cannot seem to get out of their own way on what they perceive to be the particularly troubling issue of indemnification for service to the plan. To an extent, the confusion is understandable. In the case of indemnification by an ESOP-owned company for actions taken by an employee in respect of the ESOP itself, the cosmetics are admittedly entangled. Donovan v. Cunningham, 541 F. Supp. 276 (S.D. Tex. 1982), rev'd in part on other grounds, 716 F.2d 1455 (5th Cir. 1983), cert. denied, 467 U.S. 1251 (1984), when faced with these troubling cosmetics, long ago went down the road of indemnification-related look-throughs. The Cunningham court, however, could be forgiven by its pre-1986 timing.

Notwithstanding Cunningham and its progeny, in light of the plan-assets regulation, I continue to think that the result of the analysis should straightforwardly leave you outside of ERISA. In particular, where under bedrock plan-assets analysis the assets of a company are not plan assets, that result needs to be understood and accepted. If the cosmetics of indemnification are somehow particularly troubling, then, it seems to me, the appropriate solution is a regulatory exception (to the the exception) in the plan-assets regulation, or some other special regulatory provision under 406.

You might also suggest that you can get to an end result where these types of corporate decisions could potentially be prohibited, by focusing on the "indirect" language in Section 406(a) - but then what's the point of the plan-assets regulation? You wouldn't have a 404 issue, but you'd be creamed under 406? I submit that such a result is not contemplated by the statutory and regulatory scheme. If you went down that road, you could employ that thinking for a 10% shareholder . . . or a 1% shareholder, for that matter. (More on that type of thinking, later.)**

Regardless, the right answer should not be to figure out some way to look back indirectly under amorphous general principles to the fact that the shareowning plan owns an equity interest in the company. Doing so opens the door to characterizing virtually everything done by the ESOP company as being subject to ERISA and somehow viewed through the prism of ERISA's PT rules. The stakes loom large, and, disturbingly, Couturier is a circuit-court case which, right or wrong, may well hang out there for a long time.***

Fernandez, from a district court in Couturier's circuit, quickly piles onto the Couturier result, and is interesting in several ways. First, it's becoming clear that the courts are not messing around when it comes to this result. They really don't like indemnifications from ESOP-owned companies. Second, the facts in Fernandez are actually less conducive to looking through the company back to the ESOP shareholder than the Couturier facts, and yet the court, after clear reflection, nevertheless came to the look-through result. Third, on the other side of the ledger, I like that Fernandez in its thinking and reasoning seems more focused on indemnification than Couturier. While I think that Couturier and Fernandez are flat-out wrong altogether, at a minimum it's critical that it be narrowed to the indemnification question that consistently seems so to offend courts' sensibilities.

For example, in Fernandez, the company was minority-owned, but the court nevertheless traced indirect indemnification back to the ESOP ("The ESOP, which owns forty-two percent of KMH, would thus shoulder a large part of the burden of indemnification."). In terms of how much the plan needs to own before there's a problem, what's the Fernandez standard? Majority ownership? Material ownership? So, a PubCo plan owns 2% of PubCo and a PubCo plan fiduciary has an indemnity - the indemnity is invalid? 2% invalid? C'mon. . . .

It seems to me that the early guidance of IB 75-2, now found at 29 C.F.R. § 2509.75-2, which sets forth standards for when a nonplan-assets entity which purports to stand between an investing plan and a PT should be effectively ignored, provides a perfectly good basis for when the PT rules should apply notwithstanding the presence of such an entity. Thus, 75-2(c) states, with a distinctly anti-collusion/anti-sham tone:

******
[I]f there is an arrangement under which . . . it is expected that [an] investment company [in which a plan invests] will purchase securities from a party in interest, such arrangement is a prohibited transaction.

Similarly, . . . an arrangement under which it is expected that the insurance company [issuing a policy to a plan] will make a loan to a party in interest is a prohibited transaction.

Moreover, notwithstanding the foregoing, if a transaction between a party in interest and a plan would be a prohibited transaction, then such a transaction between a party in interest and such corporation or partnership will ordinarily be a prohibited transaction if the plan may, by itself, require the corporation or partnership to engage in such transaction.

Similarly, if a transaction between a party in interest and a plan would be a prohibited transaction, then such a transaction between a party in interest and such corporation or partnership will ordinarily be a prohibited transaction if such party in interest, together with one or more persons who are parties in interest by reason of such persons' relationship . . . to such party in interest may, with the aid of the plan but without the aid of any other persons, require the corporation or partnership to engage in such a transaction. However, the preceding sentence does not apply if the parties in interest engaging in the transaction, together with one or more persons who are parties in interest by reason of such persons' relationship . . . to such party in interest, may, by themselves, require the corporation or partnership to engage in the transaction.

Further, the [DOL] emphasizes that it would consider a fiduciary who makes or retains an investment in a corporation or partnership for the purpose of avoiding the application of the fiduciary responsibility provisions of the Act to be in contravention of . . . section 404(a) . . . .
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The foregoing narrowly constructed anti-abuse provisions are a far cry from unfortunate Couturier/Fernandez application of ERISA to look through to the company's plan investors when somethin' just don't feel right. And, if the potential expansiveness of the Couturier reasoning beyond indemnification takes hold, the overbreadth of that reasoning may start to have some truly unfortunate, and, it is submitted here, unintended, consequences.

Well enough about that. But, as long as we're resurrecting material from the latter half of the 70s (these segues get more and more attenuated, don't they?), let's set about considering the latest efforts in furtherance of . . .

Resurrecting Halloween

[SPOILER ALERT: DON'T read on if you do not want aspects of the movie revealed]

For anyone coming at Rob Zombie's new Halloween series, you need to see Carpenter's Halloween before seeing Zombie's. You would be too desensitized by Zombie's to be able to appreciate the accomplishment of Carpenter's. Go to the local library, if you have to (a good trick to remember, for oldies)! I watched it recently with family just to give everyone a sense of the enormity of Carpenter's seminal accomplishment, but, to my surprise, it actually held up, providing not only creeps but scares.

And then we watched Zombie's H-I. It was not an awful movie - a total reimagining/reinvention, to be sure. But it surely was the case that Carpenter's original would have been laughable played after Zombie's. The same was not true in reverse. Interesting.

H-II extends and transcends Zombie's H-I. I actually think that, in some ways, it might be the one of the best horror sequels ever made. It had something to say, was highly energized and didn't lapse into quirky self-parody. It was rough-and-tumble in the extreme, and represented a gritty take on Carpenter's original vision. There's no doubt that this wasn't Uncle John's movie. This ain't no foolin' around, as the Talking Heads might've said. "This ain't rock 'n roll - this is genocide," from Bowie, also comes to mind. (I still don't know quite what that means, but it seems apropos here.)

Isn't it ironic that a return to pure unfunny horror comes from the guy who did the over-the-top House of 1,000 Corpses? One would've assumed that Zombie would go down a Freddy/Evil Dead/latter-day Jason/ etc. road, maybe with some additional brutality, but definitely humor-based, no? Well, no.

Little touches abound. There's the barely perceptible use of the head-cock, perfected completely by Nick Castle's take on The Shape in Carpenter's original. And that's a lot of what's so good here - respectful homage without parody. There's no reason to be upset that this doesn't have the bloodless subtlety of Carpenter's. It's different, but different can be OK. Music evolves, humor evolves . . . and horror evolves. Later, and just different, is how I see it. Even the trademark (and utterly unsurpassed) Halloween music was saved 'til the very end - although take note that Zombie artfully used both musical themes, in perfect sequence, when the time was finally right. See also my earlier post on Carpenter's Halloween. And Margot Kidder as Laurie's therapist?! Could anything be more ironic, without degenerating into crass yuks?

I wonder if we now go down a horror revival, really started by Michael Bay with the highly effective revisiting of the Chainsaw saga and his bring-it-all-together take on Friday the 13th. Chainsaw even became a breakout movie for Jessica Biel, harkening back to what Halloween did for Jamie Lee. It could be a fun, albeit exhausting, run.

On the other hand, maybe I'm going too far here. I recognize that H-II is not a blockbuster (I cannot figure out the marketing strategy of not waiting until releasing it until October, around . . . uh . . . Halloween). In addition, the reviews, which sometimes can be pretty good even for a horror movie, are mixed. But Zombie is a pretty high-profile guy, and H-II really is pretty good stuff.

As its true test, H-II might, a la Wes Craven's Scream, fundamentally reinvigorate the genre, both bringing it back and simultaneously turning it in new directions. And, by the way, if you're interested in a take on a franchise that is utterly ignored but absolutely creative, clever, tight, suspenseful and downright scary, check out 1994's Wes Craven's New Nightmare. (Look for the scene where John Saxon, playing himself rather than Heather Langenkamp's father until the movie shifts gears, wonders why she's calling him "John".)

As to Michael Myers himself, let's only hope they're done now. The ambiguous ending notwithstanding, there's nothing more to do here, and the respect for the genre would best be manifested by an acknowledgment that we don't have to convert every one of these once-memorable characters into a supernatural goof-ball killing machine. They've made him real again; they made him scary. They now should leave him the heck alone.

Looking at Corpses followed by The Devil's Rejects and now H-I/H-II, Zombie seems to move in twos rather than trilogies. I like it - you ramp it up and then, with the benefit of some reflection, wind it down. Particularly in the case of highly charged moviemaking like this, that seems like all you should really need . . . or want.

We get a better ending this way. Put yourself back to Carpenter's Halloween and remember how totally cool it was when Pleasence**** looked down, Myers was gone, and Jamie Lee***** knew it, without even having to see. It was frightful, eerie and unexpected, because we didn't know then that he'd come back (again and again and again and again . . .). I always thought that moment, followed by the montage, was spot on. I also think the out-of-the-water scene at the end of the first F-13th, followed by Adrienne King's he's-still-there hysteria, all following the Jason's-mom arc, was spectacular. I think the later, dilapidated endings all come from unfortunate efforts to preserve the inevitable sequels that eventually became genre staples.

Having said all that, I really liked the ending here. The killer SHOULD be able to be killed. And the dementia that will now follow Laurie was well-executed. It reminded me of what they briefly tried with Jason, before they made him an unkillable supernatural monstrosity. In particular, they tried the concept that he would effectively live on in others, who had been touched and affected by him. People, to my surprise, didn't like that at all, and they degenerated into sci-fi. While they've sorta set that up here, with Laurie's having embraced her brother's violent leanings, I really hope that they're indeed done. I just don't think there's any more to say in the Michael (Michelle?) Myers saga. But what was said thus far was said well. Happy Halloween. . . .

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* Indeed, there is ample precedent for restraint, even where ERISA might directly apply. For example, the basic 3(21) fiduciary definitions are carefully balanced so that someone (who doesn't want to have potential fiduciary liability) might actually want to perform services for a plan. One might look at the regulations there and ask why the effort to circumscribe rather than expand fiduciary status. But, were the status unduly expanded, even aside from pure fairness considerations, there could have been the practical impact that otherwise willing service providers would be understandably unwilling to serve.

** The DOL, when faced with a desire to look through an entity where the underlying analytics didn't necessarily support doing so, recently used a look-through approach in connection with the new 5500 requirements, first coming up with a new underdeveloped concept of "investment fund" to get at disclosure issues where plans make equity investments in entities and there's some general feeling that an indirect path can or should be traced back to the plan. Notably, there may be some evidence that the DOL considered an unfortunate extension of this approach to the PT rules of 406(a) and 408(b)(2); more recent anecdotal indications appear to be that the DOL later (wisely, if you ask me) rethought the inclination to do so. Eventually, the initially undeveloped "investment fund" concept received greater and more careful attention, in Q&A-7 of the July 14, 2008 DOL FAQs on the new 5500 requirements. A lesson here is that there should be some effort to remain true to the underlying governing principles. And note that, even where the DOL did opt for looking through nonplan-asset entities in the 5500-related FAQs, it understood that it should not be looking through operating or even quasi-operating companies.

*** . . . like, for example, Harley v. Minnesota Mining and Manufacturing, 284 F.3d 901 (8th Cir. 2002).

**** Good as Malcolm McDowell is, he's was not quite Donald Pleasence.

***** Good as Scout Taylor-Compton may or may not have been (she got better towards the end), she was no Jamie Lee Curtis.

Pulp Fiction and Perfection; ERISA and . . . "Repeal"?!

2009-07-21T12:08:00.015-04:00

Pulp Fiction, Imperfection and Perfection

Pulp Fiction is probably my favorite movie of all time. But is it Perfect? The answer, in my mind, is "no," although I probably would not have homed in on the slippage if not for Tarantino's own work. Indeed, the fix, as I see it, would require the use of raw materials that already exist in his toolbox.

The only time in the movie which struck me as a bit disconnected (well, unintentionally disconnected) is the time when Harvey Keitel (i) gets to Monster Joe's Truck and Tow, near the end of the Marvin/Bonnie arc (did anyone notice that the cop in Reservoir Dogs is Marvin (and that some guy named Marcellus is mentioned there, too)?), and (ii) strikes up a clearly I-love-you-like-a-daughter conversation with Joe's daughter, Julia Sweeney. Something is amorphously off about that conversation - there's just no predicate; and you're left wondering where Joe is or, at least, why he's never given more play.

Well, it turns out that Joe was played by the somewhat ubiquitious Dick Miller, and that the scene that fills this gap was indeed filmed, edited and ready, in its entirety. The scene not only supplies the bridge from Keitel to Sweeney, but also contains a smoother transition when Keitel first sees Sweeney into the final repartee between those two. It's on the deluxe DVD as one of six deleted scenes, and is described by Tarantino as follows: "Actually, of all these scenes, it's the one that I almost kept in. Alright, y'know, right down to the wire, at the last minu . . . , well, . . . ah, we don't want to be here unfortunately. But I want to be here."

I know that Tarantino's resisted the desire to do a "director's cut," expressly (as stated on the DVD) on the basis that Pulp Fiction as it stands is the film he wanted to make; and he continues on that the outtakes are on the DVD for completists only. But I really feel that Tarantino probably got lobbied out of including this scene. Unlike in the case of the arguments for excluding all of the other deleted scenes on the DVD, the arguments for excluding the Monster Joe scene seem strained; I think Tarantino feels like he let this one get away.

Having said that, I, too, am ambivalent about directors' cuts. On the one hand, the movie is what the movie is, and a director's cut is an invitation to tossing in the kitchen sink. Generally, there's a reason that something is left on the cutting-room floor. (Who knows what Kevin Costner did to merit being left as the totally unseen dead guy in The Big Chill?)

On the other hand, why is it necessariy the case that the first cut is always the best? I've sometimes wondered authors don't tweak books more often, and Broadway shows do indeed evolve sometimes. Here, as great at PF is, this one little missing scene, if inserted, might actually proceed to make the movie . . . Perfect.

(Compare the deletion of the Miller scene to the deletion of the Eric Stoltz monologue to John Travolta. The Stoltz monologue is good, but not great, and is, I agree, way too long. The actual final edit is masterful - it turns out that the monologue was bookended by two lines that are left in, and the deletion is somehow flawless, with the two retained lines butting up against each other seemlessly. It's quite something.)

Where does all of this leave us? Dick Miller is already in the credits, notwithstanding that he is not in the movie. Thus, other than one big paste, literally all the work is done! So do it QT; get out a version that folds in that one scene you know darn well belongs in there. Call it a Director's Mini-Cut, if it makes you feel better, but, with apologies to Ben Stiller in Starsky & Hutch (and maybe Nike), Do It!

ERISA and . . . Repeal?!

While Pulp Fiction may be butting up agains Perfection, no one is going to accuse ERISA of the same thing. Now, the Obama administration, in its proposed legislation relating to health-care reform, is so fed up with one a portion of ERISA that it is proposing to make changes that are at the heart of one ERISA fundamental principles. The principle in question gets to the basic nature of the U.S. benefits system as a voluntary one. In particular, as relevant here, the decision of whether and how to provide health benefits has generally been left fundamentally to the private sector.

In its editorial, "Repealing Erisa," that venerable publication, The Wall Street Journal, goes so far as to characterize the administration's efforts as amounting to an attempt to repeal ERISA. In that editorial, The Journal uncorks the following line: "The more we inspect the House bill, the more it looks to be one of the worst pieces of legislation ever introduced in Congress."

Well, I guess it's becoming increasingly clear that ERISA is no longer hidden away in the back room out of the glare of the spotlight. To characterize ERISA-related legislation as "one of the worst pieces of legislation ever introduced in Congress" - wow! (See also my prior post on Justice Souter's resignation and some purported attribution thereof to ERISA litigation.)

Before leaving the topic, I had one more point. The Journal describes the administration's proposal as follows: "The House bill says that after a five-year grace period all Erisa insurance offerings will have to win government approval—both by the Department of Labor and a new 'health choices commissioner' who will set federal standards for what is an acceptable health plan. This commissar — er, commissioner — can fine employers that don’t comply and even has 'suspension of enrollment' powers for plans that he or she has vetoed, until 'satisfied that the basis for such determination has been corrected and is not likely to recur.'"

I don't here want to get into the question of what health care should or shouldn't look like. I also don't want to get into the question of whether The Journal's feared parade of horribles would indeed ever materialize.

I do, however, want to make one point in the "be careful what you wish for" vein. It's really nice to be in control of the process and to get done all the things you substantively want to achieve. But - once you build the machine, you may not always be in control of the your creation.

So, if you build a beast that entitles a central decisionmaker to make substantive decisions regarding the subject matter in question, that's all well and good, until the "other side" has control. Do you really want to be arguing with the right-wing of the Republican party, after control has someday shifted, about whether the only approved ERISA health-care plans need to be those that do not provide reimbursement for abortions, etc., etc.? It's good to be king, but . . . .

Endings - Kennedy v. DuPont and its Progeny, and Lynyrd Skynyrd; Batman Redux

2009-07-04T16:31:00.008-04:00

Kennedy and the Law of Unintended Consequences

When I first saw that Kennedy v. Plan Administrator for DuPont Savings and Investment Plan, 497 F.3d 426 (5th Cir. 2007) was making its way to the Supreme Court, I didn't understand all the controversy. There, a participant died leaving his former wife, Liv, as the beneficiary, notwithstanding a pretty clear intent, in my view, that she not continue to be the beneficiary.*

I figured Kennedy would be an opportunity for the Court to straighten out all those silly lower courts and reaffirm that ERISA means what it says - that the QDRO is the only way in which ERISA benefits may be moved around in the domestic-relations setting. Here, hadn't the Fifth Circuit actually gotten it right? After all, the Court had already forcefully validated ERISA's preeminent status in the domestic-relations area with Boggs v. Boggs, 520 U.S. 833 (1997). Right?

Well, wasn't I surprised when in Kennedy v. Plan Administrator for DuPont Savings and Investment Plan, 129 S. Ct. 865 (2009), the Court held that the QDRO rules were irrelevant to the case, and that the case is resolved straightforwardly under ERISA's "plan documents" rule in Section 404(a)(1)(D) thereof? The funny thing was that, after reading the case and actually taking the time to try to understand the underlying law (silly me), it seemed apparent to me that I had been quite wrong and that the Court indeed got it right. See also my prior post on Kennedy and certain other recent cases.

Whether or not Kennedy is ultimately defensible or right or obvious or whatever, it now seems like its impact may be quite substantial. Estate of McCalip, No. 08-12806 (S.D. Mich. June 30, 2009), is demonstrative. There, a former spouse had walked away from life-insurance benefits in a domestic relations order, but had been maintained as the beneficiary vis a vis the plan. While the apparently intended beneficiary may have had a shot at some kind of claim against the former spouse, the benefits, at least in the first instance, went to such spouse.

This result seems unfortunate and frightening, regardless of if it's correct, especially since by hypothesis the deceased participant's wishes are frustrated without any ability of the participant to correct matters. DomRel lawyers are used to viewing divorce decrees as ineffective on pensions, because of the QDRO rules. I doubt they're used to the same regarding life insurance and similar benefits. There's bound to be a bunch of unchanged designations out there. Hmm . . . . I wonder whether there needs to be some kind of coordinated and extensive educational effort in the DomRel world to impress upon the attorneys in that world the utter importance of having participants in troubled relationships attend to their beneficiary designations - not only in the pension area, where the issue's been more front-and-center by virtue of the need to deal with the QDRO rules, but also in the welfare area, which has proceeded in more of a stealth manner over the years when it comes to these issues.

Lynyrd Skynyrd and Other Endings

While on the subject of unhappy endings, and with no disrespect intended regarding the true and horrible tragedy that befell them, Lynyrd Skynryd comes to mind here regarding a more light-hearted issue - the . . . ending . . . of their seminal, even momentous, song, Free Bird. As great as Free Bird is (lighters on!), the fade at the end is frustrating to me, especially in light of the great ending in the live version. Well, for those of you who agree, you need to listen to what they call the "outtake version," which appears on Skynyrd's Innyrds. The ending there, which shadows the approach in the live version, brings it all the way home, instead of (inexplicably) fading into oblivion too soon. If you're going to get up to nine minutes and change, why the heck not go to 10 and change if there's great stuff there (which there is)?! See also Lynyrd Skynyrd, Pronounced Leh-Nerd Skin-Nerd (2001 remaster) (including an even longer "live demo version"). You'll never volitionally choose the "album version" again.

Postscript - Batman Redux

Been watching The Dark Knight on HBO. Heath Ledger was even better than I remember. See my prior post on The Dark Knight, which followed my maiden post, also with a Batman spin. He didn't even have to be talking; his posture alone in scene after scene was spectacular. And that's to say nothing of his expressions. It is unimaginable what the world lost when it lost him - and we'll never know, because the "sliding door" of this timeline closed before he died simply is not one which we will ever get to observe. See also my post with a reference to Sliding Doors and the prior post with more of a discussion thereof.

. . . and . . .

With the utmost respect, R.I.P. - Farrah Fawcett, Michael Jackson, Billy Mays, Ed McMahon.

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* Maybe Nilsson would have said that he couldn't . . . ahem . . . Liv without her? - so many double entendres, so little time. (By the way, ya gotta love this area, don'tcha? - Carmona v. Carmona, 544 F.3d 988 (9th Cir. 2008), for example, deals with a dispute between a participant's eighth and ninth wives.)

Star Trek; Some Cool Linguistic Nomenclature; and Zombies

2009-05-17T22:08:00.008-04:00

SPOILER ALERT - IF YOU HAVEN'T SEEN STAR TREK YET, YOU MAY WANT TO STOP READING. CERTAIN KEY ASPECTS OF THE MOVIE ARE REVEALED BELOW.

Star Trek

OK, so I've now seen JJ's Star Trek. Hey, I liked the movie even before I saw it! See my previous post on the matter. Well, now that I've seen it, the movie is indeed spectacular - in some ways amazing. I seriously doubt that there is a single other director who could've pulled this off.

By way of background, I was never a true Trekkie (Trekker, for those trying to retain some self-respect) growing up. To me, the true Trekkies, among other things, (i) carried around their ST fact manuals, (ii) discussed episodes nonstop during class breaks, (iii) engaged in incessant trivia contests, (iv) knew every episode name together with its number, and (v) knew the dimensions of the shuttlecraft bathroom (OK, that one's apocryphal). Having said that, I thought the original series was terrific, and I probably fashioned a portion of my theology around its. (Hmm, maybe I'm not a Trekkie because I simply defined my way out of the label?)

I always felt that what distinguished the original series was the fullness of the characters. The stories were great, but secondary. I think that's why the cheesy effects and sometimes silly plots were acceptable. Revisiting the original would surely prove tricky. I awaited this movie with great trepidation, especially after Star Trek: The Motion Picture. That completely awful movie might hold the prize for the movie with the biggest gap between how great it should have been and how dismally terrible it was.

It turns out that the new Star Trek does a remarkable job of preserving the characters while delivering a much-needed style update. I've heard rumblings that the movie is action-heavy; however, while there is no shortage of action, I think the movie stays true to the character-driven approach. The channeling of the original cast by the new cast, without overly lapsing into parody, is well executed. McCoy comes closest to the proverbial imitation, but it works. Arguably, Chekov came most dangerously close to lapsing into abject parody, but even he was tolerable. Simon Pegg, whom gave us Shaun of the Dead, was hilarious and Scotty-like as Scotty (although I do so hope that they get rid of that silly poor-man's Star Wars sidekick they gave to him).

Ultimately, the key, besides Abrams, is Chris Pine (who IS this guy?!) as Kirk. Zachary Quinto as Spock was fine, and the mindbending subplot involving Nimoy was pretty cool; the Pike tie-in (with the always serviceable Bruce Greenwood) was great, too. But the lynchpin was the way in which Pine honored Shatner's portrayal, drawing on the original style while at the same time making it his own. Of all the challenges here, this one is the one I would have thought to be the most unbeatable. Well, Pine completely nailed it. Even the obviously Shatneresque swaggering at the very end worked extremely well.

On a personal note, the special thrill for me was introducing my children to this franchise with a movie that they both appreciated and embraced. This multigenerational reincarnation of something from the past was different than others I've experienced. The closest thing I've seen is the new thread of Bonds we have with Daniel Craig, but that's different, too, in that Bond never really went away.* (Sorry, but TV's Enterprise, and the last couple of movies, do not qualify as having kept ST going, in any meaningful sense.) I also was able to show my kids Kiss, but that was really Kiss qua dinosaur.

Indeed, up 'til now, to my substantial frustration, my kids viewed the whole ST thing as one big joke. Unlike, for example, The Twilight Zone, ST just didn't translate for them. For whatever reason the original series just didn't work for them. Now, they get it.

And, maybe more than ever, so do I. As the movie unfolded, I found myself feeling that I was watching background information that was always there, but which was unavailable to me until now. It didn't feel like a latter-day fill-in; it felt like a vehicle for the provision of heretofore existing but missing information. I had to remind myself that I hadn't missed the information being conveyed. It became possible to forget that, until now, this background didn't exist. I found all of that pretty amazing in light of how well I already knew these characters. The movie's vision of the characters' younger selves fits like a glove, as though this past always was. To me, this aspect as much as any other shows Abrams' genius.

In terms of the storytelling, nowhere is Abrams' creativity more evident than in respect of the clever use of an alternative timeline as a sort of deus ex machina** that allows Abrams to free himself of the details from the original show. I have always been . . . fascinated . . . by TNG's view of alternative time lines, particularly as embodied in the Tasha Yar chronicle (compare TNG with Lost; Twelve Monkeys), and they're used them here with extraordinary effect. By being placed down a new road, this new cast can boldly go, without the need to worry about integration with things that happened in the show, whether before or after. Spock and Uhura?! Nothing's there to stop them (including television's purportedly first-ever interracial kiss, between Kirk and Uhura). Note that, in several short years, this cast will be as old as the show's during its prime, with the result that both versions will be transpiring simultaneously. It was thus absolutely critical that the new stories be free of the old.

Another approach to avoiding the need to be bound to conformity with prior material could have been to shoehorn the existing material into the later vision. In effect, the prior material would be rewritten as need be in the later work to fit the later vision. Such a rewriting of history would have been difficult if not impossible to pull off here, given the arguably unique loyalty and devotion of the existing fan base.

That technique is eschewed here, with the result that the movie is not a prequel at all. It's the telling of earlier and eventually concurrent and later independent stories, with a substantially unchanged set of existing characters. Has that ever been tried before? However one might want to classify the new Star Trek (if I could coin a phrase of my own, I'd coin "paraquel"), the thought that Abrams has now given me and my sons the ability to retake this ground together over the years to come is a reason to smile. I look forward to the next ST, and the undoubtedly great storytelling that will come with it, with great anticipation.

Retcons, Backronyms and Other Cool Linguistic Nomenclature

The technique, referred to above, of taking facts from an earlier fictional installment and altering those facts in a later fictional installment has been given a name. What they (the ubiquitous "they"!) are calling it is "retcon," for retroactive continuity. The concept is (dare I say) fascinating. It's a liberating concept, to be sure, but one which risks dislocating and alienating those familiar with the prior material.

An arcane example of the retcon phenomenon that jumped out at me involved the living-dead thread that started with Return of the Living Dead. This underappreciated branch of the Living Dead saga, which is not a sequel to Night of the Living Dead, proceeds on the basis that the Romero flick was a fictionalization of actual occurrences. One of its key theses is that zombiism is spread not by bites, as Romero had imagined, but rather by other forms of contamination. By the time they get to Return III, which is really not that bad, the no-bite approach is apparently too cumbersome, and so, completely ignoring this fundamental thesis of Return I, they go back to the bite-and-spread paradigm. Retcon!

While we're on the subject of cool linguistic nomenclature, I recently came across a discussion of non-acronyms that feel like acronyms. For example, take "wiki." The entrance of the "wiki" prefix into the mainstream can be traced back to Ward Cunningham's use of the Hawaiian word for "fast" to describe an efficient, collaborative effort.*** A natural inclination would've been to think that "wiki" is some kind of acronym, causing one to try to figure out an underlying phrase that makes sense. Such retrofitting could arise because people genuinely believe that the non-acronym is indeed an acronym. In the "wiki" case, some have apparently retrofitted the snippet, "what I know is." A non-acronym onto which a phrase is later grafted has come to be known in some circles as a "backronym." Gotta love it.

Do the people who come up with these things take some level of satisfaction from interjecting them into the language? How cool is it when a name, catch-phrase or similar thing in pop culture truly embeds itself in broadly used language? Sometimes the source is a major movie, show, book or other release, and sometimes not. Sometimes, there can be a mere offhand comment. Here are some of my personal favorites:

- Rocky/Rambo - We now commonly talk about Rocky stories and going into a situation like some kind of Rambo. Hats off to Stallone for inserting himself (literally) into our language not once but twice! You can laugh at him all you want ('cuz I guess we want to deride those who have reached high levels of success), but let's see you do that! Usage: In ERISA more than in other areas, the story of the small-school ERISA lawyer who makes it can be a real Rocky story; and it's really something when that lawyer turns into Rambo and starts laying waste to adversaries in the way.

- 15 minutes (of fame) - "15 minutes" has become a two-word magic buzzword used whenever anyone who's not-so-famous brushes up against fame. And it's all because of visionary Andy Warhol's 1968 statement, "In the future, everyone will be world-famous for 15 minutes." (Hey, while I never really "got" Warhol either, anyone who gave us Lou Reed - as well as the "15 minutes" thing - can't be all bad.) Usage: You sure do get your 15 minutes if you're a senior IRS or DOL person at the time of a major benefits-related legislative initiative.

- Jumping the Shark - Wow, John Hein (now of Howard Stern fame), you really gave us a keeper of a phrase here, causing everything whose time has passed 4ever to refer back to Fonzie's Happy Days shark-riding exploits. Usage: So, when do you think ERISA jumped the shark?

- (The) Perfect Storm - How often do we hear that reference for fortuitous convergences, from the not-so-great movie (in turn based on the book) of the same name? Usage - The devastating market crash, the timing of the QDIA regs., a failure to get real investment advice to plan participants, etc., etc., were part of a Perfect Storm resulting in the present 401(k) debacle.

- Sliding Doors - The cool concept of parallel, alternate time lines (thanks to Star Trek TNG for that gem) gets a cool name by virtue of a not-so-cool movie. The fact that Geithner's nomination got through before Daschle's blew up presents a real sliding-doors scenario. See also my earlier post on the issue.

- Six Degrees of Separation - Here's the now-ubiquitous phrase for being not-so-far from someone else, based on a not-so-great book and later movie, sometimes (i) with "six" being reduced in scale and (ii) with the substitution of "Kevin Bacon" for "separation," as a result of the dalliance of college kids, Craig Fass, Brian Turtle and Mike Ginelli. Usage: I'll bet if I speak to a present-day member of Congress I'm only one or two degrees of separation from the people who wrote ERISA .

- Spam - I just love the fact that someone's reference to Monty Python's repetition of the word as a quaint reference to the repetition that is the hallmark of junk email (and who first put "e" or "i" in front of everything electric or internet?) stuck so thoroughly, completely and permanently. See, e.g., CompuServe v. Cyber Promotions, 962 F. Supp. 1015, 1018 n.1 (S.D. Ohio 1997). Thx (?) to Phoenix lawyers Canter and Siegel for their 1994 foray into what we now know to be spamming, with the result of inciting someone to come up with this too-cool turn of phrase. See generally Brad Templeton's post on the point. Usage: Whether your regard an email for an ERISA seminar as spam may depend on the how much value you place on such seminars.

- Blog - Wouldn't you just love to be the first person (Justin Hall, maybe?) to have put "web" and "log" together to get "blog"? Usage: There's at least one too many ERISA blogs.

- Scrooge - The word for every cheapskate, thx to Dickens, from his story of unsurpassed creativity, A Christmas Carol. And, as much as I don't really get him, Shakespeare had such talent that his characters - it seems like every one of them - become words and reference points. The stories in the bible and from Homer and Aesop are similarly clever. Usage: Whoever wrote "those" regs. was sure a real Scrooge.

- Heavy Metal's Devil Horns - VH1 Classic teaches us that Ronnie James Dio gave us this now-ubiquitous hand signal, having gotten it from his . . . grandmother!! (Gene Simmons claims it comes from his hand position on the Love Gun cover. Much as I love 'im, that's pretty funny.) Usage: It's what you would do with your hand if 409A were to be repealed.

- Southpaw - I'm not sure this one really fits on the list, but it has been said that Chicago's Finley Peter Dunne's first used the term in 1885 to refer to a left-handed pitcher, who, while facing home plate to the west, would throw using his . . . southern arm. It's a cool story which I choose to believe - notwithstanding that there apparently may have been prior use in the world of pugilism as early as 1848 referring to a left-handed boxer. Usage: When Obama finally signs health-care reform into law, it will be as a southpaw.

- Paraquel - Oops, sorry, I just tried to coin that one above.

Language is people-alterable in the context of the legal landscape as well. I find it interesting that someone drafting a statute or rule may wind up establishing or changing the nomenclature that people use to refer to a particular concept, maybe even permanently. I suspect that the recent and current crops of our friends at Treasury and the IRS have a veritable harvest of phrases and acronyms in 409A alone - short-term deferrals and S-TDs,**** legally binding rights and LBRs, "good" and "bad" "good reason," etc., etc.

Take the case of ol' Sen. William Roth who, having finally ascended to chairmanship of the Senate Finance Committee, in a remarkable pique of hubris changed the name of backloaded IRAs to "Roth" IRAs in what may have been the final turn of the late-90s bill that eventually added Roths. My guess is that his people did a find-and-replace substituting "Roth," on the one hand, for "backloaded" and "Super," on the other. Hey, it worked - Sir Roth's legacy is that his name is EVERYwhere!! It's good to be king, to the victor goes the spoils, and all that rot. And now there're even Roth 401(k)s!

In a similar vein, there's the "Keogh," generally referring to a retirement plan for a self-employed individual. For the longest time I thought "Keogh" was an acronym; I almost fell into the backronym trap discussed above. It turns out that "Keogh" is nothing more than Rep. Eugene Keogh's last name.

I wonder how many of the people who come up with these things, once they stick, say to themselves, "Hey, I did that," every time they hear them used. Does the person who coined "benefit plan investor" in the "significant" participation rules in Section 2510.3-101(f) of the DOL Regulations feel that way? Even private practitioners can get into the act, as in the case of whoever came up with "controlling persons" to describe in financial-product disclosure those who aren't counted under the 25% test in Section 2510.3-101(f). (I have a sneaking suspicion I know the downtowner who gave us that one.)

Zombies (and Their Music)

Return of the Living Dead and its progeny are discussed above in the context of the retcon phenomenon. When it comes to zombie sequels, the one I really like is one that no one seems to care much about, 28 Weeks Later. The soundtrack, while maybe not quite at the levels of Carpenter's efforts in Halloween and Escape from New York, is one of my favorites and really drives the movie, especially at the end.*****

And the best Zombie movie of all time? To me, it's the remake of Dawn of the Dead. Romero's original Dawn was a clever commentary on malls in suburbia, I suppose, but -heresy - I think that the movie was goofy and completely disposable. Snyder's remake, on the other hand, has terrific energy, great plot twists and some tight acting turns (the casting is right on the button).

The devastating ending, uniquely coming as it does after the credits, is well-crafted and uniquely delivered. What nails it for me is the way the movie is woven around its soundtrack, most notably, around Disturbed's Down with the Sickness, culminating at the end. I actually think that Snyder may have more artfully used music to help construct his movie than even Tarantino ever did. Early in the movie, we get the lounge-lizard version of that song to convey the absurdity and incongruity of our heroes' predicament. I had assumed that this version of the song was cut especially for the movie, but it turns out (thanks go to Richie W. of The Howard Stern Show/Howard TV for alerting me to this some time back) that it's Richard Cheese's clever turn.

Later, over the first part of the credits,****** we get People Who Died, a song that's as original as it is great, by Jim Carroll of The Basketball Diaries fame. Then, squaring the circle started with Cheese's Down with the Sickness, we get the original from Disturbed, to propel us through the true post-credits ending of the movie. The lyrics of both dovetail completely with the substance and style of the movie. I could hardly believe that two of my favorite songs were bookending this dynamite finale. Bravo!
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* I recognize that those who liked Star Wars have been able to share the prequels with their kids, but Lucas never aspired to reinvigorating Star Wars as an ongoing perpetuation of the franchise. The James Bond thing is quite incredible. There is no comparable precedent for what they've accomplished. They've made over 20 movies, in the same thread (there are several spurs, but those can be ignored without diminishing the point being made here), without material interruption. That they've done it with different stars (and survived George Lazenby) makes it more, not less, amazing. Think of all of the amazing characters and movies throughout the years (remember the Rocky XXXVIII poster in Airplane II?), and not one of them comes within miles of generating a franchise as prolific and continuing as Bond.

** I always have wanted to use that phrase since seeing Tony Randall use it on TV's The Odd Couple (which, by the way, was better than the movie, at least once they went in their own direction).

**** It's amazing what you can find on Wikipedia, including the incestuous etymological derivation of the use of "wiki"). Thank goodness everything in there is always 100% correct - just ask Ted Kennedy, Steve Jobs, et al.

**** I refuse to use that one without a hyphen as a legal term; you can almost hear Beavis and Butt-Head giggling ("he said, 'STD' - huh huh ha heh heh").

***** The best soundtrack for any movie ever might well be Morricone's for The Good, the Bad and the Ugly. There are long stretches of the movie, including the climactic scene, in which the music IS the dialogue. And, back to another point relating to horror-movie music, I'd like to know if, as he's suggested, Harry Manfedini produced a backing track for Friday the 13th that really said "ki ki ki ma ma ma" and did so as a clue that Jason's mom (ma), rather than Jason, was the one to kill (ki) all those Crystal Lake victims.

****** Did you notice that Heather Langenkamp is listed as being in the production crew? And did you notice that (as best I can tell) the great Bruce Campbell is altogether uncredited?

Time Was On Geithner's Side; the Explanation of How Time Really Works; and, of Course, Star Trek

2009-05-10T10:48:00.004-04:00

Order in the Cabinet, and the Geithner Appointment

It really is amazing how timing can be everything. If Geithner gets nominated after the start of the parade consisting of Daschle, Killefir, Kirk (not James Tiberius, who's addressed, in a way, below) and Sibelius, rather than before that parade started, there's arguably just no way he gets approved. In fact, there's no way he does anything but withdraw . . . especially considering the position for which he was nominated, and especially considering the extent to which some of the later withdrawals were on account of virtual footfaults compared to Geithner's admitted missteps.

Now, don’t get me wrong - I'm not taking a position on whether he should or should not have gotten approved; I'm only remarking about the extent to which the ordering of moments in time can have such an enormous impact on a period in history. If Geithner winds up being as significant a figure as it looks like he might, there's no way to even try to estimate the impact of the fortuitousness of his spot in line as the nomination process unfolded.

All of this rang to me of those crazy halcyon days of Zoë Baird (she's not our attorney general because she had a nanny?!) and non-Justice Douglas Ginsberg. Around the same time was Bork's failed nomination because he . . . um . . . had the audacity to publish in a way that actually expressed a point of view on the law. As with all of these types of things, people get tired of the issues raised, and plow through issues that once would have been devastating but later would have the effect of opening old wounds. Isn't it interesting how Scalia gets confirmed almost unanimously?

In a way, that's just what happened with Geithner, as I think that people were not willing to reopen Baird-type inquiries. But then, once Daschle & Co. jumped on board (in particular, Daschle), the process returned to its zero-tolerance approach. Doesn't it seem that Geithner could never have survived that?*

Anyway, let's return to the point I'm trying to make about the timing, rather than the substance, of it all. Everyone knows the old saw, "timing is everything," but the Geithner situation has a different spin to me. I guess what I'm saying is that this timing issue is not a timing issue in the Sliding Doors sense (I still can't believe that movie wasn't better than it was). We're not left to wonder what if something wasn't given a chance to happen; we're rather left to ruminate about mere ordering. The issue isn't when they made their possible tax or other mistakes or anything like that, or whether the Geithner nomination happened during the wrong window of time. Here, it's the almost surreal and not-overly-obvious impact of the mere ordering of the nominations, all of which are happening essentially concurrently in the scheme of things. For example, if Geithner gets nominated after the Daschle debacle transpires, rather than vice versa, and the Geithner tax issues then come up, then the nomination is, I think, clearly DOA.** Wow.

How Time Really Works

Moving on from Mr. Geithner, whenever I think about anything having to do with time, my mind wanders to such things as 12 Monkeys, Memento (Nolan's genius was evident from the get-go) and Star Trek's various and numerous temporal rifts/distortions (not meaning to betray my allegience to the original series, the return-of-Tasha-Yar episode of TNG may well be as good as any episode of series television ever). Those efforts are not much of a secret, though, and so I turn my attention to my time-based obsession with a certain episode of The Twilight Zone.

I refer, oddly enough, not to Rod Serling's absolutely amazing B&W efforts from the 50s and 60s (what a visionary he was!). Rather, I refer to a 1986 episode from the generally tragically bad second-generation (color) version of The Twilight Zone. That's the series with the horrible Grateful Dead remake of the theme song and the pathetically written (but valiently delivered (by Charles Aidman, sounding sorta like John Forsythe)) voice-overs at the end of each episode. While the original Zone may well be a Top One or Two Show of all time, all of the Zone reduxes were essentially, albeit not literally always, awful (even Forest Whitaker couldn't save one of the incarnations!).

Well, every dog has its day, and what to me is one of the cleverest turns anywhere ever (!) appears in the Adam Arkin episode, "A Matter of Minutes," which is co-written by Harlan Ellison. In that episode, a couple wakes up in a time-confused state, and finds that various parts of their world have been turned into white empty voids. They see a bunch of faceless blue men moving stuff around, and grow more confused. They eventually make their way to Adolph Caesar, the blue men's supervisor.

Caesar explains to Arkin and his wife that time is constructed as a series of minutes, one flowing smoothly into the other. Each successive minute has to be built, hence the need for Caesar and his men. As one minute expires, we seemlessly enter the next.

The couple is incredulous - c'mon, that explanation is just silly, right? But Caesar then asks whether they've ever gone to the spot in their house where they've left something, looked everywhere in the area and then, exasperated, moved on to another place to search. He continues, "You look everywhere and then you look again, and they're right back where you thought they were in the first place." The implicit explanation: you were never wrong; it's simply that the blue men had messed up in building the earlier minute, and fixed it by the time you went back to the same place, in a later minute. Not only is this pure genius, but I'm quite convinced it's true. This has to be the way time works - it is indeed the only thing that explains the real-world state of affairs that Caesar so deftly describes.

(To those looking for for further tie-ins here to King's Langoliers (which I regard as a virtual thematic copy of this Zone episode) or to the awesome Blue Man Group, I am sorry to disappoint; the purpose of this part of the post is merely to explain the way time really works.)

Star Trek

Having mentioned Star Trek, I cannot conclude without further mention. I admit it (as the Shatner "get a life" line from SNL rings in my head) - I am jumping out of my skin to see JJ's Star Trek. Shamefully, I haven't seen it yet - my priorities must be wildly askew. It sounds like he may have figured out a way of bringing what may be some of the best, most fully developed fictional characters ever created to today's audience, in a way that's simultaneously (i) true to the original and (ii) accessible to those with today's sensibilities. It should be a neat temporal distortion to see it with my boys (sorta like driving around in a '69 'Vette with early Zep playing***), especially with the knowledge that this effort will undoubtedly spawn a new thread of STs (not unlike the way Craig's Bond has for JB (although I still want Clive Owen!)). Suffice it to say, however, that (and the married among you will understand this) I won't be seeing it today on Mother's Day!
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* Frankly, I'm not entirely sure how Rangel is getting through similar stuff.

** By the way, speaking of DOA, the original DOA is quite the movie (putting the more recent Crank to shame), having giving us the utterly classic line, "I want to report a murder . . . mine."

*** While we're on the subject of visionaries like Serling and Corvettes, credit needs to be given to the designers of the '68 'Vette, the lines of which would be totally current if they came out today. By the way, I know there was way (way) too much stream of consciousness in this post, but it's been a problem of mine ever since reading Faulkner's The Sound and the Fury and admiring the approach taken by Benjy (no relation to Howard Stern's Benjy) therein. Maybe the temporal-shift theme brought it to the fore. Oh, well.

Yo Adrian, ERISAns Win!

2009-05-03T06:51:00.007-04:00

Well, here's a quickie -

In Rocky II,* Adrian, after coming out of her coma, implored Rocky simply to "‪Win. . . . Win!" Well, we won. Not even Supreme Court justices are safe. The following is from an article in The Wall Street Journal on May 1, 2009, discussing possible bases for Justice Souter's impending retirement:

****
Justice Souter has complained about life in Washington and even about aspects of the court's work, such as the numbingly technical cases involving applications of pension or benefits law.**
****

As Stan Lee would say - 'Nuff said!

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* I actually prefer Rocky II to Rocky, although I recognize how creative, groundbreaking and generally great Rocky is. I also think Lethal Weapon II is far superior to the original, and I'm probably the only one who likes Indy III, II and I in that order. See also T. Parker and M. Stone, South Park, "The China Problem" (Oct. 8, 2008) (chronicling the rape of Indy effected by IV). On the other hand, even though they're both OK, T2's no Terminator and Aliens is (are?!) no Alien. But, then again, what do I know? - I don't like Godfather II. (I don't like Godfather III either, but, thx to Coppola's eventually successful daughter, no one seems to like that one.)

** Thanks to Andy G. for this. In addition, Nell H. recalls reports early in Souter's tenure that, as the New Kid on the Block, he had been assigned the "dreaded ERISA" cases. (Before you object to the New Kids reference, the group gave us Marky Mark Wahlberg by way of Donnie. Mark's not all bad (c'mon, despite having conspired with Tim Burton somehow to tarnish Planet of the Apes, Mark does have an Oscar nomination), and even Donnie gave us a key star turn in The Sixth Sense.) But see my prior post wondering whether we have entered a Disney-like Golden Age of ERISA litigation.

Never Been Any (Good) Reason

2009-05-01T09:06:00.007-04:00

Good Reason - In General

Now that the 409A regulations have opened up the door/floodgates (depending on what you may think of as a flood) to the consideration of "good reason' concepts in the law, there are several emerging GR issues affecting non-409A areas. Until 409A, GR was more a colloquial term of use than a term of art - describing a subset of the triggers comprising the "good leaver" notion (for, essentially, non-cause and other acceptable terminations) one sees overseas. As a result, the concept exists in the law itself, and is spreading. Interestingly, there may be the possibility that some of the non-409A uses of GR could circle back to having a practical effect under 409A.

In particular, the ever-expanding use of the definition of Good Reason may be implicating the Law of Unintended Consequences? How? Well, having a "good" GR definition is generally a desirable result. That is to say, a good GR definition may allow you to have a severance or other involuntary-termination plan, may allow you to maintain S-TD status, etc. It has not been the case that having a good GR definition would actually be unpreferable . . . until recently. Below are some TARP/EESA/COBRA convergences for your consideration.*

EESA Does It - Good Reason and the TARP

The possible interaction between the application of the technical GR rules and the new rules regarding when one is covered by the TARP** strikes me as particularly interesting, at least before ARRA. It went like this. Section 280G(e) says that a "golden parachute" is any compensatory payment made to (or for the benefit of) an SEO*** made on account of an "applicable severance from employment" to the extent that certain limits are exceeded. For these purposes, as relevant here, an "applicable severance from employment" was a severance of employment by reason of an involuntary termination of employment. Under Q&A-3(b)(i)(2) of Notice 2008-TARP (catchy name, no?), an involuntary termination of employment generally means a termination from employment due to an independent exercise of the unilateral authority of the employer. Critically, the Notice goes on to say, "In addition, a SEO's voluntary termination from employment constitutes an involuntary termination from employment if the termination from employment constitutes a termination for good reason due to a material negative change in the SEO's employment relationship. See section 1.409A-1(n)(2) of the Treasury Regulations." While the citation to the 409A regs. is a mere "see" cite, it seems hard to imagine, especially given the citation, that the rules don't follow in virtual lockstep.

The same approach was taken in connection with EESA's expansion of the "golden parachute" rules into non-CiC land - the first such expansion of those rules. Thus, Q&A-12(b)(i) of Notice 2008-94 has the same type of GR language. By the way, while we're on topic of 280G, now we have a statute that is roundly criticized for its counterintuitive and unintended effects being used as the springboard for ever-widening regulatory coverage. Here's a shareholder-protection statute that in many cases winds up costing shareholders more money directly, by eliminating deductions, and indirectly, in light of gross-ups in the market. Watch carefully on this one, as a number of contracts protecting executives from parachute taxes may, without more, find their way to protecting them from the new expanded reach of 280G. And one of the injured shareholders may well be the good ol' U.S. of A.! (Gee, why don't we just expand 162(m) while we're at it? Oh, yeah, EESA did that, too.)

Back to the GR analysis specifically, a previous post laments the market's unwillingness to construe, for example, a violation of the compensation provisions of an employment agreement as per se constituting GR. As I previously described there, I believe that a lot of things that should be considered good GR under the regulations, even as written, are being needlessly viewed as bad GR.

Here, though, the foo may well be on the other shoot (no reference to Dave Grohl's band). That's because, here, having GR hurts you, because, by virtue thereof, you have an involuntary termination, which is in turn an applicable severance, which in turn triggers the TARP limitations. Thus, a non-GR provision may not subject one to the TARP limitations. At a minimum, if the basis for the SEO's departure termination by employee does not rise to the level of 409A GR, it seems pretty clear that the resulting payments cannot be subject to the TARP limitations. In this regard, note again the citation to the 409A regs. in the TARP notice.

So, now, let me get this straight. Check out these examples:

- I have a million-dollar exec. The employment agreement provides for the level of comp., and says that any material reduction in that level is GR. I then cut his or her comp by half a mil., and the exec. quits. Result: TARP limits clearly apply.

- Alternatively, The employment agreement provides for the level of comp., and says that any reduction whatsoever in that level is GR. Let's assume for the moment, even though as indicated above I don't think so, that the provision described in the foregoing sentence results in there being a bad GR definition. Then, I jerk the exec. around in a game of chicken and cut his or her comp by couple o' thousand, and it turns out that the exec. indeed quits. Result: TARP limits don't apply?!

- And what if the employment agreement provides that any reduction whatsoever in the level of compensation is GR (again, assume that the result is that the GR definition is considered bad), but the actual reduction is very large and the exec. quits. Has the exec. quit for GR (limits apply) or not (limits don't apply)?

Geez - so if I intentionally insert a "bad" GR provision, I may get out of the TARP restrictions, at least under certain circumstances? While ARRA may make much of these particular potential results moot, the lesson here may well be that the expanded use of concepts like GR could have unexpected results which could be worth watching. As Spock might have said (and may shortly again be saying, thanks to J.J. Abrams), "Fascinating."

Good Reason and COBRA

The rules governing the new COBRA premium subsidy also make use of the GR concept, and pretty clearly borrow from the 409A authority. Notice 2009-27 sets forth what is an involuntary termination for these purposes, and, after identifying a number of controlling principles, adds, "In addition, an employee-initiated termination from employment constitutes an involuntary termination from employment for purposes of the premium reduction if the termination from employment constitutes a termination for good reason due to employer action that causes a material negative change in the employment relationship for the employee. . . . The determination of whether a termination is involuntary is based on all the facts and circumstances." Sound familiar? Unlike the TARP rules, however, there is no express cross-reference to the 409A regs., presenting a possible argument that divergent meaning and effect should be given to the two sets of rules.

And, particularly in the COBRA context, there is reason for an extremely liberal interpretation of the GR rules. Is the IRS really going to want to make the argument that an employee's termination does not trigger eligibility for the COBRA subsidy, based on fine distinctions such as those surmised above with respect to the TARP rules?

Never Been Any Reason and Head East

So all of this somehow caused one-hit wonder Head East's old song to ring in my head. Y'know - "Never Been Any Reason." Sorry, I couldn't help it.

Anyway, it turns out some of the lyrics seem almost apropos to the 409A/TARP/EESA/COBRA thicket. Try these:

****
You've been talking in circles
Since I've been able to cry
There's never been any reason
For never telling me why, yeah, yeah

Save my life
I'm going down for the last time

. . . .

You never give me no answer
You never tell me the truth

. . . .

Save my life
I'm going down for the last time
****

In Closing . . .

This is just the type of thing that happens when new concepts are applied outside of their natural habitat. I worry, for example, that people are going to use the definition of "nonqualified deferred compensation plan" in 409A, where the term was used in a provision that permits deferrals (so long as compliant) had the effect of permitting deferral, in new provisions that flat-out prohibit deferral (can you say "457A"?). Similarly, I remember when some in Congress looked at 162(m), saw a cool little rule, and proposed extending it to all companies, public and private alike. These new concepts become almost like playthings in the hands of those looking for the next regulatory extension. To paraphrase Jack in Tim Burton's Batman, where do they get those wonderful toys?

A silver lining here is that expanded use of what had been 409A GR concepts could bring with it countervailing pressures on inclinations from the regulators to interpret 409A's GR provisions aggressively. At some point, it may start to be the case that the regulators might as well take the most "bad" GR position, as doing so could confer possibly unintended flexibility under other provisions or could otherwise be undesirable from a regulatory perspective. Be careful what you wish for. It reminds me of the IRS's early - and I'd say Pyrrhic - success in Comm'r v. LoBue, 351 U.S. 243 (1956), where, because of the particular posture of the case, the IRS wound up winning the point that a deeply discounted option was taxable on exercise, as opposed to grant. Practitioners have commonly cited to the case, possibly giving the IRS some agita in the 83 context, in trying to make the pro-taxpayer argument (before 409A, anyway) that a discount option should be respected as such. (Or how about the PBGC's expansive view of what's a controlled group, in the September 26, 2007 letter from the PBGC Appeals Board, where the PBGC tried to take tax principles used for a certain type of situation and apply those principles (even purporting to be analyzing tax law as such) in the context of other types of situations? Wouldn't it be something if anyone started to take the PBGC's position seriously, and took 162 deductions for management-related expenses of investment funds. I suspect that the IRS might not be happy. See, e.g., Rev. Rul. 2008-39.)

The regulators may have won a battle with the treatment of GR that they wrought under 409A, but, as fans of W.W. Jacobs' The Monkey's Paw have long been taught, be careful what you wish for . . . .****

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* By the way, while we're on the topic of cross-pollenization, did you like the way they inserted substantive 409A analysis into the 457A discussion of Notice 2009-8 in Q&A-27(b) thereof, relating to back-to-back arrangements?

** I really want credit for this - back in the mid-80s, in the context of a transaction, I named a plan designed to retain assets attributable to a seller's plan as the Transferred Assets Retirement Plan, so that I could talk about being "covered" by the "TARP."

*** I like "an SEO" rather than "a SEO" - as you'll see from one of the quotes from Treasury in the text of this post, Treasury disagrees on this mission-critical point. I guess they think it's a "see-yo" (sounds like a Chili Peppers song to me) rather than an "ess ee oh."

**** I wonder if this is the world's most famous dangling preposition, in the same vein that "to boldly go" from Star Trek (two Trek references in one post!) might be the world's most famous spit infinitive.

ERISAns as Rock Stars

2009-04-25T16:29:00.014-04:00

There are some in ERISA to whom we silly practitioners flock to as though moths to a flame.* While at conferences, seminars, etc., DOL and Treasury officials are Da Bombs. Campagna, Hauser, Morrison, Strasfeld, Tackney, Schmidt and Wong are examples, with Hogans and Sweetnam being other recent examples (no dis. to anyone I left off the list). 457A seems to have expanded the circle on the Treasury side to non-benefits "international" folks. Well, now we have a real one-two punch of Rock Stars at senior levels of both the DOL and Treasury.

Boy Oh Borzi

To go in alphabetical order, Phyllis Borzi has been appointed as a new Assistant Secretary of Labor for Employee Benefits Security at the DOL. It is hard to imagine the appointment of someone with more knowledge regarding ERISA and its development or a deeper understanding of its underlying policies and technics. She is thoughtful and immensely creative. Her politics seem well-defined, contoured by a deep concern for the interests of participants and beneficiaries and a respect for the legitimate interests of employers and providers. She has been a key player on both the legislative and regulatory sides of ERISA from the get-go. At a recent House hearing (see also my prior post about watching it), Rep. Kildee said, "[Frank] Thompson used to say that only one person in Washington understood this bill [that ultimately became ERISA]. That was Phyllis. . ." ". . . Phyllis Borzi, whose name was always revered around here. She's very . . . very welcome in these quarters," continued Chairman Andrews. Cool.

On the Mark

Mark Iwry is apparently about to be appointed as Deputy Assistant Secretary for Tax Policy for Retirement and Health Policy (the DASTPRHP? - quite a mouthful (I hope I got it right)). He is a Senior Fellow at Brookings and practices with Sullivan & Cromwell, having been a partner at Covington, and is also a Research Professor at Georgetown. He has already served at Treasury as the principal overseer of national policy on a range of issues affecting employee benefits and compensation. His kindness and intellect are utterly evident in even the briefest of encounters, and it's not surprising that he was cited by the Secretary of the Treasury "[i]n recognition of the collegial working relationship [he] fostered between [Treasury] and the IRS." Like Phyllis, he is balanced, reflective and crazy-smart. Good stuff!

A Modest Proposal

One thought of my own here: I've long felt that they should bring in some kind of ERISA ombudsman in a position to coordinate between the two halves of the practice. The overlap is substantial, to say the least, and a coordinated approach would be a boon. The intellectual and otherwise measured and thoughtful approach palpably behind these two appointments is consistent with a peek at the bigger picture of how it all fits (or doesn't fit) together. Hey, as they say in South Park in reference to Obama - CHANGE! (To digress for a moment, I also like the "Obama!" yell they like to play on The Howard Stern Show.) Just a thought . . .

Summary

In a word - wow.

To use several more words, these two appointments could be a harbinger of a new era of real development in this area. Politics completely aside, it's quite something how this administration simultaneously brings us personnel like this on both the fiduciary and tax sides of the practice. Anyone who has had the good fortune to know or even meet them should understand what we've been given here. This is good timing for tough times. There are some hugely difficult issues on tap, and I have trouble imagining anyone more capable of helping to steer the ship of state through these rocky waters. Let's rock 'n roll.

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* Anyone fascinated by bugs should see the Oscar-winning The Hellstrom Chronicle.

Another Actual Convergence of ERISA and Pop Culture Via Denny McLain; and a Michael Vick Postscript

2009-04-16T07:17:00.002-04:00

The Denny McLain ERISA Saga

Here's Vol. III in the saga of the sometimes self-writing nature of this blog. Usually, the trek from ERISA to Pop Culture, and back again, is, to put it gently, a bit . . . strained. Every now and then, though, the real world provides its own natural connection. Previously on this blog, there was a post on the Department of Labor's pursuit of Michael Vick for ERISA violations, and a post on the sad ERISA-based story of the J. Geils Band. I am now reminded by the great (and quite wry) Mike M. that Denny McLain, the last 30-game winner in Major League Baseball, and someone who research reveals actually performed on The Ed Sullivan Show as a musician (with Bob Gibson!), went to jail for pension fraud (and all-around money laundering). See generally Wayne Coffey's NY Daily News story (Apr. 5, 2008). Ya just can't make this stuff up.

A Michael Vick Postcript

Further to my above-referenced post on Michael Vick's ERISA prosecution, that sly dog (no pun intended, but it works) Waldan L. has alerted me to a picture located at http:// www.downtownpet.com/ blog/ uploaded_images/ michael. vick. giving. finger- 744500. jpg, which Wally describes as reflecting Vick's novel defense to the ERISA allegations. ROTFLOL!!! (The picture available at the link set forth above is not the picture of Vick flipping off the fans; I think the picture for which the link is set out above is MUCH funnier than the one involving the fans.)

ERISA Teste-mony

2009-04-09T15:40:00.003-04:00

So I'm watching the March 24, 2009 hearing before the House Subcommittee on Health, Education, Labor, and Pensions regarding the regulations-in-purgatory issued by the DOL in connection with the PPA's new investment-advice exemptions. The hearings actually made it seem to me that the members of Congress at the hearing were really trying to listen and understand, maybe even with an open mind . . . interesting. There was even some banter (actually, quite a bit) about the Duke-'Nova game.

Well, my 11-year old son sees the witnesses on the screen and sarcastically asks whether I and the other male witnesses, when we were sworn in (of course, it turns out the witnesses are not sworn in, but he didn't know that), um, placed our right hands over our respective sets of testicles. "What?!" I asked, incredulously. He explained that he learned that the word, "testimony," comes from the Latin root for "testicles," because Romans, when being sworn as witnesses, would, well, place their right hands over their testicles. It turns out, of course, that this cute li'l supposed etymological derivation is, at best, unverifiable, but it neverthess sure provided a fun ERISA-flavored moment for me.

You Got To "Give It To Me" - Failures to Pursue Information and the J. Geils Band

2009-04-02T11:22:00.021-04:00

Continuing with the sometimes-this-blog-writes-itself mode, see my prior Michael Vick post, my newfound friend Erin S. has alerted me to the ERISA troubles of the J. Geils Band (I find myself unable to resist reminding that the harmonica player therefor was Magic Dick (Salwitz)). Apparently, about half the world knows about this sad story of rock 'n roll* and ERISA, but I didn't. In J. Geils Band Employee Benefit Plan v. Smith Barney Shearson, 76 F.3d 1245 (1st Cir.), cert. denied, 519 U.S. 823 (1996), the band felt ripped off by its pension manager, but waited a long time before bringing suit.

In affirming the dismissal of the case on statute-of-limitations grounds, the Geils court showed its abject lack of a sense of humor when it unforgivingly stated: "Unsophisticated or not, plaintiffs cannot shroud themselves in ignorance or expect that their unsophistication will thoroughly excuse their lack of diligence or failure, here, to even inquire." J. Geils, unsophisticated? How mean! I wonder if the court saw the humor in the following factual recitation in the case: "The Plan, also known as T & A Research and Development, Inc., was formed as a pension and profit sharing plan . . . ." Id. at 1248. With apologies to Forrest Gump, that's just about all I have to say about that.

(I note that Michael Melbinger, who writes so colorfully, wrote a December 1996 Memorandum on the case. The above title of this post is with apologies to him (two apologies in one short blog!), in that he too had come upon the same thought, although, honestly, I drafted my title before having had the pleasure of having seen his piece.)
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* For the record, I still think that Guns N' Roses, as much as I love 'em, has the apostrophe on the wrong side of the "N."

Michael Vick Now Dogging It With . . . ERISA Violations?!?

2009-03-26T11:32:00.007-04:00

Sometimes, this blog writes itself. My dear friend Steve R. alerted me to a DOL news release, which he had learned about from Doug Halonen's story in Crain's Pensions & Investments Online of March 25, 2009. I set it out in part below, with nothing to add except that, to quote (or paraphrase - not sure) Mark Twain, "The only difference between truth and fiction is that fiction has to be credible." Here goes:

****
Former NFL quarterback Michael Vick faces a federal lawsuit from the Department of Labor claiming he made prohibited transfers from a defined benefit plan sponsored by one of his companies, according to a DOL news release. The DOL also filed a complaint in U.S. Bankruptcy Court seeking to block Mr. Vick from discharging the alleged debt to the retirement plan of MV7, a celebrity marketing firm that Mr. Vick owned, the news release said. . . . “The plan assets were partially used to help pay the criminal restitution imposed upon . . . Vick after his conviction for unlawful dogfighting as well as his attorney in the bankruptcy cases,” the news release said. . . . “This action sends a message that the Labor Department will not tolerate the misuse of plan money and will take whatever steps necessary to recover the assets owed to eligible workers,” Labor Secretary . . . Solis said in the release.
****

Oh, My Deere, What the Hecker Is Going on Here - Could It Be an ERISA Deathmatch?

2009-03-23T10:22:00.027-04:00

No Dough from Deere

The Seventh Circuit case of Hecker v. Deere, Nos. 07-3605, 08-1224 (7th Cir. Feb. 12, 2009) (regarding fiduciary liability in connection with a participant-directed "401(k)" plan), seems to be reverberating wildly. See, e.g., Special Report, "ERISA Plan Fees Cases Face Uphill Battle after Seventh Circuit Ruling," 36 BNA Pens. & Bens. Rep. 589 (Mar. 10, 2009). I think that it's human nature to want someone (in particular, someone other than oneself) to be at fault for bad things that happen, and the propensity of participants to sue in connection participant-directed plan investments is, to me, indicative of this frailty. A menu of funds is made available and you choose an investment strategy with some amount of aggressiveness, and the value of the account then falls - well, SOMEone has to pay, right?

Now all of this is not to say that there can't be valid claims in connection with participant-directed plans. I strongly believe that neither Section 404(c) nor the fact of ultimate participant direction (whether or not under a Section 404(c) plan) should serve as a free pass from ERISA obligations prudently to select and monitor, and negotiate regarding, the funds that will be included in a plan's menu. So I think that the district court in Hecker v. Deere went a bit too far in setting Section 404(c) as a total shield, and I'm glad that the Seventh Circuit refined the analysis.

For myself, I think the Circuit Court was essentially right, but with some troubling shades. I do not prefer the broad cover the court gave for sponsors going with a broad range of funds. I have long believed that a sponsor should be free to offer a more narrowly tailored selection of funds so as to limit the confusion that participants might experience in fund selection. When you go to a restaurant and there's only three choices, you may well be frustrated; but, as much as I like the seemingly endless menu or a Friday's or Cheesecake Factory, I sometimes can't make up my mind regarding what I finally want. Sometimes, I suppose, less is more, and I fear that Hecker v. Deere will push sponsors to throwing the kitchen sink at participants. Every decision isn't a purely legal one, and it would be nice if the critical HR and other design aspects of a plan were not relegated to back seat.

There are other interesting aspects of the case. I like that the Circuit Court dispensed with the notion that a provider, acting for itself to present investment opportunities, is not somehow a fiduciary in connection with the choices it offers. At some point, if you go the other way on issues like this, you're going to drive potential service providers out of the market, or at least drive up costs.

I also like the implication that what other fiduciaries are doing is relevant to the prudence inquiry. While Section 404(a)'s prudence standard is viewed as requiring expert conduct, it's still at base a negligence standard (for those who want to go back to their days of law school and Learned Hand, compare Titus with Mayhew with the TJ Hooper (not the Shatner series, which was TJ Hooker), and all that rot). Can it me that if everyone's doing something a certain way, they're all negligent? It's a fascinating question, to which I would've thought the best answer is, "no." But cf. Keach v. United States Trust Co., 313 F. Supp. 2d 818 (C.D. Ill.) ("The testimony at trial indicated that it was the custom in the industry for there to be no formal written report documenting the results of corporate legal due diligence. The Court finds this custom in the industry unacceptable."), claim dismissed, 313 F. Supp. 2d 874 (C.D. Ill.), related proceeding, 338 F. Supp. 2d 931 (C.D. Ill. 2004), aff'd on other grounds [yay, Norman G.!], 419 F.3d 626 (7th Cir. 2005) (that's some saga, and there's more that came before!). However, an emerging issue could become whether, even if custom in the market is relevant to the prudence/negligence inquiry, is the baseline (i) what other ERISA fiduciaries are doing, (ii) what other plan fiduciaries are doing, whether or not the plans are subject to ERISA (cf. 29 C.F.R. § 2510.3-101(f)(2)(i), sans ERISA § 3(42)) or (iii) what other investors generally are doing? I think that Hecker v. Deere presents some challenging facts that put pressure on this aspect of analysis, and that a precise identification of the underlying analytical premises is an important aspect of the inquiry.

I think that you can see some frustration on the part of the court with the plaintiffs and their claims. The stakes here are high - if on the basis of some technical argument you conclude that a claim should withstand a motion to dismiss and should beat a motion for summary judgment, you are on a road leading to enormous litigation expenses, potential bet-the-farm liabilities and, eventually, material settlements. And it would all on account of a claim that, at the end of the day, as a general matter probably should not succeed. The only way to avoid all of that is to dismiss the claims.

Ultimately, I guess, I think that strike suits that will eventually be lost, but which can withstand motions to dismiss and withstand summary judgment, and thereby give rise to enormous legal fees and risks, are not productive or right. At the end of the day, a reasonable Section 404(c) structure should indeed insulate a sponsor from liability where participants are looking for someone to blame for the investment approach they took. Thus, nuances aside, even though the nuances may well be substantial (if that's not too much of a contradiction in terms), I like where Hecker v. Deere comes out.

(Frankly, I'd rather see the investment-advice exemptions be interpreted as the DOL has interpreted them thus far (not much chance of that now, I fear), so that participants have a better shot at what they should be doing investment-wise, but that's just I (or, for readability, "just me").)

ERISA Deathmatches

Regardless of whether any given affected party is pro or con on the issues, this case seems to have struck a chord with just about everyone who's every uttered "ERISA" - sorta like the Golden Gate case involving pay-or-play (see my prior post on Golden Gate). The amicus briefs just keep on comin', and I was particularly fascinated by an amicus brief filed by a Gang o' Five, some of whom might be veritable Gods of ERISA. (Maybe I'm too caught up in the whole 300/Spartans thing?)

I was also reading in a story broken by The Dallas Morning News about the Dallas educators who allegedly took kids and locked them is a cage so they could have a WWE or Ultimate Fighting cage-match experience to settle their differences. (It's just so . . . Texas.) It got me thinking about the old MTV Celebrity Deathmatches (which were guilty pleasures that were probably far more enjoyable than they had any right to be). My mind then turned to thinking about what fun (fund?) it would be to have the Gang o' Five do bloody battle against Fidelity, Merrill (whatever's left of it), Vanguard, etc.

And, now that so many ERISA-type issues have gotten just so darn emotional, I was in turn thinking of whether there could be some broader role for the Deathmatch concept here - maybe an ERISA Battle of the Titans with other featured matches. To wit:

- Andrew Cuomo, Barney Frank and Suicide Grassley (is he KIDDING?!?), in a tag-team match against AIG executives both big and small, with special guest referee Barack Obama (it was pretty cool the way he showed such balance on this with Jay Leno, no?).

- George Miller v. anyone in the financial-services industry or anyone involved with the now-suspended investment-advice regulations.

- Wal-Mart v. representatives of the anti-preemption crowd (I pity anyone going up against Wal-Mart), as to the Maryland litigation, the above-mentioned Golden Gate litigation, etc., etc., etc.

- Rahm Emanuel, John Kerry and Charles Rangel . . . wrangling . . . with hedge-fund representatives over any number of compensation-related tax issues.

Feel free to come up with your own. Try it; it's almost fun . . .

Are We Moving Away from Mickey Mouse Decisions by the Supreme Court Under ERISA?

2009-02-24T09:55:00.004-05:00

In looking at the recent spate of the Supreme Court's jurisprudence under ERISA, I am left hopeful. Starting with LaRue, and continuing on to MetLife v. Glenn and Kennedy, the Court has taken a straightforward and common-sense approach to the analysis, and results seem crafted to be at least consonant with ERISA's protective purposes. To be sure, there is no consensus that the jurisprudence is perfect - footnotes and concurrences open new doors, subjective issues remain, someone's ox gets gored based on whatever final balance is struck, etc. But I think that the general tenor of the cases is to try to read the words of the statute and precedent simply, in a way that harmonizes them with an intuitively reasonable result.

So, does LaRue begin a Golden Age of ERISA litigation, just as The Little Mermaid began Disney's Golden Age? Are LaRue, MetLife and Kennedy "our" Little Mermaid, Beauty and the Beast and Aladdin? (You'll forgive me for passing over The Rescuers.) And, if so, what will be our The Lion King?

Well, they could've accepted certiorari in Amschwand, and addressed the debacle of the current state of preemption analysis coupled with restrictive views of available remedies and causes of action. Indeed, maybe Professor Langbein would agree that Russell, Mertens and Great-West represent "our" The Black Cauldron, The Great Mouse Detective and Oliver & Company. Certiorari was denied in Amschwand, however, and we will have to wait for another day for the Court to circle (of life?) back to these issues.

And who's the foil - the DreamWorks - in all of this? Until DreamWorks, there was (with apologies to Don Bluth and DreamWorks' predecessors) essentially no place else to go but Disney. Where does one go if the Court does not come through? You could go to Congress, but if you do that you may well get something that looks and sounds like Howard the Duck. Query whether the Court's tradition of valuable dissents and concurrences can play the role here. On the preemption front, Justice Ginsberg almost got there with her Davila concurrence, and maybe eventually the concerns she expressed there will move to the fore and prevail.

In the meantime, I'll try to find a way to continue to think of Disney movies as I read through ERISA cases.

From the Material Girl to Material Reductions in Compensation

2009-01-04T17:39:00.004-05:00

From the Material Girl . . .

Who wins the prize for the most pointlessly silly waste of money over the past several months? Two nominees could be Madonna, who reportedly contributed more than $76 million dollars to the Guy Ritchie Charitable Foundation for Marginally Successful Directors, and Plaxico Burress, who appears to have walked away from more than $27 million in exchange for the privilege of shooting himself in the leg (which, I guess, is a more expensive dalliance than merely shooting oneself in the foot).

How frustrated must Madonna be with her undoubtedly romanticized decision not to get a prenup from Ritchie? I mean, I guess her heart was in the right place in some sense, but that was sure one expensive moment of trusting in what presumably appeared to be love. It was a circuitous route to a payoff, but I guess Ritchie finally got a return - and quite a return, indeed - on having made Swept Away and that BMW short with and for his beloved. If the A-Rod thing continues, I wonder what that agreement will look like, from both parties' perspectives.

Plaxico's story, to me, shows the dangers of treating people around you poorly. When the bejeweled one allegedly took an unlicensed handgun into a NY club and then somehow managed to cause it to discharge into his leg, there seemed like nary a soul - save for maybe the players' union - who was willing to lift a finger to catch his freefall. I guess he sorta dropped the ball on this one, huh? It has been suggested that he may have made the suboptimal business deal of forgoing more than $27 million in contractually promised compensation for having armed himself to protect thousands of dollars of bling. Oops.

My vote for who was sillier goes to Madonna. My thinking is that (i) (A) it seems her loss was more obvious to have occurred from the outset, (B) her own past should have made that obviousness still more clear, (C) Burress' series of unfortunate events seems more like a bad Rube Goldberg dream than like a patently obvious and inevitable consequence of an inadvisable choice, and (D) Burress' result may stem as much from the way he treated people before his fall as from the intrinsic nature of the allegedly offensive behavior itself (cf. Paris Hilton's jail time), (ii) Madonna's loss is irretrievable, and (iii) of course, the Material Girl lost materially more money.

But more to the point for this blog, the trials and tribulations of The Material Girl moved me, as I'm sure it must've moved all ERISA/Compensation lawyers, to reflect upon issues relating . . .

. . . to Material Reductions in Compensation

Moving now from the Material Girl's wealth-reduction plan to material reductions in compensation, I wanted to consider a nettlesome point relating to the expiration of 409A transition. Putting aside for the moment the whole debate about whether the ultimate rules are sensible or workable or whatever, it would have been nice if the rules could have found a way to allow substantially compliant arrangements to escape having to be amended just to comply with 409A.

For example, in theory, and as some Treasury personnel have informally suggested, one might have wanted to amend an existing arrangement to say that a separation from or termination of service for purposes of the arrangement is a "separation from service" as defined in the 409A regulations. Such an approach would have required literally every arrangement subject to 409A to be amended, as it is . . . ahem . . . just a bit unlikely that a pre-409A arrangement would expressly reference the 409A regulations.

(A drafting issue somewhat like this comes up in the context of the VCOC/REOC rules, where some would suggest that entities which are not initially intended to be VCOCs or REOCs, but which later want to be, somehow should magically have designated an "annual valuation period" as defined in the DOL regulations. There, the issue is potentially more dangerous, as a supposed failure timely to designate could theoretically forever disqualify and entity from VCOC/REOC status. But I digress. . . .)

While the 409A SfS x-reference does appear to have worked its way into a wide array of arrangements, it seems that a large segment of the market got comfortable that this change, standing alone, was not enough to justify amending an agreement that didn't otherwise need amending. Thus, as a practical matter, the question of whether a generic reference to a separation from or termination of service can be compliant didn't lead to an unfortunate need to amend every arrangement that's out there.

(By the way, as a general matter, I think practitioners should be at least a little circumspect before adding 409A x-references and other purported 409A-related savings provisions into compensation arrangements. Particularly from the standpoint of the service provider, a number of these provisions can have the effect of clouding or delaying a service provider's right to payment (or, at least, right to payment at an otherwise expected time). These seemingly innocuous, facially fair and even-handed and purportedly protective provisions can potentially work substantial mischief in an adversarial context. For example, take the provision that says the service recipient can effect a six-month delay if it feels necessary to protect against a 409A violation. The parties may have agreed as a substantive matter that they've successfully designed compensation that's not subject to 409A, but the service provider may have let that innocent little savings provision stay in the document. Now assume the parties later are all mad at each other, and the service recipient decides to invoke a six-month delay, not because of any new adverse authority but rather because of a supposed conservative change of heart. No big deal, you say? I would suggest that six months is a long time to pursue the proverbial witch hunt. And who knows what else could happen in the face of a six-month delay - ask AIG's Stephen Benzinger. Among the other traps that have surfaced is the one that may ensnare those who try to define CiC by simple reference to the definition in the regulations - yikes. But, with apologies for the distracting stream-of-consciousness approach, I digress again. . . .)

Another example of a potentially silly mass-amendment result related to the situation in which the receipt of an otherwise short-term deferral is made subject to the giving of a release. There are some hyper-technical arguments that a simple and common release requirement in an agreement, without more, could (i) scuttle S-TD status, if (as has historically been common) there is no deadline for the giving of the release, and (ii) worse, lead to a consequent and inexorable 409A violation. This result would be just plain silly, potentially sending countless agreements into 409A-Noncompliance Land in the absence of a 409A-driven amendment, even where the agreement is not otherwise subject to 409A. Thankfully, Treasury personnel got out of their own way on this one, at least informally, and the market seems to have gotten comfortable that the mere use of a release is not enough to cause a 409A catastrophe. Such a reasonable approach was particularly important on this analytical point, as the number of nonabusive arrangements not even otherwise subject to Section 409A that would have been snared in this web would have been staggering.

But there is one common provision which did wind up moving people to make 409A amendments before the close of '08, even if no other revisions were needed. The issue relates to what's contained in a "good reason" definition, and gets back to today's topic, materiality.

By way of background, the general rule is that an S-TD arrangement can't expressly contemplate the deferral of a payment (outside the S-TD period) after initial vesting, in the absence of a deferral election. Under the Alice-in-Wonderland pyrotechnics used by the regulations to determine what is and isn't an S-TD, the theoretical possibility of early vesting without payment during the S-TD period is apparently enough to disqualify an arrangement from S-TD treatment from the very outset.

In the case of "good" Good Reason, vesting is effectively not deemed accelerated to the occurrence of the GR event. This result is important to the S-TD analysis because, unfortunately, the ability to construct a hypothetical situation in which a payment could be deferred after the occurrence of a bad GR event could be enough to disqualify the payment from S-TD status whether or not the situation actually arises or is likely to arise. As a result, a GR definition that's "bad" (the voice of South Park's Mr. Mackey's echoes in my head every time) would seem to be fundamentally incompatible with S-TD status, thus making people a bit paranoid about their GR definitions. (Well, as the old saw goes, just because you're paranoid doesn't mean they're not out to get you.)

Against this backdrop, Treasury and the IRS gave us a GR safe harbor. I've always been worried that a GR safe harbor would drive people to parroting whatever Treasury and the IRS happened to pencil in, and, indeed, I think the safe harbor has had the inevitable and unfortunate effect of pushing people to safer ground. I think it's too bad, because I personally think that any arguably reasonable GR provision will ultimately be respected as such. How likely is it that we'll really get a 409A court case where the IRS asserts (i) a colorably GR provision was bad, (ii) for that reason, the underlying compensation is disqualified from being an S-TD, (iii) the nonqualified deferred compensation, now subject to 409A, fails for some reason to be compliant, and (iv) the service provider therefore owes a 20% tax? I would hope that the courts and even the IRS have better things to do.

Bringing this back to the expiration of transition, in the case of arrangements with GR provisions, parties were faced with the question of whether a GR definition was bad and needed to be amended.

One issue being raised involved whether the definition had the safe harbor's notice provision. It often did not, but people generally and rightfully got comfortable that the absence of such a provision should not, of itself, require an amendment. Were there other divergences from the safe harbor? Maybe those were OK, too.

(Some have suggested that there be a deletion of a GR prong providing for GR upon the assignment to the service provider of duties inconsistent with his or her position. Really (with apologies to SNL)?! Why? Because Treasury didn't think of that one in constructing the safe harbor? Really?! C'mon - we need to do better than that. (Sorry; that was yet a third digression. . . .))

But then comes a tough one, even for those taking a jaundiced view of the relevance of the safe harbor. Under the regulations - in the general rule, not merely the safe harbor - a GR definition has to contemplate material harm to the service provider for it to be a good GR definition.

This approach makes a modicum of sense. The fundamental question is and should be: Does the GR provision act as a reasonable contractual surrogate for the common-law notion of constructive termination? Does the provision require an adverse change to the services relationship that, so to speak, should allow the service provider to leave and take his or her severance?

Consistently with the foregoing, Section 1.409A-1(n)(2)(i) of the Regulations requires a GR provision, to be good, to provide for "a material negative change to the service provider in the services relationship, such as the duties to be performed, the conditions under which such duties are to be performed, or the compensation to be received for performing such services." Many clauses in GR definitions naturally and plainly conform to the general outlines of the general rule. For example, a provision stating that a material diminution of duties constitutes GR is a common provision.

However, many if not most GR definitions in employment contracts had a clause under which any reduction in compensation constituted GR. Such a clause raises the question of whether the contract has a bad GR definition because an immaterial reduction in compensation could be GR. If the definition is bad, the parade of horribles leading to the unavailability of S-TD treatment ensues.

The argument that the clause disqualifies the definition is essentially that the clause on its face allows for immaterial action to be GR. If that argument is considered sufficiently strong, a large number of employment agreements would have needed to be amended if but for no other reason than to add a materiality qualifier to the reduction-in-compensation GR clause. Not only that, but service providers would have had to have decided whether to accept the potential jerking around that comes with the addition of the qualifier, or accept the consequences of a failure of the compensation to meet the S-TD requirements (e.g., a six-month delay if applicable, onerous restrictions on possible acceleration, etc.).

Sadly, in a fair amount of cases, service recipients were ultimately moved to proposing GR amendments to add the materiality qualifier. What an unfortunate reason to have to amend a contract, if no other compelling reason exists. The rules should be administered so as to minimize a devotion of resources to such things.

I think the market had a chance to bail itself out of this mess, but didn't take the bait. The argument on the other side - the argument that a materiality qualifier doesn't need to be added - is that, in the face of an agreement requiring a specified level of compensation, the parties should be free to agree that any violation of that contractual obligation constitutes GR. Stated another way, a violation of a material contractual term - indeed maybe the most material contractual term, in some contracts - is, to use the language of the general rule, "a material negative change to the service provider in the services relationship." If it isn't, the contract has to permit, as a GR matter, the service recipient to test the patience of the service provider with small decreases in compensation. (The service provider would have an action for the decrease, but might not have GR to leave.) As support for this view, one might note that even the safe harbor includes "[a]ny other action or inaction that constitutes a material breach by the service recipient of the agreement under which the service provider provides services" (Reg. § 1.409A-1(n)(2)(ii)(A)(6)).

To me, a reduction in compensation beyond what's required is clearly a material contractual violation. It is by its nature intentional and, as indicated above, relates to a key term. To those who would say that I'm using a general required-by-contract provision to evade an otherwise applicable materiality requirement, I say no. Rather, the existence of the contractual compensation requirement is what makes the reduction in compensation into a material contractual violation. Recognizing that I seem to have a minority view on this question, I frankly don't even think the question is that close.

Maybe someday practitioners will get comfortable with what I'm saying here, as a planning matter and not just as a defensive matter. That would be nice, but it's too late to save people from having to go through Mickey Mouse amendment processes (forgive the reference - much of this is being written at Disney World, so I couldn't help it) as transition ran its course.

And so, with that, moving onto another type of transition, I hope y'all had a Merry/Happy XmaHanuZaa, and a Happy New Year!!

I Love It When a Plan Comes Together - From 409A and 457A to The A-Team

2008-12-13T08:42:00.005-05:00

Another convergence of ERISA and pop culture has emerged. For those of us who fight through the complexity (that's my kind word for it) of 409A on a daily (hourly?) basis, we now have 457A. 457A is a different kind of horror show - one with a twist, a surprise ending if you will - as its breadth appears not to have been apparent to anyone, including those who drafted it. This provision, once billed as a get-the-offshore-hedge-fund-people provision, has morphed into a provision that also potentially reaches (i) onshore investment funds owned by tax-exempts (oh gee, there's none of those, except for maybe almost all of them) and (ii) offshore operating companies not organized as corporations for US tax purposes. Without getting into the thorny question of whether this scope reflects consistent tax policy, it is a scope that has creepingly emerged from the language of the statute, rather than one intended as a matter of craftmanship. Clearly, I can no longer affectionately refer to 409A as ol' "cap-A" anymore, as there's now a new kid on the block (or a Johnny-come-lately new kid in town, for those who understandably prefer the Eagles over Marky Mark). Maybe cap-A is the new 666.

So what should we call the weary practitioner group that looks for creative ways to fight through this thicket? It seems to me that the only possible choice is . . . The A-Team. (Thanks to my friend Manuel - an employment lawyer, no less - for identifying this clever convergence.) And lest you think I'm straining here, please take note of George Peppard's catch line: "I love it when a PLAN comes together" (emphasis added)! Now, putting aside the irony of the phrase in this particular context, there's Destiny for you!

Pity the fool who joins this A-Team (thus injecting a little T into this A). Maybe we'd be better off focusing on such things as acceleration elections under 83, remedial amendment periods, secular trusts, tax-deferred annuities for tax-exempts, earlier deductions for nondeferred compensation, COBRA and self-dealing prohibited transactions - here's one time where it might be worth being relegated to the B-Team. See Code §§ 83(b), 401(b), 402(b), 403(b), 404(b), 4980B; ERISA § 406(b).

With best wishes for what's shaping up to be quite an . . . um . . . interesting New Year - Happy ChristmaHanuZaa! . . .

Shine On You Crazy 409A Diamond

2008-11-14T15:35:00.003-05:00

I think I have generated the utterly and completely definitive Section 409A memorandum, as follows:

TO: Persons Interested in Section 409A ("409A")
FROM: xtremErisa
cc: John D. ("Jack") Torrance
DATE: Sometime Leading Up to the Expiration of Section 409A Transition, 2008
RE: 409A

409A 409A 409A 409A 409A 409A 409A 409A 409A 409A 409A 409A. 409A 409A 409A 409A 409A, "409A 409A 409A 409A 409A." 409A, 409A 409A 409A 409A 409A 409A, 409A 409A 409A 409A 409A 409A. 409A 409A 409A 409A 409A 409A 409A 409A 409A 409A 409A; 409A 409A (i) 409A 409A 409A 409A 409A 409A 409A 409A 409A 409A, 409A, and (ii) (A) 409A 409A 409A 409A 409A 409A 409A 409A or (B) 409A 409A 409A 409A 409A 409A 409A 409A 409A 409A 409A.

409A

409A 409A 409A 409A 409A 409A 409A. 409A 409A 409A 409A 409A 409A 409A 409A 409A 409A:

[4]09A 409A 409A 409A 409A. . . . 409A 409A 409A . . . 409A 409A 409A 409A 409A [409A 409A 409A] 409A 409A 409A. 409A 409A 409A 409A 409A 409A 409A. 409A 409A 409A 409A 409A 409A 409A 409A 409A 409A. 409A 409A 409A 409A 409A 409A 409A 409A 409A 409A 409A 409A 409A 409A 409A 409A 409A 409A 409A 409A 409A 409A 409A 409A 409A 409A 409A 409A 409A 409A 409A. 409A 409A 409A 409A 409A 409A 409A 409A 409A 409A 409A 409A 409A 409A 409A 409A 409A 409A 409A 409A 409A 409A 409A 409A 409A 409A 409A 409A 409A.

409A 409A 409A 409A, "409A 409A 409A 409A," 409A 409A 409A (409A 409A 409A) (409A 409A).

409A

409A 409A 409A 409A 409A 409A 409A 409A 409A 409A's s409A 409A 409A 409A 409A 409A 409A 409A 409A 409A 409A 409A 409A 409A 409A 409A 409A, 409A 409A 409A 409A 409A 409A 409A 409A 409A 409A 409A ("409A"). 409A 409A 409A 409A 409A "409A 409A 49A [sic]" (emphasis added) 409A 409A 409A 409A 409A 409A 409A. 409A 409A 409A 409A 409A 409A 409A 409A 409A 409A:

1. 409A 409A 409A 409A 409A 409A 409A 409A 409A 409A 409A 409A 409A 409A 409A 409A 409A 409A 409A 409A 409A 409A 409A 409A 409A 409A 409A 409A 409A 409A 409A 409A 409A 409A 409A 409A 409A 409A 409A 409A 409A 409A 409A 409A 409A 409A 409A 409A 409A 409A 409A 409A 409A 409A 409A 409A 409A 409A 409A 409A 409A 409A 409A 409A 409A 409A 409A 409A 409A 409A 409A 409A 409A 409A 409A 409A 409A 409A 409A 409A 409A 409A 409A.

2. 409A 409A 409A 409A 409A 409A 409A 409A 409A 409A 409A 409A 409A 409A 409A 409A 409A 409A 409A 409A 409A 409A 409A 409A 409A 409A 409A 409A 409A 409A 409A 409A 409A 409A 409A 409A 409A 409A 409A 409A 409A 409A 409A 409A 409A 409A.

3. 409A 409A 409A 409A 409A 409A 409A 409A 409A 409A 409A 409A 409A 409A 409A 409A 409A 409A 409A 409A 409A 409A 409A 409A 409A 409A 409A 409A 409A 409A 409A 409A 409A 409A 409A 409A 409A 409A 409A 409A 409A 409A 409A 409A 409A 409A 409A 409A 409A 409A 409A 409A 409A 409A 409A 409A 409A 409A 409A 409A 409A 409A. 409A 409A 409A 409A 409A 409A 409A 409A 409A 409A 409A 409A 409A 409A 409A 409A 409A 409A 409A 409A 409A 409A 409A 409A 409A 409A.

409A 409A 409A 409A 409A 409A 4.0.9.A. 409A 409A. § 409A. 409A, 409A 409A 409A 409A 409A 409A? 409A 409A 409A 409A 409A 409A 409A 409A 409A 409A 409A 409A 409A 409A 409A 409A 409A 409A 409A 409A. 409A 409A 409A 409A 409A 409A 409A 409A 409A 409A "409A 409A '409A' 409A" 409A 409A 409A 409A 409A 409A 409A 409A 409A. 409A § 409A

409A

409A 457A 409A 409A 409A 409A 451 409A 409A 409A 409A 409A 409A 409A 409A sox SOX sox 409A 409A 409A 409A 409A 409A 409A 409A 409A 409A 409A 409A 409A 409A 409A. §§ 409A, 409A. 409A 409A 409A 409A 131 409A 1978 409A 409A 409A 409A 409A 409A 409A 409A 409A 409A 409A 409A 409A 409A 409A 409A 409A 409A 409A 409A 409A 409A.

fin

South Park: From Indiana Jones to Wal-Mart - to "Pay or Play" Preemption

2008-10-14T10:59:00.005-04:00

South Park: From Indiana Jones . . .

So I'm reading in the Daily News the other day that people are upset with South Park for lampooning Lucas and Spielberg for "raping" the Indiana Jones franchise. The episodes is in line with the years of product for the keenest observers anywhere of Pop Culture and the American Condition.

Are people really going to be upset with this episode . . . on anti-Semitic grounds?! Are they kidding? The episode is somehow anti-Jewish or otherwise disrespectful to Jews for satirizing Steven Spielberg? Satirizing someone who happens to be Jewish does not make the one anti-Jewish or insensitive (even if the show happens to have been aired on Yom Kippur).

And one isn't allowed to use a "rape" analogy to critique a moviemaker? The rape imagery was nothing more than a vehicle for communicating a humorous perspective on what the fourth Indy movie did to the franchise. The DA at one point says to Kyle with somewhat false incredulity, "You want to bring Steven Spielberg and George Lucas to trial for raping Indiana Jones[?/.]" Sorry, but that's just funny. Indeed, the line works on two levels, as absurdity and as a straight statement of what Parker/Stone would like to do (although Butters, it turns out, did sorta like the movie (!)).

To the supposedly offended, who probably didn't even see the show in question: Give it a rest people, and think of something . . . anything . . . more productive to do (like blogging?) with your time. (Of course, the more potentially offensive portion of the show related to the anti-Chinese thread - but frankly that was pretty funny, and clever, too, and ultimately a vehicle for commenting on American foreign policy.)

We can now add Lucas- and Spielberg-lovers to those, including Scientologists, Mormons, Christians, Jews, Hilton-ites, gays, pedophiles, people who like Barbra Streisand and Sally Struthers, etc., etc., etc., who might be offended by Parker & Stone. Please, people, at least watch the show; sometimes maybe you should be offended, and sometimes maybe they're even on your side. Regardless, take off the PC hat and move on.

. . . to Wal-Mart - and "Pay or Play" Preemption

There are just so many great South Parks, and the Indy episode almost reminds me of the rant against Michael Bay's Pearl Harbor (he's now remaking Friday the 13th!) in Team America. My own personal SP favorite might well be the Scientology episode where Tom Cruise "won't come out of the closet."

Presently, though, my mind wanders to "Something Wall-Mart This Way Comes," which chronicles attempts to strike at a Wall-Mart store by getting to its (literal) heart. All of this of course quite naturally (ahem) brings us back to state and local efforts - in at least one case driven by a legislative attempt to strike at Wal-Mart's policies on health benefits - to regulate the provision of welfare benefits with so-called "pay or play" initiatives.

Many of these pay-or-play efforts are laudable in their good intentions, but, notwithstanding the 9th Circuit's recent decision in Golden Gate Restaurant Association v. City and County of San Francisco (September 30, 2008), one really has to wonder whether all of these efforts are preempted, and maybe even plainly so. While the courts understandably don't want to stand in the way of efforts by legislators to address problems with medical coverage for employees, the fact of the matter is that we are heading towards just the "patchwork quilt" that Congress was trying to prevent with ERISA.

I guess all of these local efforts are great so long as they're (i) carefully constructed, (ii) appropriate, by who knows what standard, (iii) relatively consistent with each other, (iv) not overly onerous, (v) and otherwise workable. But, gee, what happens when they're (i) sloppy, (ii) wrong-headed, (iii) wildly inconsistent, (iv) oppressive, and (v) flat-out unworkable?

If preemption loses out here, the centralized referee will be gone. If local laws are upheld, the courts won't easily be able to take an I-happen-to-like-this-one slant, leaving a host of different approaches intact. (While certain xtreme factors could here and there lead to a preemption determination even for a court inclined to allow local regulation, there would ultimately be no way generally to unstitch the quilt.) And don't forget, we're not talking about 50 or so potential iterations; we're talking about as many as you can imagine, as municipalities and other localities (Suffolk County, San Francisco, etc.) can all get into the act. Be careful what you wish for - these initiatives could wind up causing trouble just by being klunky in their own right, or could wind up requiring such a multiplicity of administrative practices for a multistate employer that the employer might think twice before doing business in some jurisdictions.

The reality is that Congress was really sorta right in concluding that benefits regulation needs to be within its exclusive purview. Congress may not always get the substantive ERISA rules right, but, in this critical area so directly affecting interstate commerce, the decisions shouldn't be left to the local laboratory. We can argue long and hard about whether the federal government should be the final arbiter of certain things; however, it is hard to imagine how multistate companies could reasonably proceed in this complex world without a level playing field regarding employee benefits.

The prediction here is that the judicial system will ultimately realize this, and hold in favor of preemption. Then, it will be up to Congress to fill whatever perceived coverage voids need to be filled - or to leave the voids open, if the political process can't get its act together. In any event, though, it is submitted here that the dreaded patchwork quilt is not the answer.

Experts Rule - ERISA Prudence and Chevrolet Corvettes

2008-09-29T06:04:00.001-04:00

ERISA Gets It Right

Historically, for all of ERISA's vilification for often being cumbersome and counterintuitive, there's been at least one area in which the statute's been lauded. That's the set of general fiduciary rules, including their (i) use of a modern portfolio theory that looks at investments in the context of the full basket of investments, and (ii) disdain for an approved list of investments and, rather, the adoption of a deferential approach to responsible nonconflicted plan fiduciaries.

In this latter regard, ERISA uses a construct under which a responsible fiduciary is identified by the statute, and then trusted, where there is no conflict of interest, so long as the fiduciary proceeded with an appropriate educational base and with procedural care - proceeded as a "prudent expert," to turn the phrase. This deference to the responsible expert makes sense. Why would a lawyer, regulator or judge know better than the educated responsible expert (again, assuming no conflict), using due care, what investments should, as a matter of substance, be made?

Second-Guessing ERISA

Lately, it seems, this solid approach seems to be coming under some fire. In Congress, a bill was introduced by Sen. Lieberman that actually would have limited a plan's ability to make certain energy and other commodity investments. Putting aside completely the oddity, from a plan-management perspective, of singling out that particular types of investment as proscribed, when virtually every other general type of investment is not per so barred, the bill if enacted would set the absolutely awful precedent of opening the door to (and indeed adopting a statutory framework) for the future inclusion of other supposedly malevolent types of prohibited investments, depending on the way in which political winds happen to be blowing from time to time. While the proposed micromanagement did not pass, it remains to be seen whether the final chapter of the story's yet been written.

To me, yet another example of a trend towards distrust of the fiduciary and the discouragement of types of investments manifests itself in the willingness of some to conclude that valuation issues for hard-to-value assets might act as gateway issues regarding whether, as a matter of prudence, investments can be made (or held). In effect, the thinking seems to be that a fiduciary should be absolutely prevented from making investments where valuation issues cannot be solved. The question ultimately is whether statutory valuation requirements essentially convert to superfactors in the prudence analysis. I would like to think not.

The DOL Gets It Right

So kudos to Bradford Campbell for his recent comments on investments in hedge funds and private equity in connection with the issuance of a GAO report ("Defined Benefit Pension Plans: Guidance Needed to Better Inform Plans of the Challenges and Risks of Investing in Hedge Funds and Private Equity" (GAO-08-692)) calling for additional federal oversight. The report was seized upon in politicized comments from the soapbox by certain Congressman.

By way of background, as reported in the September 11, 2008 BNA Pension & Benefits Daily, the GAO and some congressmen, who may not all completely "get it," were lobbying the DOL to take a more active role in plan investment in hedge funds and private equity. It's almost as though a bunch of people who are not investment experts are saying, "I don't like those investments, anyway, so who cares?" But that's such a dangerous perspective - the last thing we should be doing is bending the investment of the biggest lump of money in the world (as the 1985 NBC White Paper referred to it) towards whatever nonsophisticated investments with which the nonexperts can find their way to get comfortable. Sure, we can find situations in which we all would have preferred that different choices had been made (can ya say, "Orange County"?), but what's the alternative? Should everything be required to be conservative? And, if so, what's "conservative"? ERISA's general principles are all about not going down such a road.

As much as some are understandably concerned about leaving fiduciaries, who may not always be quite as smart as they're supposed to be, to their own devices, what's the better choice? Giving the investment choices to Sen. Lieberman, . . . to Brad Campbell, . . . to me? Be careful what you wish for; when you have someone with whom you agree substituting judgment for that of a responsible fiduciary, be ready for where things will go when you disagree.

It fell upon Campbell to react to the oh-so-dramatic calls for additional oversight. He frankly has not been my favorite DOL rock star in light of his apparent role in what to me is a reactive and undue expansion in the 5500/408(b)(2) process regarding supposed indirect plan relationships, despite questionable analytical underpinnings.

Rather than taking the easy way out and uttering platitudes about protecting plan participants and beneficiaries and decrying supposedly unthinking plan fiduciaries, Campbell responded (his comments are included with the GAO report): "With respect to any plan investment, including an investment in a hedge fund or private equity fund, a plan fiduciary must gather sufficient information to understand the nature of the investment, make a determination as to its prudence, and periodically monitor the investment to evaluate whether it remains a prudent investment." Thus, he reinforces that the general idea is that the responsibility rests with the responsible expert. He then noted that among the challenges to issuing guidance in this area are a lack of a statutory definition of hedge or equity funds, as well as a great variance of objectives and strategies for the funds. I think that the approach translates to, "What the heck is the basis on which you would have the DOL regulate this particular type of investment?" Good. (He also indicated he'd look into the matter a bit more. Fine.)

Campbell's approach is a positive one for everyone. Like it or not in any particular case, ERISA gets it right when it set out to require that educated nonconflicted fiduciaries be responsible for plan investment, and then holds them liable when they don't do their jobs. I think, here, Campbell was right on the button.

Chevrolet Also Gets It Right

As further proof that the expert judgment is worthy of deference, look at what they're saying about the new Z06 'Vette. Here's a car that goes 0-60 is 3.4 seconds (!!!) and outperforms cars materially more expensive. "Shock and awe" was the design directive, and the directive seems to have been followed. Look what "they" are saying in the various October 2008 issues. Motor Trend calls this "awesome" creation "the best Corvette . . . ever." Road & Track talks about a 'Vette that's been "unleashed" and issues a "warning to owners of other supercars." Car and Driver talks about "a ride nobody will forget." Automobile magazine was "blown away" in its October 2008 issue. For the long-time Corvette enthusiast, this newest incarnation (no pun intended) is quite a nice payoff. Of course, before I place too much credence in the experts' judgment, I would caution that any determination that the 'Vette is under the mark would have needed to be dismissed out of hand. But, of course, that's simply because, unlike a lawyer, regulator or judge in the context of reviewing the substance of a plan investment - who is in no position to know better than the nonconflicted fiduciary what's better for a plan - I am indeed in a position to know that (while I admittedly do like the Countach a whole bunch), all things considered, good ol' fashion American ingenuity consistently produces the best two-seater in the world. So there!

Current Events - Rock 'n Roll, Gaming, Corvettes and Compliance Deadlines

2008-09-19T09:37:00.006-04:00

This is quite a run we're on. SIRIUS Radio gives us a 24/7 AC/DC channel. Rock Band 2 (with crazy-cool aftermarket drum sets) comes out. Press reports on the new 638-hp Corvette Z06 proliferate. What could possibly top all that?

Well, straight from the "Inside Washington" portion of the TMCPJ, they get us all excited with the following teaser:

****
The final regulations under §409A were originally supposed to be effective on January 1, 2008. Due to strenuous objections from practitioners [(thanks again, Regina)], the IRS delayed the effective date of those regulations until January 1, 2009.

A number of practitioners have heard rumors that consideration is being given to a further delay in the effective date of the §409A regulations.
****

Yeah . . . ? Yeah . . . ? Could there be more? Could there? Could there? News of a further extension almost could rival the music, gaming and automotive news noted above (well, not really, but . . .).

Oh, well - to paraphrase Cameron Diaz in There's Something About Mary, they were just foolin' with us. The next lines in the Item say:

****
The JOURNAL understands that any further delay in that effective date is very unlikely because the IRS feels that companies and practitioners have now had sufficient time to deal with the issues and that further delay is not necessary.
****

You can almost hear SNL's Debbie Downer music going "waaa waaaaaa" in the background. So deflating. Oh, well - back to 409A compliance reviews. . . .

Before leaving Inside Washington, though, it's worth noting generally that the Items therein may well be among the most useful diamonds in the rough out there. They actually can make you sound pretty smart and tuned in. Sometimes over the years I have had only a TMCPJ Item to point to when in need of support for a proposition or when wanting to bolster a cautionary approach regarding an issue. Sometimes, an Item alerts me to an issue or problem that had not otherwise surfaced for me. And sometimes, concrete information is available in an Item and not readily available generally, as was the case recently when an Item alerted readers to the 162(m) PLR that indicated a reversed IRS position on certain critical vesting-type issues relating to performance-based compensation. The 162(m) PLR, when ultimately released, led to quite the commotion earlier this year (2008), and eventually to a Revenue Ruling with transition relief. For those who had focused on the advance notice that had somehow made its way into Inside Washington, it was nice (and maybe even useful) to have had prior knowledge that the ruling was coming down the pike.

Balancing Acts

2008-09-13T10:10:00.006-04:00

Balancing Disclosure Considerations

Arguably fueled by high-profile newspaper stories on hidden fees and revenue sharing, and by a spate of class-action litigation, the recent participant-directed disclosure push is highly focused and is in high gear. The proposed disclosure rules under 408(b)(2) and the new 5500 rules, on the disclosure-to-fiduciaries side, would work with the new 404(a)/404(c) rules, on the disclosure-to-participants side. The two sets of rules cover opposite sides of the coin, as the fiduciary rules are there at least in part to give the fiduciaries tools to negotiate and evaluate the characteristics of plan investments, and the participant rules look to give participants the bottom line so that they can make an informed investment choice.

On the fiduciary side, a central hot-button issue is the extent to which information regarding indirect compensation, and even compensation for indirect services, needs to be obtained by or otherwise available to fiduciaries. I've heard some wonder why fiduciaries need this kind of detailed information. Putting aside the question of just what is the right scope of the applicable information, I think the questioning of the need for any of this information misses the distinction of the value of information to fiduciaries, on the one hand, and participants, on the other.

Take the following hypothetical. I hire a contractor to build an extension. He wants $100K. I'm willing to give him that. He subcontracts out the bathroom plumbing. He gives the bathroom plumber $85K. It turns out that, unbeknownst to me, a reasonable fee for the bathroom plumber is around $20K.

Had I known all of this, I would might gone to the contractor with a bid of $35K, on the basis that the contractor only (by hypothesis) needed to retain $15K, and the plumber needed $20K. You might say that I was willing to pay $100K, so why shouldn't I do so? However, armed with the more detailed information of who gets what, I'm in a different negotiating position. Maybe now I'm indeed not willing to pay $100K anymore. Maybe I don't get all the way down to $35K, but maybe I don't go all the way up to $100K either. So perhaps this kind of information will help fiduciaries negotiate better deals.

From the participant's point of view, the context is different, as, regardless of the extent of the participant's knowledge, the participant won't be able to re negotiate fund fees as a condition to investing. From the participant's vantage point, arguably it is the bottom line that matters. But the stakes are different for the fiduciary, if the information is relevant to the fiduciary's ability to get the participants their best deal. I'm not suggesting that all the balances that have been struck by the DOL in its reporting and disclosure authority in all respects are coming out right on the nose (as just one example, I think there are basic analytical infirmities regarding how far they tried to push the reach of the 406(a)/408(b)(2) regime) - but I am suggesting that the debate may well have been appropriately framed as a general matter.

Taking it a step further, the new PPA investment-advice exemptions as practically interpreted and applied by the DOL, may be the next piece of the puzzle. It is possible that participants will now have access to real professional advice, allowing improved bottom-line information to be put to better use. Connecting the dots - from (i) information regarding the fiduciaries' choice, to (i) the fiduciaries' selection of a menu, to (iii) information provided to participants, and finally to (iv) the participants' ultimate investment choice - it will be interesting to see if what has arguably been one of the largest and most important pool of unmanaged assets will start to become more properly caretaken.

And there is another factor making it in everyone's interest that the DOL strike an effective balance here that works for constituents in the market on all sides (employers, participants, fund families, administrative providers, etc.). If the DOL's action is perceived as inadequate, Congressional action, the process for which is chugging along, becomes more likely. I would suggest that Congressional action on this point would not (ahem) necessarily come out in the right place, and would surely be difficult to fix if they don't get it right. So everyone should want to work with the DOL at finding the right balance.

Work/Life Balance

While we're on the topic of balance, I thought I would relay an anecdote regarding work/life balance. To me, a (the?) critical thing about moderating between personal life and work is never forgetting that family is paramount. This is not to say that work sublimates to personal life in a way that makes work secondary; rather, it is to say that one should focus on family as The most important thing, while at the same time doing so in a way that ensures that work responsibilities are met. Maybe you'll stay late every night but make sure you keep your mornings. Maybe you'll give up your weekdays but preserve your weekends. Maybe you'll have dinner at home, but then work afterwards into the wee hours. Whatever, you should be cutting some deal with yourself that sets up a structure where your personal life is addressed. If you're at least focusing on your family as the driving force of your behavior, at least you're in the game. Too often, I think, people lose focus and try to fit the personal into whatever happens to be left after work responsibilities are handled - to me, this is a mistake.

One of the most useful pieces of advice I ever got was from my mentor, when he said that, on one pre-set day each week, I should be sure to have dinner at home with my wife. Sometimes we get so wrapped up in what we're doing we forget the little things. Short of a crazy transaction one might be working on, there really was nothing that should have prevented me from being able to structure the week so that my mentor's directive could be met. In my case, I chose Thursday, so that (i) I would have the bulk of the week to plan for an early departure Thursday, (ii) I could work extra late on Wednesday to loosen up Thursday if necessary, (iii) I would've left myself Friday to do double duty if it turned out that leaving on Thursday left work undone, and (iv) on the off-chance something went wrong on Thursday and required me to stay, I could still try to save Friday for dinner with my wife.

As it turned out, I was able to have dinner at home on the overwhelming majority of Thursdays, and, while one can argue whether the change should really have been such a big deal, it made a huge difference in our lives. I think that people should focus on cutting their best deal with themselves, rather than just letting the chips fall where they may. We may not always indeed cut the best deal, but having an eye on the ball at least gives us a fighting chance.

All Screwed Up, Vol. I - Circular 230 and ERISA

2008-09-04T11:10:00.007-04:00

With the impending release of Black Ice (which looks to be awesome), it's time to focus on the venerable AC/DC. They've apparently seen fit to name one of their relatively recent tunes in honor of our practice area. So, with power chords and the best possible high-pitched screaming echoing in my head, I thought I would try to find something that's . . . "All Screwed Up." Surely, in the world of ERISA, that shouldn't be too difficult (although actually, to be honest, there have been a number of developments, like for example the PPA, that seem to be un-screwing up ERISA).

One of my pet peeves is the concern caused by the potential overbreadth of the Circular 230 rules, to the extent they could theoretically be viewed as applying to essentially non-tax ERISA (e.g., fiduciary) matters. Putting aside broader nightmares that Circular 230 has generally begotten (like the mass inclusion of 230 legends in law-firm (and many other) emails and other communications), the ERISA issue strikes me as particularly unfortunate.

The whole mess arises because of an errant, imprecise turn of phrase in the Circular 230 definition of a covered federal tax issue. Under a strained reading of the defined term, Circular 230 can maybe (maybe!) be read to implicate any indirect tax effect where an underlying fact involves (i) an item of income, gain or loss, (ii) any taxable transfer of property, or (iii) the value of property for Federal tax purposes. It seems apparent that they didn't mean to pursue a reductio ad absurdum resulting in such extensive reach.

In this regard, note the following contemporaneous report (32 BNA Pens. & Benefits Rep. 1811) of a comment made by a Treasury official at an ABA teleconference: "However, Desmond said that if a communication does constitute advice . . . it would only constitute advice under Circular 230 if it addressed a federal tax issue. Advice concerning such issues as anything under Titles I or IV of ERISA or, generally, excise tax matters arising under either the prohibited transactions rules or Consolidated Omnibus Budget Reconciliation Act continuation of health care coverage rules would be exempt from Section 10.35, the officials said. This is because such issues are not federal tax issues, as defined by Circular 230, the officials said." See also the September 27, 2005 multi-firm Circular 230 letter to Cono R. Namorato (wasn't that a Styx song?) and Stephen A. Whitlock, Section B (109 Tax Notes 538).

Is there a real possibility that the IRS would go after someone for not stickering a VCOC opinion, securitization disclosure, etc.? And if the IRS did so, and tried to take down the many firms that don't do so, is there really a risk the IRS would prevail?

Further, the easy conservative route - mass ERISA stickering ("MES") of everything in creation - is not without downside. Clients will have lesser levels of assurance, and the stickering itself adds language and resulting klunkiness. While non-ERISA tax lawyers are understandably a bit skittish about all this, I for one would like to see an increasing number of firms trend away from ERISA stickering (with apologies to Roberto Durán: No MES!) and join the many firms that have concluded that general stickering of ERISA discussions is not needed.

Elections

2008-08-29T11:06:00.005-04:00

Enough about Section 409A elections - how about some thoughts on the real election?

So Obama picks Biden, a pretty solid choice, and McCain calls it a "wise selection." Obama then gives a rousing acceptance speech, and McCain says "job well done." Is it possible that we're finally going to have that high-road battle between two class acts that everyone says we're never going to get?

Speaking of the election, let's use this occasion to review what to me is an eerily prescient and incredibly legally tuned moment from 1993's Demolition Man. Sylvester Stallone has been awakened in the future to fight Wesley Snipes. After Sandra Bullock and Benjamin Bratt bask to Stallone's dismay in an "oldies" station's playing of the Armour Hot Dog jingle, Stallone and Bullock later get back in the car and have the following incredible exchange (dutifully transcribed by me with the help of a DVR):

****
Bullock - I have in fact perused some newsreels from the Schwarzenegger Library, and the time that you took that car . . . .

Stallone - Hold it. The Schwarzenegger Library?

Bullock - Yes, the Schwarzenegger Presidential Library. Wasn't he an actor when you . . . ?

Stallone - Stop. He was President?

Bullock - Yes; even though he was not born in this country his popularity at the time caused the 61st amendment which states that [unintelligible word or two] . . .

Stallone - I don't wanna know. . . . [with a sarcastic harrumph:] President.
****

Stallone here at the end seems almost to speak for himself as the "other" action star, rather than for his character, in a way that riotously breaks down the fourth wall. Notably, all of this happens before the California recall election was even a glint in anyone's eye - wow! (By the way, Schwarzenegger and Stallone returned homages to each other in '93, as, in the hugely underrated and unfortunately vilified Last Action Hero, Stallone's postered mock T2 visage was the subject of Schwarzenegger's line, "He's a fntastic [sic] actor.")

Who knows? We may someday have real reason to look back on those lines again. Actually having the opportunity to vote for Ah-nold for President - wouldn't that be something? And even if I don't ever get that chance, I'll always like the fact that (you knew this was coming back to ERISA, right?) I can refer to "the Schwarzenegger case" when talking about whether ERISA preempts state UBIT provisions (449 F.3d 423 (2006)). (The case is even correctly decided! Too bad Snipes didn't fare better with his own little tax case. . . .) See also Tech. Serv. Bull. M-06(6)C, N.Y. St. Dep’t of Tax’n & Fin., Off. of Tax Policy Analysis, Tech. Serv. Div. (Nov. 9, 2006).

What're the Odds?

2008-08-22T01:14:00.008-04:00

Did you notice how Shawn Johnson seemed genuinely happy for Nastia Liukin after the latter's balance-beam routine, even though it might have cost Shawn the gold? That was really nice - I thought it was great that Shawn finally got her gold for that difficult and amazing routine (Nastia, another apparently very nice person (name notwithstanding), had hers already).

Still on the Olympics, I was reflecting further on the whole Phelps thing, and the incredible odds against his really having gotten the Amazing Eight, given those all-but-impossible butterfly and relay finishes. I guess in so many cases it's true that the odds that any particular occurrence would actually take place in this world are maybe a billion to one or more, and yet . . . each and every one of them in fact happens. There's nothing like sports to remind us of things like that.

And, speaking of odds, what're the odds that "they" would give away relief under the 409A regulations not expressly set forth in the regulatory language? ({moan/groan} - I know; these segues grow increasingly painful.) Well, there seems to be one place where they've done so. Under what have come to be known as the anti-"toggling" rules (of Section 1.409A-3(c)), you can generally (unless an exception applies) only have one time and form of payment per particular type of cap-A triggering event.

There may be some emerging informal evidence (rely at your own risk) that, showing some flexibility, Treasury personnel are gravitating to what I'll call a permissible "subset" analysis. To wit, let's say a plan has a provision that provides that the service provider gets paid on date X, or earlier in the event of an involuntary termination. Is that (i) an impermissible toggle (as, frankly, I would've thought) because you've now ultimately got two different payout times depending on the details of the separation, or (ii) a permissible payment date applicable to one type of trigger (separation from service, in my example), albeit a subset thereof, and another permissible payment date applicable to a different type of payment trigger (definite time, in my example)?

The idea is apparently that you're not impermissibly toggling within a trigger type, but rather providing for different rules for two different triggers, even if only for a subset of one of the triggers. Note that the analysis could also help, for example, with accelerations for some but not all "disability" distributions. (Note also the express ability to use subset treatment in the CiC context for toggling within that trigger type, at -3(i)(5)(i).)

This approach would confer helpful flexibility. Indeed, I always thought the regulations way overshot the mark on toggling. The anti-toggling rule expressly scares up and prohibits the possibility that you may write a provision that provides for one type of distribution in the case of Monday separations and another in the cases of all other separations. In effect, all distinctions within a trigger are equated with that extreme theoretical possibility. I would have preferred a regulatory approach under which you could have provided for different times and forms of payment for subsets of triggering types, so long as the distinctions being drawn were for bona fide business purposes, and were not intended to serve as a device for avoiding cap-A constraints. Well, that just didn't happen; but now we have the possibility of some relief in this more flexible approach to subsets where two different types of triggers are involved.

So how far can you take this possible largess? Maybe some will be focusing on how to draft the "involuntary" concepts and on other technical matters. But can the whole thing be taken quite a bit further? Consider: "Payment shall be made on December 31, 2010, or, if earlier, on termination of employment occurring on a Tuesday." Ooh. (I've avoided using Monday, since the regulations seem to be quite upset with Mondays.)

On the one hand, maybe you'll say that the provision I suggest effectively amounts to a putative distribution election. But hasn't the cow left the barn as to this type of reasoning? As noted, the regulations have essentially lumped all intra-trigger distinctions together as being potentially abusive, and solved the problem of potential abuse by universally prohibiting toggling (unless an express exception applies). With that backdrop, it would arguably make no sense to try to rank one type of distinction as being worse than another - they're all equally prohibited. And so, if a flexible analysis in the case of two different triggers results in concluding that acceleration for a subset of a trigger is permissible, then, since the regulations effectively view all distinctions within a trigger as comparable, it is arguably the case that there should be no further rating or ranking of various different possible distinctions. Put another way - if using a subset analysis for involuntary terminations works, then the use of a subset analysis for Tuesday terminations should work, too.

I'm not necessarily suggesting that anyone is really going to push the analysis quite so far. Having said that, though, there may be more nuanced attempts to explore the use of subsets in creative ways. Maybe it's somewhat ironic, but the regulations' use of extensive and complex rules to address potential workarounds may wind up encouraging exploration of just the kind of workarounds with which the regulatory draftspeople seem to have become concerned.

Favorable Results in the Olympics and Under Section 409A

2008-08-15T23:16:00.007-04:00

Hey, did you see that "primal scream" shot (as David Hinckley of the NY Daily News referred to it) of Michael Phelps after that ridiculous relay win. If he gets the eight golds, they'll be showing that shot 4ever. And after the .01-second (!!!) win in the butterfly I just saw, I guess it looks like it's gonna happen. The butterfly win may actually be as amazing and exciting as any sports win I've ever seen . . . period.

And, speaking of favorable results (sorry, I couldn't think of a better segue) - I have noticed two areas in which Treasury seems to have specifically intended to confer favorable results under the 409A regulations, and yet some resist the largesse.

One is regarding slicing and dicing of severance, particularly to avoid application of the six-month delay rule. The Regulations set up what amounts to a rule that seeks to hypothesize whether a payment could ever be made outside of the S-TD period, and then takes the payment outside of S-TD from the get-go if there is even the possibility that the payment, absent a deferral election, is contemplated to be paid late.

So what of a stream of severance payments? If one is terminated on 12/31, only two-and-a-half months' of payments would be made within the S-TD period? Does that possibility doom all but two-and-a-half months' of payments to the Curse of Cap-A?

The answer seems a resounding "no." Under the Regulations as technically corrected, the focus is on whether vesting could occur too long before payment or, stated conversely, whether payment is contemplated to be deferred by too much after a possible vesting event. The focus is not on whether a payment stream might be other than the one that it is. Essentially, you test your stream of payments as it runs, not as it may run. Thus, if the termination is in fact early enough in the year, all of the payments could be S-TDs.

There's no real steel-trap proof of this reading of the Regulations, but (i) the Regulations as technically corrected are consistent with the reading, and (ii) there is at this point a good deal of anecdotal evidence that, after some internal dissension at Treasury on the point, the revisions made by the technicals were very specifically intended, at least in part, to confer the result described above. I would suggest that any imperfection in the language in conveying the result arises from the drafters' desire to retrofit corrective language into the final Regulation, and try to maximize the extent to which existing structure and language would be retained, so as to proceed consistently with the notion that the corrections were technical in nature.

Frankly, taking a step back, I don't believe that anyone will really pay cap-A taxes because the service recipient has followed a reasonable good-faith analysis believed in by some percentage of the practicing experts. The taxes will be paid when someone really messes up - misses a requirement, misadministers a plan, etc. - not because some analysis balanced on the head of a pin ultimately tips over. Heck, on so much of this stuff, Treasury and IRS people don't know the answers or, worse, disagree with each other. On this particular point, though, there seems clarity, and a uniform view that slicing and dicing is available to as much of the stream as is paid in the S-TD period based on the actual date of termination. Bolstering the foregoing is an affirmative change to the regulatory language that had to be intended to mean something and that is consistent with the intended result.

The other area I wanted to raise is the impact of a "bad" "good reason" definition. Some have suggested that the impact is to accelerate vesting so that affected benefits are vested from the get-go. But this misses the mark. If the condition at issue has a very low threshold but one still under the control of the service recipient, (i) I understand that the provision may well not amount to a constructive-termination provision and therefore arguably shouldn't be respected as such, but (ii) the service provider simply isn't vested, as the condition is within the control of the service recipient. If I say you have GR if I move your parking space over by one, you're just not vested. Rather, the significance is that, if the condition occurs, you'll be deemed to have vested at that time, rather than upon the ultimate termination. That's the practical effect - it's being involuntarily terminated that's the vesting event, and, under a "good" GR definition, the terminated is respected as an involuntary termination and so, until there's a termination, there's no involuntary termination. Where the purported GR termination is not respected as an involuntary termination, the triggering event is nothing more than a vesting event, and so you can vest in advance of the termination. And, bringing it full circle to the above discussion, since you could vest, not terminate, stay in service, later get fired and then get paid, you don't have an S-TD out of the gate, if your GR definition is not "good" (just like you wouldn't have one if you had a CiC walk right in a contract that does not expire in a timely fashion after the CiC). However, none of this is to say that you're vested before the triggering event transpires; that just doesn't make any sense. (One place where this analysis is highly relevant is regarding the ability to change the definition during transition. If a "bad" definition were itself accelerated vesting, you might have a problem.)

The problem is that the Regulation uses an "involuntary" convention to get to its destination, instead of a vesting analysis, and so the language doesn't scream (primal scream?) out the nuances. Also, there's a line in the preamble that seems to expand the significance of what it means to have "bad" GR, further potentially confusing the issue, but the expansiveness is not repeated in the regulatory language, nor should it have been. Thus, you're left with reasoning through to the correct result, rather than having it jump out at you.

Having said all that, I could imagine a "real bad" GR definition which accelerates vesting before the trigger occurs. If I say you can leave with GR if I'm ever once late with your coffee, I could see Treasury/IRS saying that the likelihood is so great you'll have GR that you should be considered vested out of the gate. But that's an extreme case, and not the kind of case that people are really talking about when talking about "bad" GR.

Well, it's back to the Olympics for me. They just rejected the Serbian protest of the Phelps butterfly win. Just like we shouldn't give away the favorable 409A approaches Treasury is trying to give us. (I know, I know, saying it won't make the segue so, but I'm tryin'.)

Making Sport of 409A

2008-07-31T14:37:00.000-04:00

Well, here's a quickie for you, spanning both entertainment and 409A. Key to any number of re-upping of contracts, trades, etc., in the sports world is the common and critical practice of the "restructuring" of what are extremely large payments and payment streams - "restructuring the contract," if you will. Sometimes, for example, the restructuring is needed to accommodate a team's financial needs generally, to make the contract appealing to another team or to fit within a salary cap. What happens on and after January 1, 2009, after the expiration of transition relief under our ol' friend cap-A? (I still think that maybe the biggest emerging issue under cap-A will prove to be the unchangeability thereunder of any number of compensation arrangements, particularly in the context of a wide range of transactional settings.) For those payments that were deferred comp., and for those payments that are to be newly or additionally deferred, how the heck are these restructuring arrangements going to continue to occur (without acceleration of taxation and an additional 20% tax)? Where they cannot be so restructured, what will be the effect on the sports industry and the teams and athletes involved? There may need to be real attention paid in the industry to ensuring that existing arrangements are "short-term deferrals" so as to permit flexibility, although even that may not be enough to facilitate deals where deferral (if not in compliance with the one-year/five-year requirements), rather than acceleration, is sought. Hmm - will someone ask Congress to get involved? (Don't forget the golfers' exception (couched as a medical/doctors'/hospital exception in the legislative history) under Rostenkowski's 457(e)(12).) Just wondering . . .

Pop Goes ERISA - Robocop, Gordon Gekko and The Who/The Beach Boys Meet Employment Law, ERISA and Executive Compensation (Respectively)

2008-07-23T22:18:00.009-04:00

So, other than on this crazy blog, do ERISA and Pop Culture really intersect? Clearly the answer is "yes," as the following discussion shows.

The Greatest Termination-of-Employment Scene in the history of movies has to be (spoilers follow - do not (!) read on if you haven't seen Robocop but may someday do so) the final scene in Robocop. Our titular hero discovers about halfway through the movie that Dick Jones (the always dependable Ronny Cox) is The Bad Guy. Jones is the #2 guy at Detroit's Omni Consumer Products ("OCP"), the company responsible for building (or rebuilding) Robocop from what was left of Officer Murphy. When Robocop first faces off against Jones, Robocop's programming stops him from proceeding. It turns out that Jones has imbedded in the programming a command - "Directive 4" (following three other very high-minded directives) - that stops Robocop from arresting any senior officer of OCP. Thus, Jones is safe. Fast forward to the movie's end, where an uninvited Robocop confronts Jones during a high-level company meeting, with indisputable proof of Jones' criminal activity and gross willful misconduct. Jones grabs OCP's CEO, who was at the meeting, and demands a chopper. The CEO asks Robocop why he isn't dispensing with Jones, at which point Robocop explains that Directive 4 "will not allow me to act against an officer of this company." Without missing a beat, the CEO looks back at his once-trusted #2 and, with clear cause therefor, calmly says, "Dick, you're fired." Robocop looks over, says, "Thank you," and proceeds to unload his hand cannon (as Quentin Tarantino might call it) into Jones, sending him through the high-rise window in a loud, bloody mess. Cool, . . . and presumably in accord with all then-applicable Michigan and U.S. laws governing terminations of employment.

Moving right along, the most high-profile movie of which I'm aware that is all about an ERISA issue is none other than Wall Street. How many forget that the core aspect of the plot is an attempt by a corporate raider to buy a company for its overfunded pension plan, shut down the company, terminate the plan and retain the reversion? (We're lucky the movie was made before the enactment of Section 4980.)

Onto music, a good friend of mine notes that the theme song for the option-mispricing scandal just has to be The Who's "Substitute" - "I look pretty young, but I'm just backdated, yeah." You can almost hear the affected options singing that line.

And another good friend points out the low-hanging fruit available to some creative soul out there who might go and make an executive-compensation song parody out of The Beach Boys' "409." (Giddy up!) As a related matter, yet another friend complains that Formula 409 never worked for him, anyway. These points surely should be discussed at Wolfgang's in New York, specifically at 409 Greenwich Street.

Employment Agreements and One-Way Provisions Regarding Attorneys' Fees; and Batman in Every Way

2008-07-16T16:49:00.000-04:00

Here's one for you that may come as a surprise to some (it surprised me). A number of states have rules under which, if a contractual provision provides for attorneys' fees for one party (e.g., if the party prevails, prevails on one issue, is not the initiator of the suit, brings a suit in good faith, etc.), but not the other, the provision is converted, maybe even unwaivably, into a mutual/bilateral prevailing-party provision. E.g., Cal. Civ. Code § 1717. Notwithstanding the facial equity of the provision, it can be a dangerous one in the employment-contract context. Corporate attorneys' fees can be much higher than those charged to an individual and, regardless, an individual may not be inclined or otherwise well-positioned to want to take the risk of bankrolling another's attorneys' fees in the event of a litigation loss. Thus, a legal rule imposing required bilateral reimbursement of attorneys' fees can operate onerously as a practical matter, and even serve as an effective barrier to an employee's willingness to pursue enforcing a contract or resisting a claim. I would suggest that state legislatures, which presumably have not focused on the application of this rule in the David-versus-Goliath world of employment contracts, should pass legislation excepting services contracts (including consulting contracts) from otherwise applicable statutory prevailing-party mandates in those cases in which a fees provision in an employment contract runs in favor of an individual service provider (or the individual's own services vehicle). Maybe there should even be an organized multistate effort from the bar on this one - the present result in some of the states, if a court would indeed read a bilateral result into a contract even in the employment context, seems quite wrong, and even dangerous, to me.

Now, about that Batman thing (no ERISA tie-in - sorry), I'm going to do the rest of this posting contemporaneously, first before the movie starts, and then once it's over. So here I sit on Thursday the 17th in The Dark Knight with my older son. The movie starts soon at midnight, Batman Eve. We've arrived more than an hour early, and we got the last two decent seats in the entire theater (had to move a couple of people around). We're here at 11:00 p.m. for a midnight show, with showings all through the night, and there are no seats left? This is nothing short of a phenomenon. Indeed, my concern is that people are going to attribute this hysteria to Heath Ledger's tragic death (which grows in sadness with each passing minute), but, having seen a chunk of the movie as a special feature before I Am Legend (that movie had to be good for SOMEthing), I fully expect that this movie would've generated every bit as much buzz as it has were he still around to bask in the glory. From the looks of it, Titanic's record US gross will finally fall . . . and may even fall based on tonight's ticket sales alone! This movie had better be The Best Thing Ever; I don't think I'm mentally prepared for anything less.

[Blackberry down - the movie's on]

Well, the movie's just ended. It's 3:00 in the morning, the huge suburban parking lot is full of cars and people, and everyone's buzzing. The multiplex is sold out straight through to the next morning. I think that the whole world's been turned into a bustling Times Square, just for one night. This isn't a movie - it's an Event.

As to the movie itself, . . . wow. First, and foremost, the performance by Heath Ledger truly is, I think, one of the finest things ever filmed. I don't recall being as in awe of acting as I was while witnessing the manner in which this utterly and completely unreal character was so fully and vibrantly brought to life. Every moment Ledger was on the screen was a carefully crafted moment, complemented beautifully by the diabolical makeup and oh-so-perfect (as Warren Zevon might have noticed) hair. Ledger's nuanced performance, right down to the way he licked those diabolical lips, was unforgettable. I've seen him in other movies, and couldn't even find him while staring at The Joker he had become. The world will hopefully acknowledge that this performance was as good as it was without regard to the tragedy that befell him, even if the tragic events make that performance almost intolerably bittersweet thereby. OMG, how big would this incredible actor have now become? There won't be a dry eye in the house when he wins the Oscar.

It turns out that The Black Knight is epic and riveting, and lives up to the hype. One can say that The Dark Knight would not be the movie that it is without Heath Ledger, without diminishing the movie's greatness. Thus, while he is the best and most special part of the movie, he doesn't overpower it; rather, he completes it and ultimately makes it what it is. For me, the arc that is most unforgettable starts with the nurse in the hospital and ends with the exit therefrom. (I'm being purposefully cryptic here, so as to avoid any spoilers.) But the movie is more than any piece or portion and has to be seen to be appreciated, as Christopher Nolan fulfills the potential he first revealed with the incredible and creative Memento. It's way too late in the morning (early in the morning?) for me to go into any further detail, and, in any event, the real movie reviewers out there can go through the plot for you if that's what you want. Just go see it - at any Bat Time and on any Bat Channel you can find. I'm thinking you won't be disappointed.

RIP, HL.

A First Foray into Blogging - ERISA and Batman

2008-07-16T15:37:00.000-04:00

On this first posting, I will attempt to describe what I'm going to try to do here. I'm an ERISA (employee benefits) and Executive Compensation lawyer, and a big fan of all things Pop Culture. So, I'm going to try to combine the two - alternating between postings covering my vocation and postings covering entertainment and the like. Sometimes there will be attempts to connect the two in a single posting (wish me luck), but, more often, either one or the other perspective will be addressed. For my first foray, I wanted to talk in vague generalities regarding what I think makes the ERISA practice, including its community of practitioners, special, and follow it up with a completely disconnected movie-related development.

So, what makes the ERISA Community special? To me, it is the value so many of us in the area place on mutual respect and consideration, the collaborative and supportive nature of the people in the practice, and our concern for and attention to our colleagues' personal interests and families. The ERISA bar has always been an open one, populated by a diverse group when viewed from both cultural and educational perspectives, and this inclusiveness leads, I think, to an open-minded approach to the way in which people deal with others. We seem consistently trying to build right answers and reasonable perspectives, not trying to win, to denigrate or otherwise to one-up the person sitting across the table. More often than not, our nominal adversaries are people with whom we eat and chat - people whom we call for sanity checks and other judgment calls. They are people whose spouses and children we know. In my experience, other practice areas just don't function in this way. In other practice areas, colleagues across firms (within firms?) don't get to know each other socially to a similar extent, do not negotiate in a consistently cooperative and constructive way and don't solicit and share precedent, reasoning and other knowledge without even the hint of a desired quid pro quo. And, of course, what other area has someone who would try a blog like this one?! Young lawyers looking for something special should check this area out.

Now, onto more weighty matters, like Batman. When I went to see I Am Legend, I was privileged to witness eight uninterrupted minutes of The Dark Knight, which were shown before the main feature started. I didn't understand why the ticket-takers warned the patrons that there would be no refunds after the preview of The Dark Knight . . . until I watched those eight minutes (and then had to sit through I Am Legend). I felt right then and there that this movie looked to be maybe the best action-adventure movie, and possibly one of the best movies of any kind, ever made. As the trailers have rolled out, and now the buzz reaches a fever pitch, it looks like I may have been right. To be sure, I'm setting myself up for quite a fall here with such lofty expectations, but I suppose that these are the chances we take. Heath Ledger's death certainly makes all of this tragic in the ultimate extreme, and there will undoubtedly be those that attribute the hype surounding and reaction to the movie to his untimely death - but it was evident to me from the get-go that his performance and this movie would be nothing short of incredible. Having said that, it will be very hard for me to stop thinking how clearly it would have been the case that he would immediately, come later this week, have become the next Eastwood/Gibson/Cruise. Well, anyway, the movie has become one of my favorites of all time even before I've seen it (!!), and I will be going to a Thursday midnight (technically Friday) show with my older son later this week for confirmation.

Future topics may range from things like work/life balance, to ERISA activity in the Supreme Court, to why Rock Band will change (has changed?) the world, to ERISA-tinged movie moments (!). I hope you will have as much fun reading this stuff as I'll have writing it. 'Til the next time . . .