Seventh Circuit Reverses Summary Judgment In Kraft ERISA "Excessive Fees" Case

Recently posted by Nancy G. Ross and Chris C. Scheithauer of McDermott Will & Emery details of the recent 7th Circuit reversal of summary judgment involving Kraft Food’s 401(k) plan: 

On April 11, 2011, a divided Seventh Circuit panel reversed summary judgment in favor of Kraft Foods Global, Inc. in a class action ERISA breach of fiduciary duty case involving “excessive fees” claims in connection with Kraft’s 401(k) plan. The main take away from the decision is that fiduciaries must continue to be diligent and thoroughly consider plan administration issues and document why decisions were made or not made or practices followed, even on decisions and practices once thought to be routine or common industry standards. By following such a prudent practice, fiduciaries will substantially increase their ability to defend challenges concerning fiduciary conduct.

In Kraft, plaintiffs alleged three primary claims considered on appeal: that the use of a unitized company stock fund as an investment option was improper; that the plan’s recordkeeping fees were too high and imprudently monitored; and that the fiduciaries imprudently allowed the plan trustee to retain interest income from “float.”

In a 2-1 decision, the panel ruled that the plaintiffs could proceed to trial on their theory that the unitized company stock fund was imprudently designed because of “investment drag” and “transaction drag” that is inherent with the widely popular unitized funds. Like most company stock funds, Kraft plan participants held units of the fund rather than directly holding shares of company stock. The plaintiffs alleged that the fiduciaries should have considered the “drag” that unitized funds cause on gains (and losses). The Seventh Circuit ruled that there was no evidence that the fiduciaries ever consciously decided in favor of a unitized plan finding that the benefits of a unitized fund outweighed the downsides, or whether they just ignored the issue. According to the majority, that was sufficient to proceed to trial. In a strongly worded dissent, Judge Cudahy called the plaintiffs’ theories on this, and others in the case, an “implausible class action based on nitpicking with respect to perfectly legitimate practices of fiduciaries.”

The majority further reversed summary judgment for the defendants on whether the recordkeeping fees were too high. The plaintiffs argued that the fiduciaries should have solicited competitive bids from other recordkeepers about every three years. Kraft had used the same recordkeeper since 1995, without a competitive bid, although Kraft received advice from several third-party independent consultants that the fees were reasonable. The plaintiffs submitted an opinion from an expert finding that the fees were excessive. In a decision with potentially wide-sweeping ramifications, the Seventh Circuit held that while the defendants’ reliance on the contemporaneous opinions of outside independent consultants that the fees were reasonable may be enough to prevail at trial, it was not enough to overcome the plaintiffs’ contrary admissible expert opinion at summary judgment which created a genuine issue of fact. The use of a consultant cannot “whitewash” otherwise unreasonable fees and a trier of fact could conclude that the defendants did not satisfy their duty solely through the use of independent consultants to ensure that the recordkeeping fees were reasonable. The dissent argued that the fiduciaries’ use of an outside consultant to confirm the reasonableness of the fees showed a prudent process and asked “what the majority’s holding means for ERISA fiduciaries” and “what is adequate to support a fee without the fear of litigation?” As noted by the dissent, this decision “will only serve to steer [fiduciaries] attention toward avoiding litigation instead of managing employee wealth.”

The Seventh Circuit upheld summary judgment for the defendants on whether the float income the trustee received was a reasonable part of the trustee’s overall compensation, because the fiduciaries proved that they received reports showing the float income and the plaintiffs failed to offer admissible evidence that such information was not considered.

© 2011 McDermott Will & Emery

The Immigration Implications of Japan’s Disaster

Recently posted by guest blogger Andrew P. Galeziowski of Ogletree, Deakins, Nash, Smoak & Stewart, P.C. – issues related to immigration  from Japan’s recent disasters: 

Just as with the earthquake in Haiti, the recent earthquake and tsunami in Japan causes not only massive physical destruction but can significantly impact and complicate an affected person’s immigration status. Japanese citizens already in the United States may be logistically unable to comply with the terms of a visa status, perhaps because their status is expiring and there is no practical way to return to Japan. Those persons residing in Japan who are seeking visas to come to the United States may find it difficult to process a visa at a U.S. Consulate due to closures, cancellations and delays. Furthermore, as some businesses continue to evacuate personnel from Japan and in some cases seeking to temporarily transfer such personnel to other offices in Asia, special processes may have been established (for example, by immigration authorities in Hong Kong) to facilitate the processing of business visas to allow for such emergency relocations.

There are several general resources affected persons can reference for additional information:

  • For Japanese nationals in the United States, for example visitors travelling under the Visa Waiver Program who are unable to depart the country before their status expiration, see the USCIS website;
  • For Japanese residents who may be seeking visa services through a U.S. Consulate in Japan, visit the specific Consulates website. Specific information is posted at Consular websites, for example notices regarding visa appointments in Tokyo can be found at the Tokyo Consulate’s website; and
  • For foreign nationals currently in Japan, visit the Immigration Bureau of Japan website for current information.

Persons affected by the Japan crisis are encouraged to contact the immigration professional with whom they normally work for specific guidance.     

Note: This article was published in the March 2011 issue of theImmigration eAuthority

This article was drafted by the attorneys of Ogletree Deakins, a national labor and employment law firm that represents management. This information should not be relied upon as legal advice.

© 2011, Ogletree, Deakins, Nash, Smoak & Stewart, P.C., All Rights Reserved

A Primer on the Validity and Effect of Waiver of Subrogation Clauses

Recently posted by Daniel R. Bedell of Johnson & Bell Ltd.  a great overview of subrogation clauses which are included in many contracts.

Waiver of Subrogation Clauses: An Overview

Pursuant to typical “waiver of subrogation” clauses, the parties to a contract will agree to waive any rights of recovery against each other if the damage is covered by insurance. Thus, the risk of loss gets shifted to the insurer.

Courts almost always hold that waiver of subrogation clauses are valid because they advance several important social goals, such as encouraging parties to anticipate risks and procure insurance covering those risks, thereby avoiding future litigation. Waiver of subrogation clauses have been validated even in the face of anti-indemnity, anti-exculpatory and anti-subrogation statutes. See Best Friends Pet Care, Inc. v. Design Learned, Inc., 77 Conn. App. 167, 823 A.2d 329 (2003); May Dept. Store v. Center Developers, Inc., 266 Ga. 806, 471 S.E.2d 194 (1996); 747 Third Ave. Corp. v. Killarney, 225 A.D.2d 375, 639 N.Y.S.2d 32 (1st Dep’t 1996). These courts held that waiver of subrogation clauses are not intended to relieve a party of liability for its own negligence, but are instead risk allocation clauses. Thus, the clauses did not violate the relevant statutes.

Illinois Law on Waiver of Subrogation Clauses

There is relatively little case law in Illinois regarding waivers of subrogation clauses. Although the case is over twelve years old, Intergovernmental Risk Management v. O’Donnell, Wicklund, Pigozzi & Peterson Architects, 295 Ill.App. 3d, 692 N.E.2d 739 (1st Dist. 1998) (“IRM”) remains the premier case in Illinois with regard to waiver of subrogation issues. In that case, the Village of Bartlett (“the Village”) was in the process of expanding its village hall (“the project”). Part of the project entailed constructing a new police station adjacent to the updated village hall. The Village contracted with Defendant O’Donnell, Wicklund, Pigozzi & Peterson Architects (“O’Donnell”) to provide architectural drawings and specification for the project. Pursuant to the contract, the Village purchased insurance from Travelers Insurance Co. through the IRM program. On January 28, 1994, a fire occurred at the newly constructed police station, which caused over $114,000 worth of damage. IRM and Travelers paid the Village that amount pursuant to their policies. IRM and Travelers then filed a subrogation action against O’Donnell, claiming that O’Donnell’s negligence caused the fire and sought reimbursement of the monies paid to the Village pursuant to the insurance policies.

In its motion to dismiss, O’Donnell argued that the plaintiffs’ claims were barred because the Village had waived its subrogation rights in the contracts for the project. The Owner-Architect Agreement between the Village and O’Donnell contained the following waiver of subrogation clause:

“The Owner and Architect waive all rights against each other and against the contractors, consultants, agents and employees of the other for damages, but only to the extent covered by property insurance during construction.”

The plaintiffs argued, inter alia, that the waiver of subrogation provisions could not apply to damage caused by the negligent and wrongful acts of the defendant. The plaintiffs contended that the waiver of subrogation clauses violated public policy by encouraging negligence. However, the court disagreed. It stated that “the purpose of waiver of subrogation provisions is to allow the parties to a construction contract to exculpate each other from personal liability in the event of property loss or damage to the work to the extent each party is covered by insurance.” IRM. at 792. The court noted that waiver of subrogation clause “shifts the risk of loss to the insurance company regardless of which party is at fault.” Thus, it did not matter whether the fire loss was caused by O’Donnell’s negligence so long as the loss was a covered loss that occurred during construction. Id. at 793.

The plaintiffs also argued that the waiver provisions violated of public policy in that they act as indemnity agreements holding the defendant harmless from its own negligence. The court rejected that argument as well. It noted that the waiver provisions do not involve injury suffered by a construction worker or a member of the general public but instead, damage suffered by one of the contracting parties due to the alleged negligence of another. Id. Thus, waiver of subrogation clauses do not violate the public policy considerations which outlaw indemnity agreements. Instead, they merely limit the parties’ recovery to loss sustained to the parties to the agreement and only to the extent that it was covered by insurance. Id. at 794.

The IRM court held that the waiver of subrogation clause was perfectly valid and that it applied to the insurers’ claims. Thus, the plaintiffs’ claims were barred and they could not recover the amounts that they paid to the Village. As mentioned above, IRM is still the preeminent case in Illinois with regard to the validity and effect of waivers of subrogation clauses. Insurers need to be mindful of the effect that such clauses may have on their rights.


Although courts nationwide consider waiver of subrogation clauses to be valid, there are circumstances under which these clauses will not be enforced. For example, in order to establish a waiver of subrogation, it is necessary to show by clear evidence an intentional relinquishment of the right. Thus, if the waiver of subrogation clause is ambiguous or confusing, if the clause conflicts with other contract provisions, or if the intention of the parties is not clear, then courts will not enforce it. See Sutton Hill Associates v. Landes, 775 F. Supp. 682 (S.D. N.Y. 1991); U.S. Fidelity and Guar. Co. v. Friedman, 540 So. 2d 160 (Fla. Dist. Ct. App. 4th Dist. 1989); Charter Oak Fire Ins. Co. v. National Wholesale Liquidators of Lodi, Inc., 2002 WL 519738 (S.D. N.Y. 2002) (applying New Jersey law).

Additionally, courts will not enforce waiver of subrogation clauses where the underlying insurance did not cover the loss at issue. See Gap, Inc. v. Red Apple Companies, Inc., 282 A.D.2d 119, 725 N.Y.S.2d 312 (1st Dep’t 2001);Chelm Management Co. v. Wieland-Davco Corp., 23 Fed. Appx. 430 (6th Cir. 2001) (applying Ohio law). This is of particular importance, as an insurer can craft a condition to coverage that protects its own subrogation rights. As indicated, it is common for insureds to include waiver of subrogation clauses in their contracts with other companies during the course of their business. Waivers under those circumstances will generally take place pre-loss. While these pre-loss waivers may be acceptable, it is important for insurers to make sure the insured does not do anything after a loss which would prejudice the insurer’s right to subrogation. A common condition to coverage that protects an insurer’s subrogation rights will read as follows:

“If the insured has rights to recover all or part of any payment we have made under this policy, those rights are transferred to us. The insured must do everything necessary to secure our rights and must do nothing after the loss to impair them.”

A condition like the one above added into the insurance contract will protect an insurer’s right to subrogation in the event that the insured, after a loss occurs, attempts to enter into an exculpatory agreement that includes a waiver of subrogation clause. While there is little an insurer can do about a pre-loss waiver of subrogation clause (aside from the defenses to enforcement discussed above), a provision similar to the one above will at least protect the insurer from post-loss waivers.

©2011 Johnson & Bell, Ltd. All Rights Reserved.

Anti-Money Laundering Strategies and Compliance Conference May 9-11 New York, NY

Anti-money laundering officers, professionals, and in-house counsel should attend this conference to better understand the changing environment of the financial industry, learn how companies are adapting to these changes, and to identify new measures in which criminals are laundering money through the United States financial system. With technological advancements and the introduction of money laundering into new financial entities, it is important that anti-money laundering professionals and in-house counsel who oversee anti-money laundering compliance to stay abreast of current AML issues and best practices for preventing money laundering and suspicious activities from occurring in their organizations.

The Anti-Money Laundering conference is a highly intensive, content-driven event that includes case studies, presentations, and panel discussions over two full days. This conference targets industry leaders in AML, and Financial Compliance roles in order to provide an intimate atmosphere for both delegates and speakers.

key conference topics include:

Explore the Office of Foreign Assets Control Sanctions Program and updates to the Iranian Sanctions

  • Evaluate the increasing correlation between fraud and money laundering
  • Discuss potential risks that emerging technological products pose to the financial industry
  • Investigate the increase in money laundering through the US from Narcotics Trade and Human Trafficking

 Registration, Location & Details…..

  • May 9-11 Doubletree Metropolitan, New York City, NY, USA
  • To Register and for More information – please click here:

Ohio Governor Signs Bill Reducing the Collective Bargaining Rights of Ohio Public Employees

The week’s guest bloggers at the National Law Review are from Ogletree, Deakins, Nash, Smoak & Stewart, P.C.LerVal M. Elva provides some deatils of the recent Ohio law which significantly reduces the collective bargaining rights of nearly half a million public employees throughout Ohio, including teachers, firefighters and police officers. 

On March 31, 2011, Ohio Governor John Kasich signed Senate Bill 5 into law. The new law significantly reduces the collective bargaining rights of nearly half a million public employees throughout Ohio, including teachers, firefighters and police officers. Below are a few key points of interest.

The new law faces likely opposition by Democrats and union leaders who plan to organize and collect the more than 230,000 signatures needed from at least half of Ohio’s 88 counties within 90 days to place a referendum of the law on the ballot this November. If the Secretary of State determines that there are a sufficient number of valid signatures by the 90-day deadline, the law is placed on hold until the election and would only go into effect if the electorate votes in favor of it in November. 

  • Public employees retain the right to collectively bargain over starting pay, hours, and other terms and conditions of their employment, but will be limited in their ability to bargain over health care, sick time and pension benefits, building assignments and staffing sizes.
  • Public employees no longer are permitted to strike.
  • Public employees are required to pay at least 15 percent of their health care benefits and 8 to 10 percent of their pension plan benefits.  
  • Police and firefighters, who previously did not have the right to strike, would see their right to binding arbitration replaced with last, best-offer arbitration to settle a negotiation impasse that ultimately would be decided by elected officials after full disclosure of all demands and a public hearing so taxpayers may have input.  
  • The law eliminates automatic pay increases for longevity and replaces it with a merit or performance pay system for public employees.
  • The law prohibits the practice of selecting employees for layoffs based solely on seniority.  
  • The law does not apply retroactively to existing labor contracts, but rather is effective upon a contract’s extension, modification or renewal after the effective date of the law. 

This article was drafted by the attorneys of Ogletree Deakins, a national labor and employment law firm that represents management. This information should not be relied upon as legal advice. 

© 2011, Ogletree, Deakins, Nash, Smoak & Stewart, P.C., All Rights Reserved.

Evaluating Critical Regulatory Reforms to Facilitate Compliance and Effectively Manage Regulatory Risk in the Financial Industry May 9-10 NY, NY

The National Law Review would like to remind you of the upcoming conference in NYC May 9-10:  Evaluating Critical Regulatory Reforms to Facilitate Compliance and Effectively Manage Regulatory Risk in the Financial Industry This conference is geared towards C-Level Executives, EVPs, SVPs, VPs, and Directors involved in compliance, risk, audit, AML or regulatory policy. Hear from leading executives within the financial services industry on how to stay up-to-date and ensure compliance with regulatory reforms such as the Dodd-Frank Act and Basel III.

Attending this premier conference will give you the chance to address critical issues within the industry including new capital and liquidity requirements, economic consequences of new regulations and the restructuring of regulatory bodies. Conference attendees will gain practical knowledge on how to optimize their compliance and regulatory risk management programs.

Attending this conference will allow you to:

  • Examine critical regulatory reforms affecting the financial services industry, including the Dodd-Frank Act and Basel III
  • Address the impact of tighter regulation on the financial sector
  • Evaluate the people, process and technology required to facilitate compliance with regulatory reforms
  • Develop a long term approach to increasing operational efficiency in the compliance arena
  • Discuss best practices for regulatory compliance in the financial industry

The marcus evans Regulatory Risk Compliance conference is a highly intensive, content-driven event that includes presentations and panel discussions over two full days. This conference targets industry leaders in compliance, risk, audit, anti-money laundering, legal, regulatory policy, and general counsel roles in order to provide an intimate atmosphere for both delegates and speakers.

This is not a trade show; our Regulatory Risk Compliance Conference is targeted at a focused group of senior level executives to maintain an intimate atmosphere for the delegates and speakers. Since we are not a vendor driven conference, the higher level focus allows delegates to network with their industry peers.

Current Speakers Include:

  • HSBC North America
  • Wells Fargo Brokerage
  • UBS Wealth Management Americas
  • State Farm Bank
  • JP Morgan Chase
  • Bank of New York Mellon
  • The Northern Trust Company
  • Capital One Financial
  • Societe Generale


Registration, Location & Details…..

  • Doubletree Metropolitan Hotel, New York City, NY, USA 9-10 May 2011
  • For More Information and to Register – Please Click Here:


Racial Discrimination and the Hostile Work Environment: Employers May Be Responsible for the Actions of Their Customers and Vendors

Recently posted by Robert Neiman of Much Shelist Denenberg Ament & Rubenstein P.C.:  details of a recent Seventh Circuit Appellate court ruling that a nursing home, by catering to a resident’s preference for white nurses, had created a hostile work environment for its employees based upon race.

All employers know that they must protect their employees from a hostile work environment based upon discrimination and harassment by other employees. A recent federal appeals court decision, however, clarified the steps that employers should take when their customers and vendors discriminate against or harass company employees.

In Chaney v. Plainfield Healthcare Center, the United States Court of Appeals for the Seventh Circuit held that a nursing home, by catering to a resident’s preference for white nurses, had created a hostile work environment for its employees based upon race. This Seventh Circuit decision reversed the trial court’s summary judgment ruling in the nursing home’s favor, ultimately remanding the case for a trial.

Understanding the Issues

In the Chaney case, the resident told the nursing home’s managers that she only wanted white nurses to care for her. Plainfield Healthcare Center acknowledged that it maintained a policy of complying with its residents’ racial preferences. The nursing home also argued that it expected employees to respect these preferences because it otherwise risked violating state and federal laws that grant residents the right to choose providers, as well as the right to privacy and bodily autonomy.

Chaney, an African American nurse’s aide, followed Plainfield’s policy, even though the prejudiced resident continued to appear on her assignment sheet. Chaney reluctantly refrained from assisting the resident, even when she was in the best position to help. However, after Chaney had worked for Plainfield for just three months, the nursing home fired her for alleged misconduct on the job.

Chaney then brought a race discrimination claim against the nursing home, alleging that Plainfield allowed a hostile workplace to exist in violation of Title VII of the Civil Rights Act of 1964. The federal appeals court had “no trouble” ruling that a reasonable person would find the nursing home’s work environment hostile or abusive. The court found that the nursing home fostered a racially charged environment through its assignment sheet, which daily reminded Chaney and her coworkers that certain residents preferred not to receive care from African American nursing assistants. Unlike her white counterparts, Chaney was restricted regarding the rooms she could enter, the care that she could provide and the patients she could assist.

The appellate court ruled that “a company’s desire to cater to the perceived racial preferences of its customers is not a defense under Title VII for treating employees differently based on race.” The court rejected Plainfield’s argument that laws designed to protect residents’ choices and autonomy justified its conduct, holding that residents’ privacy interests did not excuse the nursing home’s disparate treatment of its employees based upon race. Furthermore, the court suggested that Plainfield could have insisted that the racially biased resident employ a white nursing aide at her own expense.

The nursing home also argued that by preventing its African American nurses from treating the prejudiced resident, it was protecting those nurses from harassment, and that it could not simply discharge the resident to avoid exposing its employees to racial hostility. But the court noted that Plainfield had a range of other options, such as warning all residents of the facility’s non-discrimination policy prior to admission, securing written consent to the non-discrimination policy and attempting to reform the behavior of the racially biased resident after admission. The court further noted that the facility could have assigned staff based on race-neutral criteria that minimized the risk of conflict.

Notably, the court also suggested that Plainfield could have advised its employees that the resident was racially prejudiced, and informed them that they could ask the nursing home for protection from this and any other prejudiced residents. That way, the court explained, the nursing home would have allowed all employees to work in a race-neutral, non-harassing environment as the law requires, rather than imposing an unwanted, race-conscious work limitation on its African American employees.

Protective Steps for Employers

The Chaney case offers several lessons that employers should bear in mind. For starters, ensure that your discrimination and harassment policy clearly states that employees have the right to work in an environment free of hostility based on any legally protected class, even if that hostility is generated by customers, vendors or other non-employees. You should also consider informing customers and vendors of your non-discrimination policies where appropriate. If customers or vendors express a preference to deal only with certain employees—to the exclusion of others who belong to a legally protected class—then you should not tacitly cooperate. Instead, theChaney decision suggests that you should remind these third parties of your non-discrimination policy, warn employees that the customer or vendor is prejudiced, protect those employees from any hostility created by the customer or vendor, and help ensure that your employees have an easy way to communicate any hostile work environment to management.

Ultimately, you must measure the benefit of doing business with a prejudiced customer or vendor against the risk that your employees will suffer a hostile work environment, possibly leading to expensive discrimination or harassment claims. The Chaney decision suggests that employers don’t necessarily have to choose one over the other, but that they are required to take steps to protect their employees from racial prejudice.

© 2011 Much Shelist Denenberg Ament & Rubenstein, P.C.


Is Your Company's Retirement Plan in Need of a Spring Cleaning?

Recently posted at the National Law Review by Alyssa D. Dowse and Timothy C. McDonald of von Briesen & Roper, S.C. – about whether your company’s retirement plan(s) need a little updating

The Internal Revenue Service (the “IRS”) recently issued a list of retirement plan items that employers should review this year. This Update briefly highlights those items and provides you with useful resources for proper operation of your retirement plan.

Is Your Retirement Plan Right for Your Business?

An employer should review its retirement plan periodically to determine whether that plan remains suitable given the employer’s objectives.

Employers sometimes adopt retirement plans that prove to be overly complicated given the employer’s budget, the nature of the employer’s workforce, etc. For example, we recently helped a small non-profit organization unwind its defined benefit retirement plan. Given the organization’s objectives and budget and the nature of the organization’s workforce, the plan was too complex and costly to administer. The organization replaced that plan with a new defined contribution plan that (i) is much easier for employees to understand, (ii) is much less costly to administer, and (iii) provides the organization with needed funding flexibility.

Employers sometimes find that the off-the-shelf plan document that they have been using does not maximize the amounts that could be contributed on behalf of key employees. For example, we recently worked with a professional service corporation that found it could significantly increase its retirement plan contributions for shareholder-employees by implementing a feature known as “cross-testing.”

Some employers find that their business environment has become more uncertain so retirement plan designs that make funding requirements more predictable are desirable. For example, potential swings in the funding requirements under a defined benefit retirement plan could be reduced by converting the plan from a traditional pension formula to a “cash balance” formula and implementing an investment policy that tracks projected plan liabilities more closely.

As your business and business objectives change over time, it is important that you review your retirement plan to make sure it continues to be appropriate for your business. The following are some of the factors you might consider in determining whether your retirement plan is still right for you:

  • Have you experienced or do you anticipate significant growth in your business and workforce?
  • Have you experienced or do you anticipate a reduction in your business or workforce?
  • Do you feel that the benefits your plan provides are sufficient?
  • What are your total annual costs of maintaining your plan (i.e., record keeping, investment, actuarial, legal, trustee, etc.) and are those costs reasonable given the benefits your retirement plan provides to employees?
  • Does your plan document permit, and would it be beneficial to your business to have, the plan pay eligible administrative expenses in accordance with Department of Labor guidance?
  • Is your plan easy to administer and understand or is it so complex that employees do not understand or appreciate the benefits you provide?
  • Do you need more funding stability or flexibility given the cash flow of your business?
  • Are your plan’s special features (e.g., plan loans, hardship distributions, etc.) utilized sufficiently to justify the administrative effort associated with those features?
  • Would you like to consider ways to increase retirement contributions and benefits for key members of your staff?

Careful consideration of these and other factors will help you determine if your retirement plan still suits your business’s needs and goals. The IRS has a website that provides basic information regarding various types of qualified retirement plans:

Are There Any New Design Features You Might Want to Add to Your Plan?

It is never too late to redesign your retirement plan to make plan administration and operation more efficient and better tailored to your business’s goals. You may not be aware of optional plan features that benefit employees and/or reduce administrative burdens, such as automatic enrollment, Roth account features, and safe harbor plan designs:

  • Automatic Enrollment: You may want to amend your 401(k) or 403(b) plan to provide that eligible employees will be automatically enrolled, eliminating the need for them to make an affirmative election to participate.
  • Roth Accounts: You may want to amend your 401(k) or 403(b) plan to provide a designated Roth account feature. This feature allows employees to contribute after-tax dollars to their retirement plan account. If certain conditions are met, the employee can receive those contributions and investment earnings on those contributions tax-free when he/she retires.
  • Safe Harbor Designs: You may want to amend your 401(k) plan so it qualifies as a safe harbor 401(k) plan. A “safe harbor” 401(k) plan is not subject to nondiscrimination testing otherwise applicable to traditional 401(k) arrangements. As a result, participating highly compensated employees can maximize their annual deferrals under a safe harbor 401(k) plan without regard to the amounts other employees elect to contribute. We have worked with a number of employers that found they could convert their traditional 401(k) plans to safe harbor 401(k) plans with minimal design and cost changes.

Have You Updated Your Plan for Recent Law Changes?

The laws regarding retirement plans frequently change and plan documents must be amended to reflect such changes. For example, retirement plans were recently required to adopt special rules regarding retirement benefits for uniformed military members, pursuant to the Heroes Earnings Assistance and Relief Tax Act of 2008. The IRS recommends that all retirement plans review current law changes annually.

Although law changes and required deadlines for amendments are listed in various government and practitioner publications, failure to timely adopt a required amendment is a common plan mistake. If a retirement plan fails to adopt a required amendment by the IRS deadline, the employer should remedy that failure using an IRS compliance tool known as the Employee Plans Compliance Resolution System (“EPCRS”). Correcting an error under EPCRS is generally much less costly than correcting an error the IRS discovers on audit.

Do You Know and Understand Your Plan’s Terms?

The terms of your retirement plan document should dictate the way you administer your plan. Unfortunately, many employers are not aware of their retirement plan’s terms and have problems operating their plan correctly.

Make sure you know and understand the following questions regarding your retirement plan:

  • Which employees are eligible to participate in your retirement plan?
  • How does your retirement plan define “compensation” for the purpose of contributions to the plan?
  • When and how much are you required to contribute on behalf of employees under the plan?
  • What types of notices must you provide to employees and how often should the notices be provided?
  • Are you required to test the retirement plan for nondiscrimination and, if so, how often?
  • Are you required to file an annual return for the retirement plan?

Are You Operating Your Plan Correctly?

While it is important that you both amend your retirement plan to reflect law changes and understand your plan’s terms, you must also operate your plan in accordance with the plan’s terms. Incorrect operation of your plan could create serious problems for your business and your employees. In the worst case scenario, incorrect operation can lead to plan disqualification—which would subject your business and your employees to adverse tax consequences.

It is important to regularly review your plan to ensure that:

  • Your employees are allowed to participate in the plan when they are eligible under the terms of the plan;
  • The correct amount of employer and employee contributions are made based on (1) your plan’s definition of “compensation,” (2) your employees’ elections, and (3) your plan’s terms;
  • You deposit all employee contributions on time;
  • Any loans or hardship distributions allowed by the plan are properly administered; and
  • You issue required notices to your employees on time.

If you discover an operational error, please contact your employee benefits counsel. Operational errors can often be easily corrected under the IRS’s EPCRS. Please review the IRS’s Common Plan Mistakes website to learn more about mistakes plans often make and how plans can fix those mistakes:,,id=137958,00.html.

Are You Taking Advantage of Free IRS Resources?

The IRS provides many free resources to keep you informed, such as:

 ©2011 von Briesen & Roper, s.c 


Life Sciences Strategies for Anti-Corruption & FCPA Compliance 23-24 June Washington, DC

The National Law Review is  a proud media sponsor of the upcoming Life Sciences Strategies for Anti-Corruption & FCPA Compliance – which addresses  the Unique Challenges and Risk Areas Tied to FCPA and Corruption Faced by the Pharmaceuticals, Medical Device and Biotechnology Companies  

Pharmaceutical and medical device companies operating overseas are particularly vulnerable to FCPA violations because of the nature of public health systems in many foreign countries where health care systems are owned and operated by the government. Given the fact that employees are in constant contact with the health care providers at different touch points within the organization, there is a need to ensure all interactions are monitored and effective policies are in place to curb any potential violations.

Gain insights on how to deal with issues stemming from gifts and entertainment of government officials to develop effective training programs and best practices in operating in emerging countries as well as dealing with 3rd parties.

With a one-track focus, the Life Sciences Strategies for Anti-Corruption & FCPA Compliance Conference is a highly intensive, content-driven event that includes case studies, presentations and panel discussions over two full days. This conference targets industry leaders from the pharmaceutical, medical device and biotechnology and clinical research organizations in order to provide an intimate atmosphere for both the delegates and speakers.

key conference topics include:

  • Analyze the key provisions of the UK Bribery Bill and the impact on life sciences industries by Abbott Laboratories
  • Identify practical strategies to develop effective global anti-corruption compliance program from CareFusion
  • Assess the challenges of conducting and implementing effective global traning programs by Medtronic, Inc.
  • Develop robust internal controls for 3rd party due-diligence by Talecris Biotherapeutics, Inc.
  • Address FCPA and corruption risk stemming from sales and marketing activities and interaction from Covidien

    key conference features include:

  • Expert Case Studies and Presentations by Industry Leading FCPA & Anti-Corruption Professionals

  • Illuminating Roundtable Discussions Led by St. Jude Medical (June 23rd) and Johnson & Johnson (June 24th)
  • Earn up to 16 hours of CLE Credits

    for more details and to register:

    Highlights of the UK Bribery Act Guidance: What It May Mean For Your Company

    Recently posted by Bracewell & Giuliani LLP – a great overview of the recently passed UK Bribery Act:  

    On March 30, 2011, the UK Ministry of Justice issued its highly anticipated guidance (Guidance) for the UK Bribery Act (the Act), a criminal anti-corruption statute that will become effective July 1, 2011.1 The Act covers both commercial and official bribery, within and sometimes outside the UK, and a company may be criminally liable for failing to prevent bribes from being offered or paid by its employees, agents or subsidiaries.

    Following a brief overview of the new Guidance, in this Update we review:

    • The jurisdictional reach of the Act
    • The impact of extended liability for business organizations
    • Six fundamental principles that can form a full defense for companies
    • Facilitation payments, which are considered illegal bribes under the Act
    • The treatment of hospitality and promotional expenses


    The newly-released Guidance offers some assistance to commercial companies doing business in the UK seeking to implement “adequate procedures” – both to prevent violations and serve as an affirmative defense against liability under the Act. For United States companies doing business in the UK, both the Act and the Foreign Corrupt Practices Act (FCPA) form essential components of a comprehensive global anti-corruption compliance program.

    The Guidance sets out six fundamental principles (see below), but one overarching theme is clear:  Companies would be wise to fully evaluate and understand their entire business operations – how and where they do business — assess the differing risks they face and tailor common sense programs to address those specific risks. In pursuing a risk-based approach, companies may be afforded reasonable flexibility (depending on the size, structure, and complexity and the sophistication of their operations) to implement appropriate, and varying, programs.

    Jurisdictional Reach Over US and Other Companies

    The Act’s jurisdictional reach extends to business organizations that are incorporated or formed in the UK, and also to those that conduct business in the UK (wherever they are incorporated or formed). Whether a business is deemed to “carry on” business, or even part of its business, for the purposes of the Act – and be rendered a “relevant commercial organisation” — will be a fact-sensitive determination, which the Guidance submits will be based on a common-sense approach. Ultimately, the courts will make the final determination based on the particular facts and circumstances of each case. The Guidance provides two examples which in and of themselves will not confer jurisdiction on the company: (1) where the company’s securities are listed and may be traded on the London Stock Exchange; and (2) where it merely has a UK subsidiary (which “may act independently of its parent or other group companies”).

    Extended Liability for Business Organizations

    A “relevant commercial organization” risks prosecution if the government determines there is sufficient evidence to establish that an “associated person” bribed someone else with the intent to obtain or retain business or an advantage for that business entity. The associated person — someone who merely needs to “perform[] services” for or on behalf of the company — is not required to be prosecuted as a predicate for the company’s prosecution. Nor is the associated person required to have a close connection with the UK. Moreover, the determination of who performs such services is to be based on a broad interpretation. Employees are presumed to perform services, agents and subsidiaries qualify, and contractors and suppliers may also qualify depending on the circumstances. Titles and position are not determinative; far more important are the underlying conduct and the practical realities.

    In addition to liability for failing to prevent bribery from occurring, the business organization may also be prosecuted if the government can prove that the bribe giving or receiving (or offering, encouraging or assisting) took place by someone “representing the corporate ‘directing mind.'” JPG.

    An Adequate Compliance Program Is A Full Defense: Six Fundamental Principles

    The Act creates a full defense for companies that can demonstrate they have implemented “adequate procedures” to prevent associated persons from engaging in bribery (even if a case of bribery has been proved). The affirmative defense is required to be proved by “the balance of probabilities.” In deciding whether to proceed with its case, the government will also consider the adequacy of compliance procedures, which can turn on the case-by-case facts and circumstances, including the level of control exercised over the conduct of the relevant associated persons and the degree of risk for which mitigation is required.

    Six core principles have been set out in the Guidance and accompanying commentary to help advise companies in devising and implementing adequate procedures to prevent bribery:

    1. Proportionality of response to the bribery risks that the organization faces and to the nature, scale and complexity of the organization’s activities
    2. Commitment of top-level management to prevent bribery by associated persons (e.g., effectively communicating no tolerance policy from top to bottom)
    3. Risk Assessment (to promote periodic, informed and documented assessment proportionate to the company’s size and structure and to the nature, scale and location of its operations)
    4. Due Diligence: Demanding that companies investigate and are aware of who is acting on their behalf in order to mitigate bribery risks
    5. Communication (and training): Ensure that policies and programs are “embedded and understood” throughout the company through internal and external communication.
    6. Monitoring and Review: Undertake systematic review to assess changed circumstances and new risks and implement improved procedures where deemed appropriate

    Facilitation Payments Constitute Illegal Bribes Under the Act

    Unlike the FCPA, the Act prohibits facilitation payments – small grease payments to low-level government officials to perform or expedite routine, non-discretionary services (e.g., processing immigrations or customs forms, turning on the electricity, etc.)… Nonetheless, the Guidance makes clear that the UK government appreciates that given the realities in certain global regions and in certain sectors, overnight elimination is not feasible. Moreover, “eradication” of facilitation payments is recognized as a “long-term objective.” However, the JPG identifies factors tending in favor of and against prosecution:

    Factors in favor of prosecution: (i) large or repeated payments; (ii) planned or accepted payments that may reflect standard operating procedure; (iii) payments reflective of an official’s corruption; and (iv) the failure to follow the organization’s facilitation payment policies and procedures

    Factors against prosecution: (i) a single small payment; (ii) payment identified as part of genuinely proactive approach involving self-reporting and remedial action; (iii) adherence to the organization’s clear and appropriate procedures for facilitation payment requests; and (iv) the particular circumstances placed the payer in a vulnerable position

    Hospitality and Promotional Expenses Are Not Prohibited by the Act

    Like the promotional expense exception under the FCPA, the Act does not criminalize bona fide hospitality and promotional expenses, as long as there is no improper intent. Specifically, the guidance makes clear that providing tickets to sporting events or taking clients to dinner to promote and continue good relations, or paying for reasonable travel expenses in order to demonstrate your company’s goods or services, if reasonable and proportionate, will not run afoul of the Act. However, where hospitality expenses are made to mask an intent to bribe or improperly induce advantageous business conduct, the authorities can be expected to view the expense payment as an illegal bribe under the Act. The extent of the hospitality and promotional expenses offered, the way in which they were provided and the level of influence the client exercised or could exercise in the business decision will all be examined.

    Current Considerations

    The next three months, until July 1, when the Act goes into effect, will provide a special opportunity for U.S. and other companies doing business in the UK to re-evaluate their operations and take a fresh look at the effectiveness, or “adequacy,” of their anti-corruption policies and procedures. Conducting a measured, proportionate and risk-based assessment makes eminent good sense in light of the UK Bribery Act, the FCPA and an evolving global propensity for strict anti-corruption enforcement.

    The Ministry of Justice Guidance can be found here.


    1Also issued that same day is the Joint Prosecution Guidance of the Director of the Serious Fraud Office and the Director of Public Prosecutions (JPG), which provides some insight into the Directors’ views as to “prosecutorial decision-making” regarding violations of the Act.

    © 2011 Bracewell & Giuliani LLP