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Seventh Circuit Provides Defined Contribution Plan Fiduciaries with Guidance on Prudence and a Reason to Pause

The U.S. Seventh Circuit Court of Appeals recently issued its opinion in George v. Kraft Foods Global, Inc., No. 10-1469 (7th Cir. April 2011), impacting fiduciaries to defined contribution retirement plans such as 401(k) plans. The plaintiffs had challenged the plan fiduciaries?ÇÖ decisions on three issues: the use of unitized accounting (a type of accounting in which participants have units in an investment fund instead of shares); the continued renewal of a record-keeper?ÇÖs contract without obtaining competitive bids for fees; and a directed trustee?ÇÖs practice of retaining the float (that is, keeping the interest earned on the funds set aside for a distribution check between the time the check is cut until it is actually cashed). A summary of the issues and the court?ÇÖs holdings can be found below. Unitized Accounting of Company Stock Fund – The plaintiffs argued that the fiduciaries breached their duties by failing to reach a… Continue Reading

State-Law Privacy Claims Alleging Unauthorized Disclosure of Individual?ÇÖs Health Information Not Preempted by ERISA

A federal district court in Texas recently granted a motion made by a participant in a group health plan and thus remanded back to state court a cause of action in a lawsuit involving an alleged violation of the participant?ÇÖs privacy rights under the employer-sponsored plan. The participant originally sued in state court alleging that the plan?ÇÖs subrogation vendor violated his privacy rights by sharing protected medical information relating to injuries sustained in an automobile accident. The defendant removed the case to federal court on grounds that the plan was governed by ERISA and thus all of the participant?ÇÖs state law claims were preempted by ERISA. In its decision the federal court granted the participant?ÇÖs motion to remand the case back to state court. The court reasoned that because the participant claimed tortious conduct outside of the plan and did not seek ERISA remedies, the claims were not sufficiently related… Continue Reading

Ninth Circuit Remands Stock Option Case

The United States Court of Appeals for the Ninth Circuit found that a taxpayer cannot invoke Internal Revenue Code Section 83(c)(3) to defer the taxation of stock options exercised, but the court remanded the case for a determination of whether a deferral of taxes results from company restrictions barring the sale of the stock at the time of exercise.?á The taxpayer sought a refund of $3.7 million in Medicare taxes paid on income earned when she exercised her stock options.?á Company policy prevented the sale of stock until January 2001, at which time the price of the company stock had fallen dramatically.?á Code Section 83(c)(3) allows taxpayers to defer recognition and valuation of income so long as a profitable sale of the stock acquired through the exercise of options ?Ç£could subject a person to suit under section 16(b) of the Securities Exchange Act of 1934.?Ç¥?á Section 16(b) forbids a corporate… Continue Reading

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