The Pigeons Come Home To Roost

Since 2004, we have warned Fiduciaries of ERISA Plans about the Plans’ Consultants wearing multiple hats and performing multiple responsibilities. We repeatedly said the way to avoid conflicts of interest is to only do one thing: actuaries be actuaries, investment advisors monitor investments, insurance agents sell insurance, etc.

On June 19, 2008 the U.S. Supreme Court sent out its own red flag in the monumental decision Metropolitan Life Insurance Company et. al. v. Glenn. This decision addressed the standards of conflict of interest for Plan advisors and the consequences to a Plan if it allows its consultants to engage in conflicts of interest. Although the decision is initially limited to insurance companies acting as disability plan administrators and providing benefits as well (which is huge by itself), the decision will have repercussions in the Pension and Health and Welfare industry for years and decades to come. How far down the totem pole the decision will go is not known, but as they say in the media, “here is what we do know:”

Any fiduciary or plan which doesn’t carry fiduciary insurance is at extreme risk.
Any fiduciary that allows its consultants to provide “other services” places the Plan and himself/herself at risk.
Any fiduciary who allows its consultants and insurance companies to combine in some sort of joint venture where denial of benefits accrue to the benefit of the consultants and insurance company puts the plan at risk.
Plan fiduciaries cannot waive conflicts of interest.

In other words the consultants and insurance companies must wear one hat and one hat only.

Here are a few words of wisdom from the “Supremes.”

· A benefit determination is a fiduciary act (i.e. an act which the … owes a special duty of loyalty to the beneficiaries.)
· Conflict of Interest is a “real or seeming incompatibility between one’s private interests and one’s public or fiduciary duties.”
· … the fact that a settler approves a … conflict does not change the need for a Judge to take account of that conflict in reviewing the Trustee’s decision making.”
· ERISA imposes higher-than-marketplace quality standards on insurers.

Next Time a Plan Consultant Offers to Place Your Plan’s Insurance – Just Call McLaughlin.

Large Pension Funded Status Rises

Defined benefit pension plans closed out 2007 with a median funded status of 94 percent, according to a Mercer analysis of 377 S&P 500 publicly traded U.S. companies. That figure is up from the 2006 readings of 89 percent. The plans reported having a total of $1.56 trillion in assets and $1.5 trillion in pension liabilities at the end of 2007. Sponsors invested 60 percent of their plan assets in stocks, achieving an average asset return of 9.6 percent, down from 13 percent in 2006.

More Bad News For Iowa

National Flood Insurance Program Spokesman Butch Kinerney said recently that the flood insurance program does not expect losses related to the flooding in the Midwest to be high. Kinerney noted, "The fact is we just don't have a whole lot of policies out in that area," with only about 700 flood policies in force in Cedar Rapids, Iowa, which was hit hardest by flooding. Insurance carriers have up to 60 days to file claims information with the program, and the program is not likely to have a total loss estimate soon. While the program continues to pay ongoing claims from the 2005 hurricane season, it is not expected to repay its debt or the interest on the $20 billion it borrowed from the U.S. Treasury. However, that debt could be eliminated once flood insurance program reforms are passed by Congress.

Isn't it worth a call to find out how much Flood insurance costs for your home or building?

More Reasons To Obtain Union Liability Coverage and an Individual Labor Leader Endorsement

Labor Organization Annual Financial Reports: Notice of Proposed Rulemaking and Request for Comments

The Office of Labor-Management Standards (OLMS) on May 12, 2008 published a Notice of Proposed Rulemaking (NPRM) to (1) make several revisions to the current Form LM-2 that will provide additional information on labor union sales and purchases of investments and fixed assets and disbursements to officers and employees (Form LM-2 Schedules 3, 4, 11 and 12), and add itemization schedules corresponding to categories of receipts, and (2) establish a procedure and standards by which the Secretary of Labor may revoke for a limited time a particular labor organization’s privilege to file the simplified Form LM-3, where appropriate, after investigation, due notice, and opportunity for a hearing. The proposed changes are made pursuant to section 208 of the Labor-Management Reporting and Disclosure Act (“LMRDA”). The proposed rule will apply prospectively.

Got an Extra $225 Million?

A former racing official has sued NASCAR, saying she was subjected to racial and sexual discrimination in her two years as an employee. The complaint lists 23 incidents of sexual harrassment and 34 incidents of racial and gender discrimination beginning in 2005 and ending when she was fired in 2007. The official is 32 years old and she alleges that her co-workers called he racially insensitive nicknames and that male collegues made sexual advances. Do you have $225 Million "in your wallet?" I do not think your Mastercard will cover this either. Might be time to "just call McLaughlin" about EPL coverage.

Insured Property Loss...Remains the Largest In the Last Decade

The number of Tornadoes in the U.S. during the first quarter of 2008 surpassed the previous four year average and ISO estimates insurers will pay $3.35 Billion in first-quarter catastrophe claims. Also, insured losses of $1 Billion and higher from single events are becoming more frequent as we approach Hurricane season.

Employment Related Practices Update

Still think Employment Related Practices Insurance is not necessary?

• EEOC Claims are at their highest volume since 2002.
• Cost of Defense alone averages $125,000.
• Plaintiffs are now winning at the rate of 63%.
• Age discrimination claims are up 15% last year and retaliation and third party claims are skyrocketing.