Compliance August 31, 2010

Pfizer Cleared in Stock Option Suit

Pfizer Inc. did not breach its Employee Retirement Income Security Act (ERISA) responsibilities by giving an employee incorrect information about stock options granted under a non-ERISA plan, a federal appellate court ruled.
Reported by

The 2nd U.S. Circuit Court of Appeals, in a two to one decision, held that U.S. District Judge Samuel Conti of the U.S. District Court for the Southern District of New York was right when he ruled that any misrepresentations made to plaintiff Diana Bell about her ability to exercise her stock options were only in the realm of the non-ERISA benefits program. Bell had argued the stock information given to her dealt with an ERISA plan.

Circuit Judge Ralph K. Winter, writing for the majority, argued that the appellate court would be going against Congressional intent in passing ERISA by forcing sponsors to assume fiduciary duty responsibilities for non-ERISA plans. “In essence, Bell seeks to extend the ERISA fiduciary duty to unintentional misstatements regarding collateral, non-ERISA plan consequences of a retirement decision,” Winter wrote. “The language of the statute weighs against such an extension.”

Never miss a story — sign up for PLANADVISER newsletters to keep up on the latest retirement plan adviser news.

In particular, Winter contended, doing so would jack up the employer cost of running benefit programs – precisely what lawmakers were trying to avoid with the ERISA statute.

“The extension of liability to all facts material to retirement decisions would expand the potential costs of ERISA plans, thereby reducing the number created and the benefits provided in those that are created,” Winter wrote. “Extending ERISA liability to unintentional misstatements regarding non-plan consequences of retirement decisions would run counter to these goals.”

According to the appellate ruling, Bell left Pfizer on May 31, 2003, after asking Pfizer HR personnel about her eligibility to retire under the Pfizer Retirement Annuity Plan, including the treatment of her stock options if she left the company. She had amassed the stock options under Pfizer’s Stock and Incentive Plan (SIP), a non-ERISA plan.

Bell contended in her subsequent lawsuit that she had gotten assurances that her stock options would remain exercisable for the remainder of the grant period if she left Pfizer. But, in mid August 2003, according to the ruling, Bell was informed by Pfizer that certain of her stock options had been cancelled and that others would be cancelled on September 1, 2003.

The ruling said that according to the terms of the SIP, an employee’s stock options terminated when the employee leaves the company “for any reason including retirement.” The only instance where there was not true was when the employee had retired or is eligible for retirement under specific sections of the Pfizer retirement program, the ruling said. Bell was not eligible for those provisions, according to Winter’s ruling.

 

Data & Research August 31, 2010

More Small-Business Owners Delaying Retirement

A Wells Fargo survey reveals that a growing majority of small-business owners do not plan to retire before age 65.   
Reported by

More small-business owners plan to retire at an older age–fewer plan to retire at a younger age. This is the current state of affairs after the economic downturn, according to the Wells Fargo/Gallup Small Business Index, surveyed in July 2010. Sixty-nine percent of business owners are not planning to retire or cut back on work until age 65 or older. This is a 17 percentage point increase from December 2007 and a 28 percentage point increase from September 2005. Conversely, respondents planning to retire earlier than full retirement age (between ages 60 and 64) decreased to 21% from 27%.  And retiring before age 60?  Only 11% are still holding on to that dream. 

“Many business owners are reinventing their business approaches in order to ensure financial stability for the long-run,” said Doug Case, Wells Fargo small business segment manager. “This often has a direct impact on personal retirement plans and tests the resilience and entrepreneurial flexibility which characterize small business ownership.”  

For more stories like this, sign up for the PLANADVISERdash daily newsletter.

Small-business owners are adaptive people and 62% of them have made changes to their retirement plans since the economic downturn, Wells Fargo said. Yet 68% are still worried that they will not be able to recoup the losses their 401(k)s suffered in the recession. Likewise, fewer respondents, 63% as opposed to 79% in 2007, were confident that they will have enough money to live comfortably when they retire.   

And then there are those small-business owners who do cannot imagine life without their work. Forty-seven percent of respondents reported they never plan to retire unless forced to do so for health reasons, an increase from 40% reported in December 2007. The majority of survey respondents, however, look at retirement as a time to work at something they enjoy doing, on their own terms. 

 

«