Aiken & Aiken

Michele Aiken June 10th, 2008

In today’s competitive business environment, employers and HR personnel are all too often put in the position of having to pay insufficient attention to employment and employee benefits legal compliance until problems arise - resulting in dire and costly consequences.  Failure to comply with the complex and ever-changing laws in these areas often results in one or a combination of: substantial penalties, steep fines, governmental agency audits, and / or litigation.  Unfortunately, all of these options usually have a very expensive price tag attached.

Consider the following:

Employment Practices

• 67% of all employment cases that litigate result in a judgment for the plaintiff
• 1/3 of employment case verdicts award punitive damages
• 75% or more of the total judgment amount awarded in an employment case is usually for punitive damages
• Based on 2000 data, median compensatory awards for employment cases were:
  • $268, 926 for age discrimination
  • $120,951 for race discrimination
  • $100,000 for gender discrimination
• Median compensatory awards rose from $78,592 to $218,000 between 1994 and 2000

Employee Benefits Plans

• From 2000 to 2001 the number of ERISA civil suits filed increased from 9,124 to 10,292 (almost 13%)
• In 2001, the Department of Labor investigated 4,862 businesses and recovered $648 million in penalties and damages
• In 2000, the average defense cost of a fiduciary liability claim was $124,000
• In 2000, 47% of fiduciary liability claims were based on benefits disputes (including denial of benefits)

How can an employer protect itself:

Self-Audits are reviews that companies usually undertake with the assistance of benefits counsel to identify legal compliance gaps in their plans, policies and/or operational procedures.  The audit focuses on areas that could place the company at risk for governmental fines and penalties, as well as expose the company to an increased risk of lawsuits.  These audits can be done for either or both a company’s employment practices and employee benefits plans. 

The scope of an audit can vary from a basic overview of plans, policies and procedures with identification of possible compliance gaps, to a comprehensive assessment and analysis with specific recommendations for methods of correction of any identified gaps and drafting and/or updating any needed plans, policies and procedures.  By conducting these voluntary self-audits, a company can significantly reduce the costs of future problems - costs that can have a huge impact on the company’s bottom line.

Employers should consider performing self-audits at least annually.  Additionally, when there are major changes to the law or major changes to the business, a self-audit should be done.  Employers should work with professionals with experience conducting these audits.  Employment and benefits lawyers can assist employers in auditing their policies, practices and plans.  Proactively identifying and addressing issues can be the best protection from legal action for an employer.

• Benefits , ERISA , Employment , General
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Sheila Aiken April 2nd, 2008

These days with more and more type of records that a business creates and which are recognized by courts, businesses need an effective records retention policy as part of their overall policy and procedure strategy.  Companies need to ensure compliance with both state and federal laws that govern a company’s records.

For instance, the Sarbanes-Oxley Act of 2002 created record retention requirements that apply to all companies, both publicly traded and privately held.  Section 802 which provides that it is a crime for someone to intentionally destroy, alter, mutilate, conceal, cover up or falsify any records, documents or tangible objects that are involved in (or could be involved in) a U.S. government investigation or prosecution of any matter or in a Chapter 11 bankruptcy filing.

A records retention program can protect businesses in litigation and disputes that arise during the course of business.  These programs help ensure compliance with federal and state laws and regulations.  Additionally, evidence of a clear and consistently enforced records retention program, provided it is enacted for valid purposes, will go a long way to convince courts that the destruction was reasonable and will generally provide a “safe harbor” under current rules of civil procedure.

However, while it is important to keep clutter to a minimum, a company can get into difficulties by tossing the wrong paper or deleting an important e-mail.  It is important to have all relevant documents during a lawsuit.  Not having a document can mean the difference between winning and losing in a lawsuit.  A judge or jury may be permitted to conclude that the document contained information detrimental a business should they not be able to product it.

Any policy a company creates should cover both hard copy documents and electronic documents.  Now that electronic discovery has been recognized in law suits, companies need to ensure they review their electronic records with the same careful attention as other documents.  Electronic records include records stored in email; on employee’s voicemail, computers, PDAs, cell phones, external drives, CDs, and DVDs; and on company networks and backup systems.

A comprehensive policy should cover how long to keep a document, when and how to store the document, and how to dispose of the document, will depend on the type of document.  It should also include details on how the destruction of documents should be handled.  Things to consider in this should include how electronic records will be destroyed as well how confidential information will be destroyed.  Additionally, the policy should include a procedure that preserves all records once a company is reasonably anticipates litigation. 

It is important for the success of the policy that employees be trained and be held accountable for compliance.  Additionally, a periodic audit should be held to ensure that the appropriate records are being destroyed. 

Due to the magnitude of legal requirements, as well as the specific needs of each company, it is advisable to consult legal counsel before implementing a tailored records retention policy.  In addition, businesses should consider any industry standards that may affect the holding period of records due to unusual legal circumstances.

• Employment , General
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Michele Aiken March 14th, 2008

The 79 million Baby Boomers in the U.S. continue to charge full-speed toward retirement age.  The oldest of the Boomers will turn 65 in 2011, and from that point on, it is likely that more workers will be leaving the workforce than will be entering it.  Companies need to face the reality that there will soon be a significant gap in the workforce, assess how it will impact their organization, and implement a company-wide succession planning project.  According to a recent report released by the Aberdeen Group, succession planning is underutilized by most small and mid-sized businesses.  Only 35% of small and mid-sized businesses have a succession plan in place.

Although succession planning is most frequently used for presidents, CEOs, or other senior management personnel, it can be a useful tool for virtually all levels of an organization, regardless of the organization’s size.  Many businesses have positions that require specialized knowledge, skills and/or abilities.  If the employee that filled such a position retired or left the company, the company needs to ensure that there is someone immediately available with the same specific skill set to take over.  This is especially crucial for small to mid-sized businesses, where there is little-to-no employee redundancy, and everyone’s job is vital to conducting ongoing business activities.

A company’s first step in succession planning should be to conduct a risk evaluation.  This can be accomplished by examining every position in the company and assessing (1) possible retirement plans of the individual working in the position, (2) importance of the position in relation to the overall functioning of the company, and (3) current status of possible replacements for the individual working in the position.

Once the risk evaluation is complete, the company should develop a strategy for minimizing the potential impact of retirements by various HR tools, including succession planning and updating recruitment and training policies.  Some potential avenues to explore include:

• Create consulting agreements with senior managers that would provide access to their knowledge and experience after retirement
• Create policies and procedures allowing for part-time return to work after retirement
• Update existing training policies and procedures to allow for accelerated training opportunities for key positions

Keep in mind that employment and employee benefits issues could arise as a result of the succession planning.  For example, re-hiring retirees can have an impact on benefits eligibility.  Consulting with your benefits attorney during the risk evaluation and strategy development can identify and correct employment and benefit issues before the employer implements policies and procedures that can create problems in these other areas.

• Employment , General
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Sheila Aiken February 27th, 2008

With the difficulties employers are having with attraction of qualified workers, more and more employers are solving their problems by re-hiring former employees (called “boomerang employees”).  These employees encompass the ex-employee who had previously retired and is now looking to return to the work force, as well as the ex-employee who left employment and is now regretting that decision.  Employers who re-hire these boomerang employees can experience numerous advantages, including a decreased learning curve and a greater assurance of corporate-culture fit. 

However, this trend is not without its pitfalls, and employers would do well to consider how these employees will fall within the company’s employee benefits plans.  Several laws (such as ERISA, the Internal Revenue Code, the Pension Protection Act, and 409A) can impact employer-sponsored employee benefit plans, and how employers must treat the benefit plans applicable to the re-hired employees.  For instance, employers should take into account:

• Section 125 Cafeteria plans have regulations applicable to separation from service and a subsequent return to service
• ERISA has provisions governing vesting and forfeiture that have specific guidelines on how to treat “breaks-in-service” for benefit calculation and re-entry dates
• The Pension Protection Act made changes to vesting schedules and created the ability for employers to begin to pay pension plan benefits at the earlier of age 62 or the plan’s normal retirement age
• Section 409A applies to non-qualified deferred compensation plans and contains regulations about payment of deferred compensation due to a separation from service and re-hiring the employee

There is a large amount of case law which deals with re-hired employees and their rights to access various employee benefits plans.  The over-riding theme behind the case law is to ensure that all similarly situated employees are being treated in the same manner under the plan.

Boomerang employees can be of great benefit to employers in many ways.  The potential issues surrounding their right to access benefits under employer-sponsored plans shouldn’t be used as a reason not to retain these workers.  Employers simply need to ensure that all potential benefits issues are addressed before the situation arises.  Having all the benefits plans reviewed by benefits counsel in light of possible boomerang employees can provide a list of dos and don’ts to guide the employer when the situation arises.

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Admin January 30th, 2008

We are pleased to announce the beginnings of what we hope to be a regular “read” for all Benefits Professionals on the internet. If you ever have any questions on the services we can provide you, please make sure to check out out website aikenandaiken.com. We would also like to thank all the good folks at SoloSez for their encouragement and support.

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