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| TAX MANAGEMENT COMPENSATION PLANNING JOURNAL Beverly Kanawi v. Bechtel Page 5 ...the court’s reasoning in Kanawi v. Bechtel is fairly typical. In Bechtel, a case taking place in the Northern District of California in the Ninth Circuit, the company sponsored two §401(k) plans, the combined assets of which were held in a master trust with State Street Bank (not named as a defendant). The plaintiffs alleged that fiduciaries breached their ERISA duties by ‘‘disguising the fees actually incurred by plan participants by causing such fees to be paid by the master trust, rather than the plan itself,’’ by failing to disclose the details of revenue sharing arrangements, and by charging inappropriate fees to the trust, in this case, ‘‘settlor’’ fees (fees related to actions affecting a plan’s design, rather than its administration). The defendants moved to dismiss, arguing ... that Bechtel itself was not a fiduciary... Bechtel argued that the complaint failed to allege a violation of specific ERISA or regulatory sections regarding disclosure of fees and expenses and that this failure was fatal to the claim... North County Times Beverly Kanawi has a suit in the Northern District Court. Remember her last employment was GPA instead of suing GPA she is suing a third party for a 401K problem. The attorneys for the defendants are: MORGAN, LEWIS & BOCKIUS LLP D. WARD KALLSTROM, NICOLE A. DILLER, DONALD P. SULLIVAN, Beverly Kanawi’s lawsuit Claims related to 401K suit Declaration of Patricia Quan More |
| mauralarkins.com |
SAN DIEGO EDUCATION REPORT
| Court Order for Kanawi The court refused to dismiss her case The Court is unable to conclude, however, that Plaintiffs could not prove any set of facts demonstrating that Bechtel enjoys some sort of discretionary authority or control over the administration or management of the Plan. Indeed, the allegations set forth in the complaint give rise to at least a reasonable inference that Bechtel did indeed act as a fiduciary by exercising its discretion in choosing how the Plan should be administered. See, e.g., id. ¶¶ 75-77 (alleging that “Bechtel or the Committee” made certain statements to plan participants about the nature of certain fees and expenses, that “Bechtel and the Committee” had changed the way such fees and expenses were incurred, and that a Bechtel employee misled plan participants into believing that there had been reductions in fees and expenses). The facts of Bechtel’s actual relationship to the Plan have not yet been developed in this case, and the Court is therefore unable to conclude that Plaintiffs would be unable to prove any set of facts establishing a fiduciary duty on the part of Bechtel. For this reason, dismissal of Bechtel is unwarranted, at least at this stage of the proceedings. |
| Leslie Devaney Senior Trial Counsel 1992-1996 AIG (American International Group) |
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| Garamendi sees insurance moves as anti-consumer By STEVE LAWRENCE, Associated Press January 19, 2009 SACRAMENTO — For the second time in two months, Insurance Commissioner Steve Poizner is being accused by his predecessor, Lt. Gov. John Garamendi, of proposing regulation changes that will weaken consumer protections. The latest dispute involves Poizner's proposal to roll back regulations that prohibit insurers from reducing group disability insurance benefits to account for pensions, workers' compensation payments or wages that the policyholder might receive. Poizner, a Republican who succeeded Garamendi as California's chief insurance regulator in January 2007, said the regulations are unnecessary. He maintains the insurance commissioner already has the authority under state and federal law to ban insurers from including so- called offset clauses that reduce benefits in disability policies. "Given that it's already illegal, it strikes me that we should be striving to simplify the government code and not layer additional regulations to make something even more illegal," said Darrel Ng, a Poizner spokesman. "This is the essence of cutting red tape." But Garamendi and some attorneys who deal with disability insurance issues say the state would be treading on shaky legal ground if it attempted to control the offsets without the regulations. "If the regulations go away, insurance companies will go back to doing what they've been doing for the last 30 years," said Glenn Kantor, a Northridge attorney who deals with disability issues. "They'll do what they want." Garamendi, a Democrat, said removing the regulations would be a "disaster for policyholders." "No way will he be able to protect them without those regulations in place," said Garamendi, who, like Poizner, is considering a run for governor next year. "There is no basis, no foundation for protection." Disability insurance pays benefits when the policyholder is unable to work because of an illness or injury. Policies can provide benefits if a disability prevents someone from performing a particular job or working in a certain profession, or from doing a range of jobs for which the policyholder is suited by education or experience. The coverage is offered as a benefit by many employers and typically replaces half or more of a worker's income. More than 4.5 million Californians have disability insurance, either through group policies or individually purchased coverage. Garamendi said he proposed the regulations because of "some very severe problems" with group disability insurance policies. "Some of the biggest scandals in the last decade took place in the disability sector: denial of claims, denial of coverage and using offsets...," he said. "All sorts of things were going on to deny benefits to policyholders, so I wrote regulations to deal with that. "Poizner is, apparently at the behest of the insurance industry, going to remove those insurance protections." Garamendi said he tried to clamp down on offset clauses during his second term as commissioner without regulations but was sued by insurers. They argued he did not have the authority to act without rules spelling out what was banned. "Now Poizner is going back to where we started, which was ad hoc enforcement of existing laws...," Garamendi said. "He's positioning the department to be unable to enforce the existing laws because there are no regulations." The regulations, drafted by Garamendi and implemented after he left the commissioner's office, cover group disability policies and prohibit insurers from cutting benefits to account for the following factors: – The estimated amount of pension payments the policyholder would receive if he or she retired. – Temporary disability benefits that the policyholder could receive from the worker's compensation system but that had not been awarded. – Permanent disability benefits from the worker's compensation system, which are supposed to help make up for lost earning potential created by job-related illnesses or injuries. – Estimated earnings received by a policyholder while disabled unless there was a "good faith reasonable basis" for the calculation. Jim Keenley, an Oakland attorney, said eliminating the regulations could put additional burdens on retirement systems by encouraging disabled workers to tap pension benefits earlier than they normally would to make up for disability insurance reductions. Scrapping the regulations also could lead to the "gaming" of the worker's compensation system to try disguise those disability benefits, he added. "The more insurers are allowed to offset disability benefits by various things, the more illusionary disability insurance is," he said... The Association of California Life and Health Insurance Companies and the American Council of Life Insurers, whose members write the majority of disability insurance policies in California and the United States, support scrapping the regulations... |
| AIG spent US$440,000 on spa, resort after bailout, lawmakers say Financial Post Lorraine Woellert and Erik Holm, Bloomberg October 07, 2008 American International Group Inc. spent US$440,000 on a conference at a California resort less than a week after an US$85-billion government takeover, lawmakers said. The bill from the St. Regis resort in Monarch Beach included US$23,380 for spa services, according to Representative Henry Waxman, chairman of the House Committee on Oversight and Government Reform. Mr. Waxman led questioning Tuesday of former AIG chief executives Martin Sullivan and Robert Willumstad as Congress probes events that led to federal intervention. "Average Americans are suffering economically," Mr. Waxman, a California Democrat, said in his opening statement. "Yet less than one week after the taxpayers rescued AIG, company executives could be found wining and dining at one of the most exclusive resorts in the nation." The St. Regis, located on a bluff overlooking the Pacific Ocean midway between Los Angeles and San Diego, is "devoted to the pursuit of service and elegance," according to its Web site... Invoices obtained by Mr. Waxman's committee showed that AIG spent $139,375.30 on rooms, $147,301.71 for "banquets," and $1,488 at the resort's Vogue Salon, which offers manicures, pedicures and hairstyling. The group spent $6,939.09 on golf, $2,949 for gratuities, $5,016.32 at the StoneHill Tavern and $3,064.71 for in-room dining and the lobby lounge. The group booked the resort's 3,100-square-foot Presidential Suite for US$1,600 a night for five nights... "Have you heard of anything more outrageous?" said Representative Elijah Cummings, a Maryland Democrat, who plans to seek an investigation of the spending. "They were getting their manicures, their facials, pedicures, massages while the American people were footing the bill." The group occupied more than 60 rooms. Receipts provided by Mr. Waxman were dated Sept. 22 through Sept. 30. AIG was bailed out on Sept. 16. |
| In the end, the court ruled against Beverly Kanawi: Prudent Procedures Saves 401(k) Plan Fiduciaries From Liability Recently, the United States District Court for the Northern District of California held that the plan’s fiduciaries were not liable for excessive 401(k) plan fees because they had documented prudent procedures for their decisions. Beverly Kanawi v. Bechtel Corp, (No. C06-05566 CRB, 10/10/2008). Bechtel Corp. maintained a 401(k) plan which delegated authority for administration to a committee. For over a ten year period, the Company paid the plan’s investment advisor fees. For the period, November 2003 – February 2004, the fees were paid from plan assets. In September 2006, the plan participants brought a suit under ERISA alleging that the Company, the plan committee, and the investment advisor breached their fiduciary duties by causing the plan participants to incur unnecessary and excessive fees. In reviewing the unnecessary and excessive fee issue, the Court found that the process used by the fiduciaries in reaching their decisions was determinative. The Court concluded that the plan participants had not shown that the fees were imprudent or unreasonable. More importantly, in finding that the fiduciaries were not liable, the Court stressed that the plan committee met regularly to discuss the plan’s options and also relied on the advice of outside investment professionals. By seeking outside help and meeting regularly, the plan fiduciaries were found to have acted prudently. ...Here again, a court found that regular meetings, seeking outside assistance, and documenting actions can protect a plan fiduciary from fiduciary liability under ERISA. |
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| Guajome Park Academy Beverly Kanawi case re excessive fiduciary fees |