5

EMPLOYMENT
PRSRT STD
U.S. POSTAGE
PAID
Pension Act Settles Cash Balance Plan Controversies and Opens Up Substantial
& BENEFITS
Bellmawr, NJ
Permit No. 64
New Planning Opportunities
(CONTINUED FROM PAGE 3)

LAW REPORT
1810 Chapel Avenue West Return Service Requested
4. Combined Plan Design Examples In this design, the owners receive allocations of Cherry Hill, NJ 08002-4609
85 percent of the total employer contributions and,
Example 1: Traditional DB with Safe Harbor 401(k) in addition, can each defer up to $20,500 (for
Under prior law, the maximum deduction for contributions to a DC and DB 2007, $15,500 plus $5,000 catch-up contribution)
A Newsletter from the Employee Benefits and Employment and Labor Practice Groups FALL 2007
plan maintained by the same employer could not exceed the greater of 25 percent of their pay, all on a deductible basis. Since the
of compensation or the cost to fund the DB Plan. Therefore, if the DB Plan’s profit sharing contribution (which includes three
funding cost exceeded 25 percent of compensation, a DC Plan contribution
would not be deductible. With the new PPA rules, even if the DB Plan
percent for all participants) is cross-tested with the
cash balance plan, different percentages are Congress Pushing Overhaul of Union Organizing Law
contribution equals or exceeds 25 percent of compensation, contributions can still allocated to the owners, the non-owner highly
be made to a DC Plan within certain limits. For example, an employer can adopt compensated employee and the non-highly Is Your Company Prepared?
a “safe harbor” 401(k) plan, which permits highly compensated employees to compensated employees. Employers must be aware
BY KENNETH R. GILBERG
defer up to the annual limit regardless of the rate of deferral of non-highly that this type of design requires sophisticated
compensated employees by making a contribution of three percent of pay for all annual analysis and, for smaller employers in
Much has been written in the news of late Union Organizing Activities
non-highly compensated employees. As long as the non-elective (“employer” particular, the required contributions may vary from
about the declining membership of labor
contributions) do not exceed six percent of total participant compensation, these year-to-year based on changes in employee Unions have earmarked millions of dollars for union organizing
unions in the United States.
additional employer contributions as well as all elective deferrals and the DB Plan demographics. However, for business owners who and are recruiting passionate individuals as organizers. New
funding, will be fully deductible. Putting this all together, a combined design may want to fund a substantial retirement benefit, Unions and other pro labor organizations methods and ideas to organize workers, such as the internet and
yield the following contributions: perhaps to make up for earlier years when the had hoped that the EMPLOYEE FREE advertising, are being utilized in conjunction with political alliances.
business could not afford to make contributions, this CHOICE ACT (“EFCA”), which had passed Unions recognize their survival is at stake and they are committed
combined plan design may be extremely attractive. the U.S. House of Representatives with a 241 to return to power.
Employee Age Salary DB Cost Deferral PS
to 185 majority, would also be passed by the
Contrib.*
Conclusion Senate. It missed passage by only nine votes. Senator Edward M. How Can Companies Prepare Now?
Owner 52 $220,000 $133,518 $20,500 $14,250 Kennedy (D-Mass) had originally proposed such legislation in 2003
By providing clear Hybrid DB plan guidelines, For many individuals and employers support for or against a
Assistant 25 $35,000 $5,334 N/A $1,050 and again in 2005. While the EFCA previously did not have much
simplifying the funding of Traditional DB plans, and union is a personal choice. Currently, the Senators from
Total $255,000 $138,852 $20,500+ $15,300 momentum or attention, it does now. Supporters of the EFCA are
providing enhanced deduction limits, the PPA Pennsylvania, New Jersey, and Delaware all support the EFCA.
expecting to gain a majority vote the next time it is introduced and
* Profit sharing contribution includes three percent safe harbor contribution creates significant retirement planning opportunities. Companies should consider talking to a congressional
Of course, careful analysis and planning is essential
EMPLOYEE BENEFITS AND EMPLOYMENT AND LABOR PRACTICE GROUPS are also attempting to gain the necessary votes to override an
representative about their position on the EFCA and lending
For additional information, please contact the lawyers listed below, anticipated veto from President Bush.
and it is not a “one size fits all” solution. However, support to the various community and trade groups that advocate
Prior to 2006, the sponsor would have been able to deduct only the DB cost. By or the lawyer in the firm with whom you are regularly in contact.
the combined plan designs illustrated above may the company’s point of view.
using the safe harbor 401(k), the owner can defer $20,500 (for 2007, $15,500 plus
afford the greatest retirement benefit at the most
Employee Free Choice Act
the $5,000 “catch-up” contribution) and make an employer contribution of an Jeffrey A. Cohen Kenneth R. Gilberg J. Philip Kirchner
manageable total cost ever available. N jeff.cohen@flastergreenberg.com kenneth.gilberg@flastergreenberg.com phil.kirchner@flastergreenberg.com Unions have already stepped up their efforts to increase union Pro-Active Labor Relations
additional $14,250 by contributing only $1,050 for the Assistant. The assistant can (856) 382-2240 (856) 661-2268 membership and if the EFCA had passed, it would have made union
(215) 279-9915
defer as much of her salary as she wishes (up to the annual limit). The amount the The author is grateful to Stephen H. Rosen & Regardless of whether legislation makes it easier for a union to
organizing much easier. Under the EFCA, instead of a National
employee defers is irrelevant to discrimination testing and it is not an employer cost. Associates, Inc., for providing the illustrations for Allen P. Fineberg Kenneth S. Goodkind Vincent J. Nolan III organize employees, it is evident that unions are aggressively trying
Labor Relations Board (NLRB) supervised secret ballot election,
this article. allen.fineberg@flastergreenberg.com ken.goodkind@flastergreenberg.com vincent.nolan@flastergreenberg.com new methods and ideas to organize workers. Employers who desire
Example 2: Cash Balance With Safe Harbor 401(k) (856) 661-2264 (856) 661-2273 (856) 661-2275 employers would have to recognize a union when a majority of the
to remain union free should not wait and hope the EFCA does not
In this example, a cash-balance Hybrid DB is used instead of the Traditional DB in company’s employees in a representative unit signed union
Richard J. Flaster Lizanne V. Hackett Elliot D. Raff pass the next time.
Example 1: rick.flaster@flastergreenberg.com elliot.raff@flastergreenberg.com
authorization cards. If a union was certified through a card check by
liz.hackett@flastergreenberg.com What successful strategies can a company utilize to defend itself
(856) 661-2260 (856) 382-2215 (856) 382-2241 the NLRB, then the employer and the union would have to begin
bargaining within 10 days. If a contract was not reached in 90 days, against unions’ new organizing efforts? In addition to expressing
Employee Age Salary Cash Deferral PS. Marc R. Garber * Michael D. Homans Paul J. Russoniello either party could request assistance from the Federal Mediation the company’s position to Congressional representatives,
marc.garber@flastergreenberg.com michael.homans@flastergreenberg.com paul.russoniello@flastergreenberg.com
Balance Contrib. and Conciliation Service. If a contract was not reached within 30 implementing a pro-active/union avoidance labor relations strategy
(856) 382-2237 (856) 661-2271 (856) 661-2270
Cost days after that, the matter could be referred to binding arbitration will enhance the company’s quality and productivity and help keep
Owner 1 59 $220,000 $100,000 $20,500 $14,283 and the results of the binding arbitration would be a two-year its employees less receptive to a union’s organizing efforts. The
* Of Counsel collective bargaining agreement. In effect, the EFCA would components of a pro-active labor strategy include:
Owner 2 54 $220,000 $100,000 $20,500 $14,283
virtually end 70 years of NLRB supervised secret ballot elections • employee recruitment and selection
Non- 56 $120,000 $3,000 $6,600 $6,672 and the right to bargain to impasse, and subject an employer to
Owner • company culture orientation
PRACTICE AREAS terms imposed by an arbitration panel. To discourage anti-union
HCE conduct, the EFCA imposes significant remedies for violations of • fair and competitive wages and benefits
Alternative Dispute Resolution; Business & Corporate Services; Closely-Held Businesses; Construction Law; E-Commerce & Internet; Emerging Business;
8 NHCEs Various $372,470 $9,312 N/A $20,710 the National Labor Relations Act. • best practices personnel policies and procedures
Employee Benefits and Executive Compensation; Environmental Law & Litigation; Estate Planning & Administration; Family Law & Adoption;
Total $932,470 $212,312 $47,600+ $55,948 Financial Restructuring, Bankruptcy, and Risk Management; Health Care; Intellectual Property; Labor & Employment; Litigation; Real Estate & Land • progressive, corrective discipline
Use; Redevelopment; Securities; Taxation.
(continued on page 4)

www.flastergreenberg.com Copyright © 2007 Employment & Benefits Law Report • Flaster/Greenberg P.C.
 2 3 4

Redefining “Normal Retirement Age” for Pension Plans Pension Act Settles Cash Balance Plan Controversies Congress Pushing Overhaul of Union Organizing Law
(CONTINUED FROM PAGE 1)
BY MARC R. GARBER and Opens Up Substantial New Planning Opportunities • education and training supervision feedback sessions, speak-up meetings, employee action
Employer sponsored pension plans and statistical information on this issue, the final regulations provide BY ELLIOT D. RAFF committees, on-line quarterly management/employee meetings,
• effective two-way communications
(defined benefit and money purchase) a safe harbor Normal Retirement Age of at least 62. The final etc. The ways to communicate are endless and it is important to
generally provide a lifetime stream of income regulations also provide that if the plan’s Normal Retirement Age is Over the last 20 years, the number of contribution and interest credits is the participant’s “cash-balance” • employee involvement and identification
implement a comprehensive program because communication
to participants who separate from service lower than age 55, it will be assumed to be unreasonable unless the employers establishing new defined benefit and benefits may be paid in either an annuity or a lump-sum. • audit system/checks and balances styles, company culture, and the intended audience vary. Whether
after attaining the plan’s Normal Retirement employees are in an industry justifying such an early age (such as pension plans has declined significantly and Behind the scenes, a cash-balance plan is a defined benefit plan: a company institutes one activity or 20, sound, trustworthy, and
This article will focus on the communication and education
Age (typically 65). If permitted by the plan, pilots). A Normal Retirement Age between 55 and 62 will be many existing defined benefit pension plans annual contributions, actuarial certification and Pension Benefit timely communications programs will help employees feel good
components of a pro-active labor relations strategy.
reduced benefits are payable to participants deemed to be compliant if the facts and circumstances demonstrate have been terminated. The early part of this Guaranty Corporation (PBGC) premiums are required and the about themselves and their jobs, making them proud to be part of
who separate from service after attaining the that the choice of such age is a good faith determination made by decade presented a “perfect storm” for employer bears the investment risk. Communication is Critical a successful endeavor.
plan’s stated Early Retirement Age (typically defined benefit plans—historically low
62, or a combination of age and years of service). However, the interest rates and a slump in the stock Example: A cash balance plan provides a contribution credit of Communication is a key component of any pro-active labor
38.636 percent of pay to owners and 16 percent of pay for non- relations strategy and it still ranks as one of the best methods to stay a
Education and Training
dynamics of today’s workforce together with significant increases in market—resulting in huge funding shortfalls.
post-retirement life expectancy have given employees an incentive These circumstances appeared to be the death knell of defined owners. The employer has three employees, two of whom are also union-organizing drive. Effective, credible, and timely two-way To maximize the effectiveness of such programs, those who
to remain employed after reaching age 65. Many of these employees benefit plans. There was, however, a counter-trend, the growth of owners: communications help keep employees satisfied, develop trust, and will implement the programs—usually the first line supervisors—
would like to scale back their hours (and pay), but to do so they may “hybrid” defined benefit plans. Unfortunately, years of legal strengthen a commitment to organizational goals and philosophies. must have good communication and human resource management
need to commence their pension benefits to have sufficient income challenges, legislative and regulatory investigations, and media Employee Age Compensation Contribution With effective communication systems, employees’ issues, problems, skills. Supervisory training can provide the communication,
to support their lifestyles. Some plan sponsors responded to these attention made converting existing plans into hybrid plans much Owner A 51 $220,000 $85,000 concerns and complaints are heard by the persons with the power to motivation and leadership skills a supervisor needs to develop an
concerns by allowing in-service distributions to participants who more risky than many employers would tolerate. Now, however, the address and/or resolve them. Perhaps more important, effective atmosphere in which employees work to improve productivity and
Owner B 58 $220,000 $85,000
have reached the plan’s Normal Retirement Age. While IRS rules enactment of the Pension Protection Act of 2006 (the “PPA”) communication keeps employees abreast of what is going on in their quality and find union representation unnecessary. Educating
Employee C 31 $25,000 $4,000 company as a whole. When employees feel informed, especially about supervisors to recognize the early warning signs of union activity
permit this practice, the IRS rules never stated how low Normal establishes guidelines for hybrid defined benefit plans and creates
Retirement Age could be, creating a risk of plan disqualification by some planning opportunities for employers—particularly smaller topics that are important to them and can affect them, they tend to and understand management’s legal rights also are critical
including this design feature. The need for clarification has resulted employers whose owners want to create the greatest possible
2. Cash Balance Controversy identify more with the company. The “us vs. them” dichotomy is components of a company’s effective labor relations strategy.
in new legislation as well as new regulations. qualified plan retirement benefit on a fully deductible basis. Cash balance plan controversies arose chiefly from conversions eliminated, and employees try to work with their supervisors and
In November 2004, the Internal Revenue Service initially
of Traditional DBs into cash-balance Hybrid DBs. It was alleged management as a team, which generally results in increased Building Trust and Credibility
responded by issuing proposed regulations that permit (but do not 1. Traditional and Hybrid Defined that conversions created plans that violated age discrimination laws productivity and quality in a union-free environment. There is no guarantee that the company that emphasizes
Benefit Plans and pension rules that prohibit the reduction of accrued benefits. As communication will not be targeted for a union organizing
require) in-service distributions from a pension plan provided a
participant attains the plan’s Normal Retirement Age. the employer of the typical retirement age for the industry of the these disputes played out in courts around the country, the IRS put Communication Programs campaign. However, the use of surveys and other communications
covered workforce. The “traditional” defined benefit plan (“Traditional DB”) a moratorium on approving cash-balance plans. systems will give an employer the edge of knowing what issues
Because the 2004 proposed regulations did not address the What programs can any company implement to build better
The final regulations permit existing pension plans to be provides a retirement benefit in the form of an annuity—monthly Enactment of the PPA provides specific guidelines for Hybrid DB communications with their employees? In addition to the exist and how best to address them, as well as the capacity to better
earliest age at which Normal Retirement
amended to conform to these new rules. Use of the safe harbor payments for the life of the participant and his spouse. Although plan designs, which (if followed correctly) avoid the legal company’s website, bulletin boards, newsletters, etc., there is, of assess its vulnerability to a union organizing drive. Moreover,
may be set, the IRS recently issued
Normal Retirement Age may actually require an increase in the permitted, lump-sum distributions from a Traditional DB are rare. controversies of the past both in establishing a new cash balance plan course, e-mail. While e-mail is a fast and efficient way to reach through effective communications and management education, an
final regulations. [These final
retirement age specified in the plan. Although such an amendment The Traditional DB benefit is based on a formula that takes into or converting a Traditional DB into a cash balance plan. In addition, employees, it is difficult to communicate “emotion” in an e-mail employer can build the trust and credibility with its workforce that
regulations were generally effective
would normally be prohibited by the so-called anti-cutback rules, account compensation and years of service. Benefits are expressed as by enhancing the deduction rules, the PPA makes combined defined and the reader may not interpret the message in the way it was may make its employees far less receptive to a union campaign.
May 22, 2007, although there are
the final regulations create an exception for this purpose. To qualify, an annuity payable at normal retirement age, and each year the contribution/defined benefit designs more viable. As illustrated intended. Other communication techniques that are more Conversely, complacent employers should not be surprised if their
delayed effective dates for
the plan amendment must be adopted after May 22, 2007 and on participant receives a statement showing the portion of that benefit below, such combined plan designs can provide very substantial personal and two-way include focused employee surveys and employees give union organizers a warm welcome. N
governmental plans and for plans
or before either the date for filing the employer’s income tax return, the participant has earned (accrued) to date. Annual contributions retirement benefits on a fully deductible basis.
maintained pursuant to
including extensions, for the tax year beginning in 2007 or, under are mandatory, require complex actuarial analysis, and can vary
collective bargaining
agreements.] Under the certain circumstances, January 1, 2009. based on investment performance, interest rates, inflation, and
demographic changes in the workforce.
3. Planning Strategies: Hybrid Plans and
Cross-Testing
Attorney In The News This report is for general use and
new final regulations, The 2004 regulations also allow for in-service distributions to
Kenneth R. Gilberg, a shareholder at
the earliest age at which participants prior to attaining normal retirement age under a bona In the 1980’s, a new type of defined benefit plan emerged, All qualified retirement plans must pass annual non- Flaster/Greenberg in its Philadelphia information, and the content should not
a pension plan sponsor fide “phased retirement” program. The Pension Protection Act of referred to as a hybrid defined benefit plan (“Hybrid DB”), which discrimination tests. “Cross-testing” allows a defined contribution office, has recently been named to the
may set a plan’s Normal 2006 added a new section to the Internal Revenue Code (Section sought to combine the best features of a Traditional DB (such as a and a defined benefit plan sponsored by the same employer to be list of Top One Hundred Labor be interpreted as rendering legal advice
Retirement Age “is an 401(a)(36)) that permits “phased retirement”, allowing a pension definite retirement income stream) with the most attractive features tested together, comparing the DC Plan contributions to the DB Attorneys in the United States for 2007,
age that is not earlier than plan participant who has reached age 62 to continue employment of a defined contribution plan (“DC Plan”) (account balances and Plan accrual. For example, an employer could sponsor a DC Plan as compiled by Labor Relations on any matter. Specific situations may
the earliest age that is with reduced hours and pay and commence receiving monthly the option to receive a lump-sum distribution). The Hybrid DB also that excludes all highly compensated employees (e.g., the owners) Institute, Inc.
reasonably representative “phased retirement” pension payments. While such a program sought to make annual contributions (which remain mandatory) and a DB Plan for all employees. Cross-testing these plans can yield A recipient of this honor in 2006 as raise additional or different issues and
of the typical retirement could allow greater flexibility than the final regulation, until the IRS more predictable. Perhaps the most common form is known as a very substantial DB Plan contributions for older highly well, Gilberg is a member of the firm’s
age for the industry in issues regulations interpreting this new Code section, plan sponsors compensated employees with manageable contributions for non- Labor and Employment Practice Group.
“cash balance plan”. From the perspective of a participant, a cash-
He represents employers in a broad range of employment,
such information should be coordinated
which the covered may be well advised to take advantage of the greater certainty balance plan looks much like a DC Plan: a participant receives an highly compensated employees in the DC and DB Plans.
workforce is employed.” afforded by the final regulations instead. N labor, and human resources issues and assists companies in
annual contribution “credit” (typically expressed as a percentage of
negotiating favorable contracts and sustain effective with professional legal advice.
Since most companies do pay), and an annual interest “credit” based on accumulated
not have demographic relationships with union and non-union employees. N
contribution credits and a guaranteed interest rate. The sum of (continued on page 5)

Employment & Benefits Law Report • Flaster/Greenberg P.C. www.flastergreenberg.com Employment & Benefits Law Report • Flaster/Greenberg P.C.
 2 3 4

Redefining “Normal Retirement Age” for Pension Plans Pension Act Settles Cash Balance Plan Controversies Congress Pushing Overhaul of Union Organizing Law
(CONTINUED FROM PAGE 1)
BY MARC R. GARBER and Opens Up Substantial New Planning Opportunities • education and training supervision feedback sessions, speak-up meetings, employee action
Employer sponsored pension plans and statistical information on this issue, the final regulations provide BY ELLIOT D. RAFF committees, on-line quarterly management/employee meetings,
• effective two-way communications
(defined benefit and money purchase) a safe harbor Normal Retirement Age of at least 62. The final etc. The ways to communicate are endless and it is important to
generally provide a lifetime stream of income regulations also provide that if the plan’s Normal Retirement Age is Over the last 20 years, the number of contribution and interest credits is the participant’s “cash-balance” • employee involvement and identification
implement a comprehensive program because communication
to participants who separate from service lower than age 55, it will be assumed to be unreasonable unless the employers establishing new defined benefit and benefits may be paid in either an annuity or a lump-sum. • audit system/checks and balances styles, company culture, and the intended audience vary. Whether
after attaining the plan’s Normal Retirement employees are in an industry justifying such an early age (such as pension plans has declined significantly and Behind the scenes, a cash-balance plan is a defined benefit plan: a company institutes one activity or 20, sound, trustworthy, and
This article will focus on the communication and education
Age (typically 65). If permitted by the plan, pilots). A Normal Retirement Age between 55 and 62 will be many existing defined benefit pension plans annual contributions, actuarial certification and Pension Benefit timely communications programs will help employees feel good
components of a pro-active labor relations strategy.
reduced benefits are payable to participants deemed to be compliant if the facts and circumstances demonstrate have been terminated. The early part of this Guaranty Corporation (PBGC) premiums are required and the about themselves and their jobs, making them proud to be part of
who separate from service after attaining the that the choice of such age is a good faith determination made by decade presented a “perfect storm” for employer bears the investment risk. Communication is Critical a successful endeavor.
plan’s stated Early Retirement Age (typically defined benefit plans—historically low
62, or a combination of age and years of service). However, the interest rates and a slump in the stock Example: A cash balance plan provides a contribution credit of Communication is a key component of any pro-active labor
38.636 percent of pay to owners and 16 percent of pay for non- relations strategy and it still ranks as one of the best methods to stay a
Education and Training
dynamics of today’s workforce together with significant increases in market—resulting in huge funding shortfalls.
post-retirement life expectancy have given employees an incentive These circumstances appeared to be the death knell of defined owners. The employer has three employees, two of whom are also union-organizing drive. Effective, credible, and timely two-way To maximize the effectiveness of such programs, those who
to remain employed after reaching age 65. Many of these employees benefit plans. There was, however, a counter-trend, the growth of owners: communications help keep employees satisfied, develop trust, and will implement the programs—usually the first line supervisors—
would like to scale back their hours (and pay), but to do so they may “hybrid” defined benefit plans. Unfortunately, years of legal strengthen a commitment to organizational goals and philosophies. must have good communication and human resource management
need to commence their pension benefits to have sufficient income challenges, legislative and regulatory investigations, and media Employee Age Compensation Contribution With effective communication systems, employees’ issues, problems, skills. Supervisory training can provide the communication,
to support their lifestyles. Some plan sponsors responded to these attention made converting existing plans into hybrid plans much Owner A 51 $220,000 $85,000 concerns and complaints are heard by the persons with the power to motivation and leadership skills a supervisor needs to develop an
concerns by allowing in-service distributions to participants who more risky than many employers would tolerate. Now, however, the address and/or resolve them. Perhaps more important, effective atmosphere in which employees work to improve productivity and
Owner B 58 $220,000 $85,000
have reached the plan’s Normal Retirement Age. While IRS rules enactment of the Pension Protection Act of 2006 (the “PPA”) communication keeps employees abreast of what is going on in their quality and find union representation unnecessary. Educating
Employee C 31 $25,000 $4,000 company as a whole. When employees feel informed, especially about supervisors to recognize the early warning signs of union activity
permit this practice, the IRS rules never stated how low Normal establishes guidelines for hybrid defined benefit plans and creates
Retirement Age could be, creating a risk of plan disqualification by some planning opportunities for employers—particularly smaller topics that are important to them and can affect them, they tend to and understand management’s legal rights also are critical
including this design feature. The need for clarification has resulted employers whose owners want to create the greatest possible
2. Cash Balance Controversy identify more with the company. The “us vs. them” dichotomy is components of a company’s effective labor relations strategy.
in new legislation as well as new regulations. qualified plan retirement benefit on a fully deductible basis. Cash balance plan controversies arose chiefly from conversions eliminated, and employees try to work with their supervisors and
In November 2004, the Internal Revenue Service initially
of Traditional DBs into cash-balance Hybrid DBs. It was alleged management as a team, which generally results in increased Building Trust and Credibility
responded by issuing proposed regulations that permit (but do not 1. Traditional and Hybrid Defined that conversions created plans that violated age discrimination laws productivity and quality in a union-free environment. There is no guarantee that the company that emphasizes
Benefit Plans and pension rules that prohibit the reduction of accrued benefits. As communication will not be targeted for a union organizing
require) in-service distributions from a pension plan provided a
participant attains the plan’s Normal Retirement Age. the employer of the typical retirement age for the industry of the these disputes played out in courts around the country, the IRS put Communication Programs campaign. However, the use of surveys and other communications
covered workforce. The “traditional” defined benefit plan (“Traditional DB”) a moratorium on approving cash-balance plans. systems will give an employer the edge of knowing what issues
Because the 2004 proposed regulations did not address the What programs can any company implement to build better
The final regulations permit existing pension plans to be provides a retirement benefit in the form of an annuity—monthly Enactment of the PPA provides specific guidelines for Hybrid DB communications with their employees? In addition to the exist and how best to address them, as well as the capacity to better
earliest age at which Normal Retirement
amended to conform to these new rules. Use of the safe harbor payments for the life of the participant and his spouse. Although plan designs, which (if followed correctly) avoid the legal company’s website, bulletin boards, newsletters, etc., there is, of assess its vulnerability to a union organizing drive. Moreover,
may be set, the IRS recently issued
Normal Retirement Age may actually require an increase in the permitted, lump-sum distributions from a Traditional DB are rare. controversies of the past both in establishing a new cash balance plan course, e-mail. While e-mail is a fast and efficient way to reach through effective communications and management education, an
final regulations. [These final
retirement age specified in the plan. Although such an amendment The Traditional DB benefit is based on a formula that takes into or converting a Traditional DB into a cash balance plan. In addition, employees, it is difficult to communicate “emotion” in an e-mail employer can build the trust and credibility with its workforce that
regulations were generally effective
would normally be prohibited by the so-called anti-cutback rules, account compensation and years of service. Benefits are expressed as by enhancing the deduction rules, the PPA makes combined defined and the reader may not interpret the message in the way it was may make its employees far less receptive to a union campaign.
May 22, 2007, although there are
the final regulations create an exception for this purpose. To qualify, an annuity payable at normal retirement age, and each year the contribution/defined benefit designs more viable. As illustrated intended. Other communication techniques that are more Conversely, complacent employers should not be surprised if their
delayed effective dates for
the plan amendment must be adopted after May 22, 2007 and on participant receives a statement showing the portion of that benefit below, such combined plan designs can provide very substantial personal and two-way include focused employee surveys and employees give union organizers a warm welcome. N
governmental plans and for plans
or before either the date for filing the employer’s income tax return, the participant has earned (accrued) to date. Annual contributions retirement benefits on a fully deductible basis.
maintained pursuant to
including extensions, for the tax year beginning in 2007 or, under are mandatory, require complex actuarial analysis, and can vary
collective bargaining
agreements.] Under the certain circumstances, January 1, 2009. based on investment performance, interest rates, inflation, and
demographic changes in the workforce.
3. Planning Strategies: Hybrid Plans and
Cross-Testing
Attorney In The News This report is for general use and
new final regulations, The 2004 regulations also allow for in-service distributions to
Kenneth R. Gilberg, a shareholder at
the earliest age at which participants prior to attaining normal retirement age under a bona In the 1980’s, a new type of defined benefit plan emerged, All qualified retirement plans must pass annual non- Flaster/Greenberg in its Philadelphia information, and the content should not
a pension plan sponsor fide “phased retirement” program. The Pension Protection Act of referred to as a hybrid defined benefit plan (“Hybrid DB”), which discrimination tests. “Cross-testing” allows a defined contribution office, has recently been named to the
may set a plan’s Normal 2006 added a new section to the Internal Revenue Code (Section sought to combine the best features of a Traditional DB (such as a and a defined benefit plan sponsored by the same employer to be list of Top One Hundred Labor be interpreted as rendering legal advice
Retirement Age “is an 401(a)(36)) that permits “phased retirement”, allowing a pension definite retirement income stream) with the most attractive features tested together, comparing the DC Plan contributions to the DB Attorneys in the United States for 2007,
age that is not earlier than plan participant who has reached age 62 to continue employment of a defined contribution plan (“DC Plan”) (account balances and Plan accrual. For example, an employer could sponsor a DC Plan as compiled by Labor Relations on any matter. Specific situations may
the earliest age that is with reduced hours and pay and commence receiving monthly the option to receive a lump-sum distribution). The Hybrid DB also that excludes all highly compensated employees (e.g., the owners) Institute, Inc.
reasonably representative “phased retirement” pension payments. While such a program sought to make annual contributions (which remain mandatory) and a DB Plan for all employees. Cross-testing these plans can yield A recipient of this honor in 2006 as raise additional or different issues and
of the typical retirement could allow greater flexibility than the final regulation, until the IRS more predictable. Perhaps the most common form is known as a very substantial DB Plan contributions for older highly well, Gilberg is a member of the firm’s
age for the industry in issues regulations interpreting this new Code section, plan sponsors compensated employees with manageable contributions for non- Labor and Employment Practice Group.
“cash balance plan”. From the perspective of a participant, a cash-
He represents employers in a broad range of employment,
such information should be coordinated
which the covered may be well advised to take advantage of the greater certainty balance plan looks much like a DC Plan: a participant receives an highly compensated employees in the DC and DB Plans.
workforce is employed.” afforded by the final regulations instead. N labor, and human resources issues and assists companies in
annual contribution “credit” (typically expressed as a percentage of
negotiating favorable contracts and sustain effective with professional legal advice.
Since most companies do pay), and an annual interest “credit” based on accumulated
not have demographic relationships with union and non-union employees. N
contribution credits and a guaranteed interest rate. The sum of (continued on page 5)

Employment & Benefits Law Report • Flaster/Greenberg P.C. www.flastergreenberg.com Employment & Benefits Law Report • Flaster/Greenberg P.C.
 2 3 4

Redefining “Normal Retirement Age” for Pension Plans Pension Act Settles Cash Balance Plan Controversies Congress Pushing Overhaul of Union Organizing Law
(CONTINUED FROM PAGE 1)
BY MARC R. GARBER and Opens Up Substantial New Planning Opportunities • education and training supervision feedback sessions, speak-up meetings, employee action
Employer sponsored pension plans and statistical information on this issue, the final regulations provide BY ELLIOT D. RAFF committees, on-line quarterly management/employee meetings,
• effective two-way communications
(defined benefit and money purchase) a safe harbor Normal Retirement Age of at least 62. The final etc. The ways to communicate are endless and it is important to
generally provide a lifetime stream of income regulations also provide that if the plan’s Normal Retirement Age is Over the last 20 years, the number of contribution and interest credits is the participant’s “cash-balance” • employee involvement and identification
implement a comprehensive program because communication
to participants who separate from service lower than age 55, it will be assumed to be unreasonable unless the employers establishing new defined benefit and benefits may be paid in either an annuity or a lump-sum. • audit system/checks and balances styles, company culture, and the intended audience vary. Whether
after attaining the plan’s Normal Retirement employees are in an industry justifying such an early age (such as pension plans has declined significantly and Behind the scenes, a cash-balance plan is a defined benefit plan: a company institutes one activity or 20, sound, trustworthy, and
This article will focus on the communication and education
Age (typically 65). If permitted by the plan, pilots). A Normal Retirement Age between 55 and 62 will be many existing defined benefit pension plans annual contributions, actuarial certification and Pension Benefit timely communications programs will help employees feel good
components of a pro-active labor relations strategy.
reduced benefits are payable to participants deemed to be compliant if the facts and circumstances demonstrate have been terminated. The early part of this Guaranty Corporation (PBGC) premiums are required and the about themselves and their jobs, making them proud to be part of
who separate from service after attaining the that the choice of such age is a good faith determination made by decade presented a “perfect storm” for employer bears the investment risk. Communication is Critical a successful endeavor.
plan’s stated Early Retirement Age (typically defined benefit plans—historically low
62, or a combination of age and years of service). However, the interest rates and a slump in the stock Example: A cash balance plan provides a contribution credit of Communication is a key component of any pro-active labor
38.636 percent of pay to owners and 16 percent of pay for non- relations strategy and it still ranks as one of the best methods to stay a
Education and Training
dynamics of today’s workforce together with significant increases in market—resulting in huge funding shortfalls.
post-retirement life expectancy have given employees an incentive These circumstances appeared to be the death knell of defined owners. The employer has three employees, two of whom are also union-organizing drive. Effective, credible, and timely two-way To maximize the effectiveness of such programs, those who
to remain employed after reaching age 65. Many of these employees benefit plans. There was, however, a counter-trend, the growth of owners: communications help keep employees satisfied, develop trust, and will implement the programs—usually the first line supervisors—
would like to scale back their hours (and pay), but to do so they may “hybrid” defined benefit plans. Unfortunately, years of legal strengthen a commitment to organizational goals and philosophies. must have good communication and human resource management
need to commence their pension benefits to have sufficient income challenges, legislative and regulatory investigations, and media Employee Age Compensation Contribution With effective communication systems, employees’ issues, problems, skills. Supervisory training can provide the communication,
to support their lifestyles. Some plan sponsors responded to these attention made converting existing plans into hybrid plans much Owner A 51 $220,000 $85,000 concerns and complaints are heard by the persons with the power to motivation and leadership skills a supervisor needs to develop an
concerns by allowing in-service distributions to participants who more risky than many employers would tolerate. Now, however, the address and/or resolve them. Perhaps more important, effective atmosphere in which employees work to improve productivity and
Owner B 58 $220,000 $85,000
have reached the plan’s Normal Retirement Age. While IRS rules enactment of the Pension Protection Act of 2006 (the “PPA”) communication keeps employees abreast of what is going on in their quality and find union representation unnecessary. Educating
Employee C 31 $25,000 $4,000 company as a whole. When employees feel informed, especially about supervisors to recognize the early warning signs of union activity
permit this practice, the IRS rules never stated how low Normal establishes guidelines for hybrid defined benefit plans and creates
Retirement Age could be, creating a risk of plan disqualification by some planning opportunities for employers—particularly smaller topics that are important to them and can affect them, they tend to and understand management’s legal rights also are critical
including this design feature. The need for clarification has resulted employers whose owners want to create the greatest possible
2. Cash Balance Controversy identify more with the company. The “us vs. them” dichotomy is components of a company’s effective labor relations strategy.
in new legislation as well as new regulations. qualified plan retirement benefit on a fully deductible basis. Cash balance plan controversies arose chiefly from conversions eliminated, and employees try to work with their supervisors and
In November 2004, the Internal Revenue Service initially
of Traditional DBs into cash-balance Hybrid DBs. It was alleged management as a team, which generally results in increased Building Trust and Credibility
responded by issuing proposed regulations that permit (but do not 1. Traditional and Hybrid Defined that conversions created plans that violated age discrimination laws productivity and quality in a union-free environment. There is no guarantee that the company that emphasizes
Benefit Plans and pension rules that prohibit the reduction of accrued benefits. As communication will not be targeted for a union organizing
require) in-service distributions from a pension plan provided a
participant attains the plan’s Normal Retirement Age. the employer of the typical retirement age for the industry of the these disputes played out in courts around the country, the IRS put Communication Programs campaign. However, the use of surveys and other communications
covered workforce. The “traditional” defined benefit plan (“Traditional DB”) a moratorium on approving cash-balance plans. systems will give an employer the edge of knowing what issues
Because the 2004 proposed regulations did not address the What programs can any company implement to build better
The final regulations permit existing pension plans to be provides a retirement benefit in the form of an annuity—monthly Enactment of the PPA provides specific guidelines for Hybrid DB communications with their employees? In addition to the exist and how best to address them, as well as the capacity to better
earliest age at which Normal Retirement
amended to conform to these new rules. Use of the safe harbor payments for the life of the participant and his spouse. Although plan designs, which (if followed correctly) avoid the legal company’s website, bulletin boards, newsletters, etc., there is, of assess its vulnerability to a union organizing drive. Moreover,
may be set, the IRS recently issued
Normal Retirement Age may actually require an increase in the permitted, lump-sum distributions from a Traditional DB are rare. controversies of the past both in establishing a new cash balance plan course, e-mail. While e-mail is a fast and efficient way to reach through effective communications and management education, an
final regulations. [These final
retirement age specified in the plan. Although such an amendment The Traditional DB benefit is based on a formula that takes into or converting a Traditional DB into a cash balance plan. In addition, employees, it is difficult to communicate “emotion” in an e-mail employer can build the trust and credibility with its workforce that
regulations were generally effective
would normally be prohibited by the so-called anti-cutback rules, account compensation and years of service. Benefits are expressed as by enhancing the deduction rules, the PPA makes combined defined and the reader may not interpret the message in the way it was may make its employees far less receptive to a union campaign.
May 22, 2007, although there are
the final regulations create an exception for this purpose. To qualify, an annuity payable at normal retirement age, and each year the contribution/defined benefit designs more viable. As illustrated intended. Other communication techniques that are more Conversely, complacent employers should not be surprised if their
delayed effective dates for
the plan amendment must be adopted after May 22, 2007 and on participant receives a statement showing the portion of that benefit below, such combined plan designs can provide very substantial personal and two-way include focused employee surveys and employees give union organizers a warm welcome. N
governmental plans and for plans
or before either the date for filing the employer’s income tax return, the participant has earned (accrued) to date. Annual contributions retirement benefits on a fully deductible basis.
maintained pursuant to
including extensions, for the tax year beginning in 2007 or, under are mandatory, require complex actuarial analysis, and can vary
collective bargaining
agreements.] Under the certain circumstances, January 1, 2009. based on investment performance, interest rates, inflation, and
demographic changes in the workforce.
3. Planning Strategies: Hybrid Plans and
Cross-Testing
Attorney In The News This report is for general use and
new final regulations, The 2004 regulations also allow for in-service distributions to
Kenneth R. Gilberg, a shareholder at
the earliest age at which participants prior to attaining normal retirement age under a bona In the 1980’s, a new type of defined benefit plan emerged, All qualified retirement plans must pass annual non- Flaster/Greenberg in its Philadelphia information, and the content should not
a pension plan sponsor fide “phased retirement” program. The Pension Protection Act of referred to as a hybrid defined benefit plan (“Hybrid DB”), which discrimination tests. “Cross-testing” allows a defined contribution office, has recently been named to the
may set a plan’s Normal 2006 added a new section to the Internal Revenue Code (Section sought to combine the best features of a Traditional DB (such as a and a defined benefit plan sponsored by the same employer to be list of Top One Hundred Labor be interpreted as rendering legal advice
Retirement Age “is an 401(a)(36)) that permits “phased retirement”, allowing a pension definite retirement income stream) with the most attractive features tested together, comparing the DC Plan contributions to the DB Attorneys in the United States for 2007,
age that is not earlier than plan participant who has reached age 62 to continue employment of a defined contribution plan (“DC Plan”) (account balances and Plan accrual. For example, an employer could sponsor a DC Plan as compiled by Labor Relations on any matter. Specific situations may
the earliest age that is with reduced hours and pay and commence receiving monthly the option to receive a lump-sum distribution). The Hybrid DB also that excludes all highly compensated employees (e.g., the owners) Institute, Inc.
reasonably representative “phased retirement” pension payments. While such a program sought to make annual contributions (which remain mandatory) and a DB Plan for all employees. Cross-testing these plans can yield A recipient of this honor in 2006 as raise additional or different issues and
of the typical retirement could allow greater flexibility than the final regulation, until the IRS more predictable. Perhaps the most common form is known as a very substantial DB Plan contributions for older highly well, Gilberg is a member of the firm’s
age for the industry in issues regulations interpreting this new Code section, plan sponsors compensated employees with manageable contributions for non- Labor and Employment Practice Group.
“cash balance plan”. From the perspective of a participant, a cash-
He represents employers in a broad range of employment,
such information should be coordinated
which the covered may be well advised to take advantage of the greater certainty balance plan looks much like a DC Plan: a participant receives an highly compensated employees in the DC and DB Plans.
workforce is employed.” afforded by the final regulations instead. N labor, and human resources issues and assists companies in
annual contribution “credit” (typically expressed as a percentage of
negotiating favorable contracts and sustain effective with professional legal advice.
Since most companies do pay), and an annual interest “credit” based on accumulated
not have demographic relationships with union and non-union employees. N
contribution credits and a guaranteed interest rate. The sum of (continued on page 5)

Employment & Benefits Law Report • Flaster/Greenberg P.C. www.flastergreenberg.com Employment & Benefits Law Report • Flaster/Greenberg P.C.
 5
EMPLOYMENT
PRSRT STD
U.S. POSTAGE
PAID
Pension Act Settles Cash Balance Plan Controversies and Opens Up Substantial
& BENEFITS
Bellmawr, NJ
Permit No. 64
New Planning Opportunities
(CONTINUED FROM PAGE 3)

LAW REPORT
1810 Chapel Avenue West Return Service Requested
4. Combined Plan Design Examples In this design, the owners receive allocations of Cherry Hill, NJ 08002-4609
85 percent of the total employer contributions and,
Example 1: Traditional DB with Safe Harbor 401(k) in addition, can each defer up to $20,500 (for
Under prior law, the maximum deduction for contributions to a DC and DB 2007, $15,500 plus $5,000 catch-up contribution)
A Newsletter from the Employee Benefits and Employment and Labor Practice Groups FALL 2007
plan maintained by the same employer could not exceed the greater of 25 percent of their pay, all on a deductible basis. Since the
of compensation or the cost to fund the DB Plan. Therefore, if the DB Plan’s profit sharing contribution (which includes three
funding cost exceeded 25 percent of compensation, a DC Plan contribution
would not be deductible. With the new PPA rules, even if the DB Plan
percent for all participants) is cross-tested with the
cash balance plan, different percentages are Congress Pushing Overhaul of Union Organizing Law
contribution equals or exceeds 25 percent of compensation, contributions can still allocated to the owners, the non-owner highly
be made to a DC Plan within certain limits. For example, an employer can adopt compensated employee and the non-highly Is Your Company Prepared?
a “safe harbor” 401(k) plan, which permits highly compensated employees to compensated employees. Employers must be aware
BY KENNETH R. GILBERG
defer up to the annual limit regardless of the rate of deferral of non-highly that this type of design requires sophisticated
compensated employees by making a contribution of three percent of pay for all annual analysis and, for smaller employers in
Much has been written in the news of late Union Organizing Activities
non-highly compensated employees. As long as the non-elective (“employer” particular, the required contributions may vary from
about the declining membership of labor
contributions) do not exceed six percent of total participant compensation, these year-to-year based on changes in employee Unions have earmarked millions of dollars for union organizing
unions in the United States.
additional employer contributions as well as all elective deferrals and the DB Plan demographics. However, for business owners who and are recruiting passionate individuals as organizers. New
funding, will be fully deductible. Putting this all together, a combined design may want to fund a substantial retirement benefit, Unions and other pro labor organizations methods and ideas to organize workers, such as the internet and
yield the following contributions: perhaps to make up for earlier years when the had hoped that the EMPLOYEE FREE advertising, are being utilized in conjunction with political alliances.
business could not afford to make contributions, this CHOICE ACT (“EFCA”), which had passed Unions recognize their survival is at stake and they are committed
combined plan design may be extremely attractive. the U.S. House of Representatives with a 241 to return to power.
Employee Age Salary DB Cost Deferral PS
to 185 majority, would also be passed by the
Contrib.*
Conclusion Senate. It missed passage by only nine votes. Senator Edward M. How Can Companies Prepare Now?
Owner 52 $220,000 $133,518 $20,500 $14,250 Kennedy (D-Mass) had originally proposed such legislation in 2003
By providing clear Hybrid DB plan guidelines, For many individuals and employers support for or against a
Assistant 25 $35,000 $5,334 N/A $1,050 and again in 2005. While the EFCA previously did not have much
simplifying the funding of Traditional DB plans, and union is a personal choice. Currently, the Senators from
Total $255,000 $138,852 $20,500+ $15,300 momentum or attention, it does now. Supporters of the EFCA are
providing enhanced deduction limits, the PPA Pennsylvania, New Jersey, and Delaware all support the EFCA.
expecting to gain a majority vote the next time it is introduced and
* Profit sharing contribution includes three percent safe harbor contribution creates significant retirement planning opportunities. Companies should consider talking to a congressional
Of course, careful analysis and planning is essential
EMPLOYEE BENEFITS AND EMPLOYMENT AND LABOR PRACTICE GROUPS are also attempting to gain the necessary votes to override an
representative about their position on the EFCA and lending
For additional information, please contact the lawyers listed below, anticipated veto from President Bush.
and it is not a “one size fits all” solution. However, support to the various community and trade groups that advocate
Prior to 2006, the sponsor would have been able to deduct only the DB cost. By or the lawyer in the firm with whom you are regularly in contact.
the combined plan designs illustrated above may the company’s point of view.
using the safe harbor 401(k), the owner can defer $20,500 (for 2007, $15,500 plus
afford the greatest retirement benefit at the most
Employee Free Choice Act
the $5,000 “catch-up” contribution) and make an employer contribution of an Jeffrey A. Cohen Kenneth R. Gilberg J. Philip Kirchner
manageable total cost ever available. N jeff.cohen@flastergreenberg.com kenneth.gilberg@flastergreenberg.com phil.kirchner@flastergreenberg.com Unions have already stepped up their efforts to increase union Pro-Active Labor Relations
additional $14,250 by contributing only $1,050 for the Assistant. The assistant can (856) 382-2240 (856) 661-2268 membership and if the EFCA had passed, it would have made union
(215) 279-9915
defer as much of her salary as she wishes (up to the annual limit). The amount the The author is grateful to Stephen H. Rosen & Regardless of whether legislation makes it easier for a union to
organizing much easier. Under the EFCA, instead of a National
employee defers is irrelevant to discrimination testing and it is not an employer cost. Associates, Inc., for providing the illustrations for Allen P. Fineberg Kenneth S. Goodkind Vincent J. Nolan III organize employees, it is evident that unions are aggressively trying
Labor Relations Board (NLRB) supervised secret ballot election,
this article. allen.fineberg@flastergreenberg.com ken.goodkind@flastergreenberg.com vincent.nolan@flastergreenberg.com new methods and ideas to organize workers. Employers who desire
Example 2: Cash Balance With Safe Harbor 401(k) (856) 661-2264 (856) 661-2273 (856) 661-2275 employers would have to recognize a union when a majority of the
to remain union free should not wait and hope the EFCA does not
In this example, a cash-balance Hybrid DB is used instead of the Traditional DB in company’s employees in a representative unit signed union
Richard J. Flaster Lizanne V. Hackett Elliot D. Raff pass the next time.
Example 1: rick.flaster@flastergreenberg.com elliot.raff@flastergreenberg.com
authorization cards. If a union was certified through a card check by
liz.hackett@flastergreenberg.com What successful strategies can a company utilize to defend itself
(856) 661-2260 (856) 382-2215 (856) 382-2241 the NLRB, then the employer and the union would have to begin
bargaining within 10 days. If a contract was not reached in 90 days, against unions’ new organizing efforts? In addition to expressing
Employee Age Salary Cash Deferral PS. Marc R. Garber * Michael D. Homans Paul J. Russoniello either party could request assistance from the Federal Mediation the company’s position to Congressional representatives,
marc.garber@flastergreenberg.com michael.homans@flastergreenberg.com paul.russoniello@flastergreenberg.com
Balance Contrib. and Conciliation Service. If a contract was not reached within 30 implementing a pro-active/union avoidance labor relations strategy
(856) 382-2237 (856) 661-2271 (856) 661-2270
Cost days after that, the matter could be referred to binding arbitration will enhance the company’s quality and productivity and help keep
Owner 1 59 $220,000 $100,000 $20,500 $14,283 and the results of the binding arbitration would be a two-year its employees less receptive to a union’s organizing efforts. The
* Of Counsel collective bargaining agreement. In effect, the EFCA would components of a pro-active labor strategy include:
Owner 2 54 $220,000 $100,000 $20,500 $14,283
virtually end 70 years of NLRB supervised secret ballot elections • employee recruitment and selection
Non- 56 $120,000 $3,000 $6,600 $6,672 and the right to bargain to impasse, and subject an employer to
Owner • company culture orientation
PRACTICE AREAS terms imposed by an arbitration panel. To discourage anti-union
HCE conduct, the EFCA imposes significant remedies for violations of • fair and competitive wages and benefits
Alternative Dispute Resolution; Business & Corporate Services; Closely-Held Businesses; Construction Law; E-Commerce & Internet; Emerging Business;
8 NHCEs Various $372,470 $9,312 N/A $20,710 the National Labor Relations Act. • best practices personnel policies and procedures
Employee Benefits and Executive Compensation; Environmental Law & Litigation; Estate Planning & Administration; Family Law & Adoption;
Total $932,470 $212,312 $47,600+ $55,948 Financial Restructuring, Bankruptcy, and Risk Management; Health Care; Intellectual Property; Labor & Employment; Litigation; Real Estate & Land • progressive, corrective discipline
Use; Redevelopment; Securities; Taxation.
(continued on page 4)

www.flastergreenberg.com Copyright © 2007 Employment & Benefits Law Report • Flaster/Greenberg P.C.
 5
EMPLOYMENT
PRSRT STD
U.S. POSTAGE
PAID
Pension Act Settles Cash Balance Plan Controversies and Opens Up Substantial
& BENEFITS
Bellmawr, NJ
Permit No. 64
New Planning Opportunities
(CONTINUED FROM PAGE 3)

LAW REPORT
1810 Chapel Avenue West Return Service Requested
4. Combined Plan Design Examples In this design, the owners receive allocations of Cherry Hill, NJ 08002-4609
85 percent of the total employer contributions and,
Example 1: Traditional DB with Safe Harbor 401(k) in addition, can each defer up to $20,500 (for
Under prior law, the maximum deduction for contributions to a DC and DB 2007, $15,500 plus $5,000 catch-up contribution)
A Newsletter from the Employee Benefits and Employment and Labor Practice Groups FALL 2007
plan maintained by the same employer could not exceed the greater of 25 percent of their pay, all on a deductible basis. Since the
of compensation or the cost to fund the DB Plan. Therefore, if the DB Plan’s profit sharing contribution (which includes three
funding cost exceeded 25 percent of compensation, a DC Plan contribution
would not be deductible. With the new PPA rules, even if the DB Plan
percent for all participants) is cross-tested with the
cash balance plan, different percentages are Congress Pushing Overhaul of Union Organizing Law
contribution equals or exceeds 25 percent of compensation, contributions can still allocated to the owners, the non-owner highly
be made to a DC Plan within certain limits. For example, an employer can adopt compensated employee and the non-highly Is Your Company Prepared?
a “safe harbor” 401(k) plan, which permits highly compensated employees to compensated employees. Employers must be aware
BY KENNETH R. GILBERG
defer up to the annual limit regardless of the rate of deferral of non-highly that this type of design requires sophisticated
compensated employees by making a contribution of three percent of pay for all annual analysis and, for smaller employers in
Much has been written in the news of late Union Organizing Activities
non-highly compensated employees. As long as the non-elective (“employer” particular, the required contributions may vary from
about the declining membership of labor
contributions) do not exceed six percent of total participant compensation, these year-to-year based on changes in employee Unions have earmarked millions of dollars for union organizing
unions in the United States.
additional employer contributions as well as all elective deferrals and the DB Plan demographics. However, for business owners who and are recruiting passionate individuals as organizers. New
funding, will be fully deductible. Putting this all together, a combined design may want to fund a substantial retirement benefit, Unions and other pro labor organizations methods and ideas to organize workers, such as the internet and
yield the following contributions: perhaps to make up for earlier years when the had hoped that the EMPLOYEE FREE advertising, are being utilized in conjunction with political alliances.
business could not afford to make contributions, this CHOICE ACT (“EFCA”), which had passed Unions recognize their survival is at stake and they are committed
combined plan design may be extremely attractive. the U.S. House of Representatives with a 241 to return to power.
Employee Age Salary DB Cost Deferral PS
to 185 majority, would also be passed by the
Contrib.*
Conclusion Senate. It missed passage by only nine votes. Senator Edward M. How Can Companies Prepare Now?
Owner 52 $220,000 $133,518 $20,500 $14,250 Kennedy (D-Mass) had originally proposed such legislation in 2003
By providing clear Hybrid DB plan guidelines, For many individuals and employers support for or against a
Assistant 25 $35,000 $5,334 N/A $1,050 and again in 2005. While the EFCA previously did not have much
simplifying the funding of Traditional DB plans, and union is a personal choice. Currently, the Senators from
Total $255,000 $138,852 $20,500+ $15,300 momentum or attention, it does now. Supporters of the EFCA are
providing enhanced deduction limits, the PPA Pennsylvania, New Jersey, and Delaware all support the EFCA.
expecting to gain a majority vote the next time it is introduced and
* Profit sharing contribution includes three percent safe harbor contribution creates significant retirement planning opportunities. Companies should consider talking to a congressional
Of course, careful analysis and planning is essential
EMPLOYEE BENEFITS AND EMPLOYMENT AND LABOR PRACTICE GROUPS are also attempting to gain the necessary votes to override an
representative about their position on the EFCA and lending
For additional information, please contact the lawyers listed below, anticipated veto from President Bush.
and it is not a “one size fits all” solution. However, support to the various community and trade groups that advocate
Prior to 2006, the sponsor would have been able to deduct only the DB cost. By or the lawyer in the firm with whom you are regularly in contact.
the combined plan designs illustrated above may the company’s point of view.
using the safe harbor 401(k), the owner can defer $20,500 (for 2007, $15,500 plus
afford the greatest retirement benefit at the most
Employee Free Choice Act
the $5,000 “catch-up” contribution) and make an employer contribution of an Jeffrey A. Cohen Kenneth R. Gilberg J. Philip Kirchner
manageable total cost ever available. N jeff.cohen@flastergreenberg.com kenneth.gilberg@flastergreenberg.com phil.kirchner@flastergreenberg.com Unions have already stepped up their efforts to increase union Pro-Active Labor Relations
additional $14,250 by contributing only $1,050 for the Assistant. The assistant can (856) 382-2240 (856) 661-2268 membership and if the EFCA had passed, it would have made union
(215) 279-9915
defer as much of her salary as she wishes (up to the annual limit). The amount the The author is grateful to Stephen H. Rosen & Regardless of whether legislation makes it easier for a union to
organizing much easier. Under the EFCA, instead of a National
employee defers is irrelevant to discrimination testing and it is not an employer cost. Associates, Inc., for providing the illustrations for Allen P. Fineberg Kenneth S. Goodkind Vincent J. Nolan III organize employees, it is evident that unions are aggressively trying
Labor Relations Board (NLRB) supervised secret ballot election,
this article. allen.fineberg@flastergreenberg.com ken.goodkind@flastergreenberg.com vincent.nolan@flastergreenberg.com new methods and ideas to organize workers. Employers who desire
Example 2: Cash Balance With Safe Harbor 401(k) (856) 661-2264 (856) 661-2273 (856) 661-2275 employers would have to recognize a union when a majority of the
to remain union free should not wait and hope the EFCA does not
In this example, a cash-balance Hybrid DB is used instead of the Traditional DB in company’s employees in a representative unit signed union
Richard J. Flaster Lizanne V. Hackett Elliot D. Raff pass the next time.
Example 1: rick.flaster@flastergreenberg.com elliot.raff@flastergreenberg.com
authorization cards. If a union was certified through a card check by
liz.hackett@flastergreenberg.com What successful strategies can a company utilize to defend itself
(856) 661-2260 (856) 382-2215 (856) 382-2241 the NLRB, then the employer and the union would have to begin
bargaining within 10 days. If a contract was not reached in 90 days, against unions’ new organizing efforts? In addition to expressing
Employee Age Salary Cash Deferral PS. Marc R. Garber * Michael D. Homans Paul J. Russoniello either party could request assistance from the Federal Mediation the company’s position to Congressional representatives,
marc.garber@flastergreenberg.com michael.homans@flastergreenberg.com paul.russoniello@flastergreenberg.com
Balance Contrib. and Conciliation Service. If a contract was not reached within 30 implementing a pro-active/union avoidance labor relations strategy
(856) 382-2237 (856) 661-2271 (856) 661-2270
Cost days after that, the matter could be referred to binding arbitration will enhance the company’s quality and productivity and help keep
Owner 1 59 $220,000 $100,000 $20,500 $14,283 and the results of the binding arbitration would be a two-year its employees less receptive to a union’s organizing efforts. The
* Of Counsel collective bargaining agreement. In effect, the EFCA would components of a pro-active labor strategy include:
Owner 2 54 $220,000 $100,000 $20,500 $14,283
virtually end 70 years of NLRB supervised secret ballot elections • employee recruitment and selection
Non- 56 $120,000 $3,000 $6,600 $6,672 and the right to bargain to impasse, and subject an employer to
Owner • company culture orientation
PRACTICE AREAS terms imposed by an arbitration panel. To discourage anti-union
HCE conduct, the EFCA imposes significant remedies for violations of • fair and competitive wages and benefits
Alternative Dispute Resolution; Business & Corporate Services; Closely-Held Businesses; Construction Law; E-Commerce & Internet; Emerging Business;
8 NHCEs Various $372,470 $9,312 N/A $20,710 the National Labor Relations Act. • best practices personnel policies and procedures
Employee Benefits and Executive Compensation; Environmental Law & Litigation; Estate Planning & Administration; Family Law & Adoption;
Total $932,470 $212,312 $47,600+ $55,948 Financial Restructuring, Bankruptcy, and Risk Management; Health Care; Intellectual Property; Labor & Employment; Litigation; Real Estate & Land • progressive, corrective discipline
Use; Redevelopment; Securities; Taxation.
(continued on page 4)

www.flastergreenberg.com Copyright © 2007 Employment & Benefits Law Report • Flaster/Greenberg P.C.