Perhaps unleashing employer demand to fund benefit-plan liabilities with shares, the Department of Labor’s Employee Benefits Security Administration Thursday proposed to allow General Motors to transfer common stock, preferred stock, and a $2.5 billion promissory note to a health plan set up for the company’s retirees.
EBSA will publish a proposal in The Federal Register on September 18 that would exempt the GM move from a ban under the Employee Retirement Income Security Act. ERISA bars certain plans from holding large percentages of plan assets in the form of employer securities, but the law gives the DoL authority to grant exemptions that protect the interests of plan participants and beneficiaries.
Will the move spur a flood-tide of similar requests from cash-poor, benefit-burdened employers? “Once exemptions are granted for one corporation, it becomes more difficult for the agency to deny exemptions for similarly situated corporations,” says Robert Willens, founder and principal of Robert Willens LLC, who writes a weekly tax column for CFO.com. “With the market rallying, there are probably a number of corporations which would like to fund their obligations with stock.”
The proposed exemption would allow the securities transfer, permit GM and its health plans to reimburse each other for benefit payments paid by mistake to the wrong entity during the transition to the new plan, and let GM recover mistaken deposits to the plan.
The retiree health plan will cover about 700,000 retirees and dependents when it becomes effective on December 31, 2009. GM is the successor company that bought almost all the assets of General Motors Corp. (the old GM), which filed for bankruptcy on June 1.
As a major condition of the proposal, GM would have to appoint an independent fiduciary to represent the health plan on matters involving GM securities transactions. The fiduciary would determine if the action is in the interests of the plan and its participants and beneficiaries in advance of taking any action regarding the shares. The proposal also requires the review of benefit payments by an independent third-party administrator and auditor, and “an objective dispute resolution process,” according to a DoL release.