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HR Matters
Court Finds No Violation by Employer Who Unknowingly Interfered with Union Organizing Effort
August 30, 2006
LABOR & EMPLOYMENT NEWS
Court Finds No Violation by Employer Who Unknowingly Interfered with Union Organizing Effort. The U.S. Court of Appeals for the Sixth Circuit (which covers, among other states, Ohio) recently ruled that a grocery store chain's reprimand and ejection from an employee parking lot of an off-duty warehouse clerk, who was distributing union membership cards, did not constitute an unfair labor practice in violation of the National Labor Relations Act (NLRA) because the employer did not know that the employee was engaging in protected conduct. In its ruling, the court rejected the National Labor Relations Board's test for determining whether an employer's conduct constituted an unfair labor practice - whether the conduct would reasonably tend to interfere with, threaten, or coerce employees in the exercise of their NLRA rights. The court explained that "Contrary to the position of the Board, the test must have a subjective element in these cases since [t]he only restriction that [the] Act places upon an employer's right to discharge employees, is that it not be because of union activity or affiliation." (Meijer Inc. v. NLRB)
Proposed Ohio Constitutional Amendment Could Impact Employers. A proposed amendment that will be on the November 2006 ballot would not only raise Ohio's minimum wage from $4.25 per hour to $6.85 per hour effective January 1, 2007, but would also require employers to make employee wage and certain personnel information (e.g., individual employee wage rates, salaries, and home addresses) available to any employee or anyone acting on behalf of an employee available at no charge. The proposed amendment applies to both public and private employers in Ohio regardless of size. We will monitor developments concerning this proposed amendment.
WORKPLACE HEALTH & SAFETY NEWS
Increases in Earnings Do Not Justify Recalculating the Average Weekly Wage. The Supreme Court of Ohio recently ruled that natural increases in earnings over the course of time do not justify the recalculation of an individual's average weekly wage (AWW). The baseline for all workers' compensation benefits in Ohio is the AWW, which is based on earnings during the year preceding an injury or the onset of an occupational disease. An employee suffered a heart attack in 1982. The Bureau approved the employee's workers' compensation claim and set his AWW based on his wages for the year prior to his heart attack. The employee returned to the work force following his heart attack and continued to work for 15 years before dying from a second heart attack. The employee's widow received death benefits based on the AWW calculated in 1982. The widow appealed the amount of the death benefits because her husband's wages at the time of his death were considerably more than the 1982 AWW. However, the Court noted that it has "emphatically stated that a natural increase in wages over the course of an employee's career is not uncommon and hence is not a special circumstance warranting a departure from the standard calculation [of the AWW]." (State Ex Rel. Stevens v. Industrial Commission).
EMPLOYEE BENEFITS & EXECUTIVE COMPENSATION NEWS
Pension Protection Act of 2006.
Congress recently passed and the President signed into law the Pension Protection Act of 2006. This Act significantly affects requirements for employer sponsored retirement plans, including an overhaul of the funding rules for defined benefit pension plans and enhancements for defined contribution plans. Due to the scope and complexity of the Act, below is a summary only of some of the new defined contribution plan changes. Look for more details in upcoming HR Matters editions.
Automatic 401(k) enrollment. The Act adds a new safe harbor plan that relieves the employer from the ADP/ACP testing and excludes the plan from being considered top-heavy. To qualify, the plan must provide an automatic enrollment of participants at a contribution rate of no less than 3 % the first year, 4 % the second year, 5 % the third year and 6 % for the fourth and later years. The automatic deferral percentage may be set for up to a maximum of 10 % of pay. The plan must also provide either a non-elective employer contribution of 3 % of pay, or a matching contribution of 100 % of each non-highly compensated employee's deferral amount up to 1% of pay, plus 50% of any additional deferrals up to 6% of pay for a total maximum match of 3.5% of pay. The plan must also provide 100 % vesting of employer contributions after 2 years of service. Employees many opt out of the plan, and retain the option of making their own deferral elections. This new safe harbor plan will be available starting in 2008.
Default Investments and Reallocation of Accounts. When using automatic enrollment, an issue arises regarding how contributions should be invested if the participant fails to direct investments. Most employers choose a money market fund or balanced fund as the default investment. The Act provides the employer with protection over its investment choice as long as the employer provides a notice before each plan year explaining the employee's rights and the default investment. The employee must be given adequate time to make the election after receiving the notice. The Act permits a mix of asset classes consistent with capital preservation or long-term capital appreciation, or a blend of both as appropriate default investments. This provision is effective for plan years beginning in 2007.
For reallocation of accounts due to plan funds being eliminated or replaced, and requiring assets to be reallocated to remaining or new funds, the Act provides that the above protection applies if the new funds meet the standards described above and the characteristics relating to risk and return are reasonably similar to the former investment option. Also, between 30 and 60 days in advance of the effective date, the employer must notify participants of the changes and inform them that, absent affirmative instructions, their accounts will be automatically reallocated. These rules are effective in 2008.
Vesting. The Act modifies the required minimum vesting schedule. The new minimum vesting schedule for employer matching and discretionary contributions must be either a 3-year cliff or a 6-year graded vesting schedule. This change is effective for plan years beginning in 2007.
Participant Investment Advice. Another past concern is whether an advisor engages in a "prohibited transaction" by giving investment advice to participants. The Act provides an exemption in two situations, the "computer model exception" and the "flat fee exception". The computer model arrangement must: apply generally accepted investment theories that take into account the historic returns of different asset classes over defined periods of time; use relevant participant information (e.g., age, life expectancy) and other objective criteria; cannot be biased in favor of investments offered by the adviser or its affiliates; and take into account all investment options offered under the plan without inappropriately weighing any investment option. The model must be certified by a third party expert, and no other advice may be offered. The flat fee exception provides that any fees received by the fiduciary adviser for investment advice may not vary based on what investment options are selected. Both arrangements must be authorized by the sponsor and independently audited. The adviser must provide an annual advance notice to the participants. The Act relieves the plan sponsor or fiduciary of any responsibility for the investment advice given by the adviser, and the sponsor has no duty to monitor the specific advice given. However, the Act does not relieve the plan sponsor from the duty for prudent investment offerings or the periodic review of a fiduciary adviser.
Employer Securities. In response to recent company stock scandals, the Act provides that any defined contribution plan holding publicly traded employer securities must provide three alternative investment options and allow participants to immediately diversify their contributions. Participants must also be able to diversify employer contributions after 3 years of service. At least 30 days prior to the end of the three year period, the plan must provide a notice informing the participants of their right to diversify. These rules take effect in 2007. ESOPs are exempt from these new diversification rules.
Benefit Statement Requirements. The Act requires plan sponsors to provide benefit statements. Different requirements exist depending on whether the plan allows for participant-directed investments. For defined contribution plans that do not allow participant investment direction, the following requirements apply: the statement must be provided to any participant or beneficiary with an account under the plan; the statement must be provided once each calendar year or upon written request; and the statement must contain the participant's total accrued benefit, vested percentage, a description of any social security integration or floor offset (if applicable), and the value of each investment. Plans that do allow participant investment direction must follow the same requirements above, but the statements must be provided quarterly and in addition include the following: an explanation of any limitation or restriction on any right to direct investment, an explanation of the importance for long-term retirement security and a well-balanced, diversified portfolio; and a statement that holding 20 percent or more in one security may not be adequate diversification. These rules are effective in 2007.
This Newsletter is a periodic publication of Graydon Head & Ritchey LLP and should not be construed as legal advice or legal opinion on any specific facts or circumstances. The contents are intended for general information purposes only, and you are urged to consult your own advisor concerning your situation and any specific legal question you may have.