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rity Priod Rea ® BUSINESS LAW UPDATE MILLER, JOHNSON, SNELL & CUMMISKEY, P.L.C. T The Mutual Fund Scandal: What Should Retirement Plan Sponsors and Fiduciaries Do? SPRING 2004 Miller Johnson’s Upcoming Workshops by Frank E. Berrodin, 616.831.1769; berrodinf@mjsc.com Do you know what mutual funds are offered as investment options under your retirement plan? Do you know whether any of them are implicated in the current mutual fund scandal? Do you understand all the expenses being charged by the funds to participants’ accounts, and do you know how those expenses compare to other fund options available to retirement plans? If you answered "no" to any of these questions, and you have any decision making authority over the investment alternatives available under your retirement plan, you may be breaching your fiduciary duty to your plan participants. Many employers remain unaware of their obligation to monitor the investment choices made available under their qualified retirement plans. Although the employer may have hired a bank or other investment professional to assist it in selecting the mutual funds offered, the individual or committee members who ultimately decide which funds will be offered under the plan, have a fiduciary responsibility to the plan participants to be sure that those investment options are prudent. Although plan fiduciaries can be relieved of liability for bad investment decisions made by participants, this protection is only available if a number of strict criteria are satisfied. One of the most important is that the fiduciary properly selects and monitors the fund choices from which the plan participants may choose. A staggering number of mutual funds are available to plan sponsors, and a significant number of them have good long-term performance records and low expense ratios and have not been accused of allowing late trading or market timing of their funds. Consequently, it will be difficult to defend a lawsuit against a plan fiduciary who decides to continue to offer an implicated fund (or any other poorly performing or expensive fund) unless the plan fiduciary has strong reasons for doing so. It is critical that these reasons be documented at the time the plan fiduciaries perform their annual (or more frequent) review of the funds options available under their plan. If you would like more information on this topic, and/or would like to know which fund companies have been accused of illegal or improper behavior as part of this scandal, please contact the author or visit our web site for a more detailed discussion of the issue. Please feel free to copy Priority Read and pass it on to other associates. APRIL Remaining Union Free MAY Beyond HIPAA Privacy JUNE Workers Compensation JULY Health Savings Accounts For more details, visit our web site at www.millerjohnson.com/resource/ workshops.asp or contact Jennifer Jenks at 616.831.1886 or jenksj@mjsc.com www.millerjohnson.com IN THIS ISSUE s THE MUTUAL FUND SCANDAL: WHAT SHOULD RETIREMENT PLAN SPONSORS AND FIDUCIARIES DO? p. 1 s PRENUPTIAL AGREEMENTS: p. 2 THE BASICS s WONDERING WHETHER HSAS WILL REDUCE YOUR MEDICAL COSTS? p. 2 s COURT’S SCAN REVEALS NO BAR CODE INFRINGEMENT p. 3 s MILLER JOHNSON IN THE p. 3 NEWS s MILLER JOHNSON WELCOMES NEW MEMBER p. 4 www.millerjohnson.com P Prenuptial Agreements: The Basics by W. Jack Keiser, 616.831.1836, 269.226.2955; keiserj@mjsc.com ARE PRENUPTIAL AGREEMENTS ENFORCEABLE? It was long thought that prenuptial agreements were not enforceable in Michigan, particularly those drafted to deal with divorce rather than death. However, in 1990, a Miller Johnson attorney made the argument in Kent County Circuit Court that a prenuptial agreement was enforceable. The judge agreed and wrote an opinion in the well-known case of Rinveldt v. Rinveldt, which was eventually decided by the Michigan Court of Appeals in 1991. Since that time courts have upheld prenuptial agreements in many Michigan cases, citing Rinveldt. An interesting side note of the Rinveldt case is that the party seeking to enforce the prenuptial agreement had very little by way of assets. The prenuptial agreement provided that the less-wealthy party would receive a percentage of the wealthier party’s estate in the event of divorce. Because the marriage was so short, the prenuptial proved more beneficial for the party with little wealth than did Michigan’s general divorce law. HOW DOES A COUPLE OBTAIN AGREEMENT? A PRENUPTIAL For some people, the most difficult part of the process is approaching the future spouse. Requesting a prenuptial may be viewed as showing distrust of the other person or a lack of faith in the relationship. However, once the subject is broached, it often becomes comfortable for both of the W parties. Realistically, the issues surrounding a prenuptial agreement are issues that should be discussed, so that each person’s expectations about the marriage, particularly financial expectations, are known to the other. Once the parties have discussed the matter, they must move early to get attorneys involved. Serious discussion and drafting should occur months before the wedding date. The closer to the wedding date these events occur, the more tension they create between the parties. A detailed schedule of each party’s assets and liabilities should be prepared and exchanged early on. DOES A PRENUPTIAL AGREEMENT HAVE PRECEDE THE MARRIAGE? TO Entry into the marital relationship is the consideration for the prenuptial agreement, so the agreement must precede the marriage. However, there is much legal support for the proposition that a married couple in a deeply troubled marriage (for example where there is a pending divorce action and/or physical separation of the parties) may enter into a postnuptial agreement if its purpose is to save or restore the marriage. To learn more about this subject, you may wish to review the more detailed article contained on our web page at www.millerjohnson.com. You may contact the author, who can assist you or refer you to one of the Miller Johnson attorneys experienced in this area. Wondering Whether HSAs Will Reduce Your Medical Costs? by Frank E. Berrodin, 616.831.1769; berrodinf@mjsc.com Mary V. Bauman, 616.831.1704; baumanm@mjsc.com Miller Johnson is a member of Meritas, an association of independent law firms worldwide. Have you heard about the provisions of the 2003 Medicare law creating health savings accounts (HSAs)? Have you been wondering if they will reduce your escalating annual medical expenses? While HSAs will definitely be beneficial for the employees of certain employers, they are not for everyone. 2 MILLER, JOHNSON, SNELL & CUMMISKEY, P.L.C. HSAs are like IRAs that are used to cover an employee’s unreimbursed medical expenses. Contributions are tax deductible by the employer and/or the employee and distributions are also tax free if used to pay unreimbursed medical expenses in the current or any future year. So why shouldn’t every employer (see HSAs on page 3) SPRING 2004 www.millerjohnson.com C Court’s Scan Reveals No Bar Code Infringement by Barry C. Kane, 616.831.1770; kaneb@mjsc.com A recent federal court decision will be of interest, and also a source of relief, to makers and users of bar code scanners and readers. The Automatic Identification and Data Capture industry recently announced the successful conclusion of litigation with the Lemelson Foundation. The Foundation had been making allegations that bar-code scanners, readers and related machine vision technology prevalent throughout the industry infringed on patents it owned. In 1999, a number of manufacturers of bar-code reading equipment and related machine vision products (Auto ID) jointly filed suit against the Foundation, seeking a declaration that certain patents asserted by the Foundation against end users of barcode reading equipment were invalid, unenforceable and not infringed. In 2000, the case was consolidated with a similar case filed by a maker of machine vision systems. Now, the United States District Court for the District of Nevada, has ruled the Foundation patents invalid, unenforceable, and not infringed – as the plaintiffs asserted. This ruling brings great relief to those the Foundation accused of infringement. The Lemelson Foundation had put significant pressure on the entire Auto ID industry, demanding the payment of millions in dollars in licensing fees. The new ruling should lead to the cessation of the Foundation’s demands for licensing fees for the use of bar-code technology. The Foundation is likely to pursue an appeal, but leaders in the industry firmly believe that the court’s ruling will be upheld by the appellate court. If your company was contacted by the Lemelson Foundation and alleged to have infringed upon its patents, you can rest substantially easier now that the court has rendered its decision. If your company took a license from the Lemelson Foundation and is paying royalties, you may wish to consider whether the continued payment of those monies makes sense. As always, should you require any legal counsel in these evaluations, please feel free to contact either Barry Kane or Frank Scutch in the Intellectual Property Group. (HSAs cont’d from page 2) establish HSAs for their employees? The main reason is that contributions can only be made to an employee’s HSA in the year the employee is covered by a high deductible health plan. Generally, in order to be a high deductible health plan, the deductible must be at least $1,000 for an individual and $2,000 for a family. Consequently, employees who already participate in a high deductible health plan will definitely want to contribute to an HSA (and/or have their employer contribute for them through a cafeteria plan or otherwise). In addition, if an employer can reduce its health insurance costs by switching to a high deductible health plan and making contributions to its employees’ HSAs, the switch may make sense. For a more detailed article on this topic, go to www.millerjohnson.com. Also, look for an email announcement regarding a workshop we will be offering July 21 and July 29 on HSAs after the IRS issues additional guidance (expected by June 2004). Miller Johnson in the News s ROBERT R. STEAD has been selected to serve on the Pass-Through Entity Integration Task Force of the American Bar Association's Tax Section. He is the only person from Michigan to serve on this Task Force which works with committees of Congress, the Treasury, the Internal Revenue Service and the Joint Committee on Taxation on developing tax simplification proposals. MILLER, JOHNSON, SNELL & CUMMISKEY, P.L.C. SPRING 2004 3 MILLER, JOHNSON, SNELL & CUMMISKEY, P.L.C. SPRING 2004 Miller Johnson Welcomes New Member www.millerjohnson.com s MANAGING MEMBER Jon G. March 616.831.1729 marchj@mjsc.com Grand Rapids p 616.831.1700/f 616.831.1701 Kalamazoo p 269.226.2950/f 269.226.2951 Have a question about a specific legal area? If so, please contact one of the following members of the Miller Johnson Business Section. We would welcome the opportunity to assist you. s JAMES L. HOPEWELL joins Miller Johnson as a member in the Grand Rapids office. He will continue his practice in the areas of business counsel, mergers and acquisitions, real estate and taxation. James received his education at University of Cincinnati College of Law, Syracuse University and Adrian College. BUSINESS SECTION CHAIR EMPLOYEE BENEFITS MERGERS AND ACQUISITIONS Jeffrey G. York 616.831.1764 yorkjg@mjsc.com James C. Bruinsma 616.831.1708 bruinsmaj@mjsc.com Jeffrey G. York 616.831.1764 yorkjg@mjsc.com BUSINESS SECTION VICE CHAIR ENVIRONMENTAL AND ENERGY REAL ESTATE John M. Sommerdyke 616.831.1757 sommerdykej@mjsc.com Alan C. Schwartz 616.831.1751 schwartza@mjsc.com CORPORATE AND CORPORATE FINANCE ESTATE PLANNING AND PROBATE Jeffrey G. York 616.831.1764 yorkjg@mjsc.com Carol J. Karr 616.831.1723 karrc@mjsc.com CREDITORS’/DEBTORS’ RIGHTS INTELLECTUAL PROPERTY Robert W. Scott 616.831.1752 scottr@mjsc.com TAXATION Mark E. Rizik 616.831.1744 rizikm@mjsc.com Barry C. Kane 616.831.1770 kaneb@mjsc.com Thomas P. Sarb 616.831.1748 sarbt@mjsc.com Any of the above lawyers can also put you immediately in contact with firm attorneys who practice in the areas of Banking, Environmental Law, Government Relations, Health Care, Health Professionals, Immigration, International Contracting, Municipal Law, and Small Business. This newsletter is a periodic publication of Miller, Johnson, Snell & Cummiskey, P.L.C., 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 lawyer concerning your own situation and any specific legal questions you may have. For further information about these contents, please contact us. © 2004 Miller, Johnson, Snell & Cummiskey, P.L.C. All rights reserved. Priority Read is a federally registered service mark of Miller, Johnson, Snell & Cummiskey, P.L.C. PRSRT. 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