Showing papers in "Buffalo Law Review in 2001"

"The Most Glorious Story of Failure in the Business": The Studebaker-Packard Corporation and the Origins of ERISA

Abstract: The Studebaker-Packard Corporation occupies a distinctive place in the lore of the Employee Retirement Income Security Act of 1974. No single event is more closely associated with ERISA than the shutdown of the Studebaker plant in South Bend, Indiana. Soon after the plant closed in December 1963, Studebaker terminated the retirement plan for hourly workers, and the plan defaulted on its obligations. The plight of Studebaker employees quickly emerged as a symbol of the need for pension reform. This article examines the history of the Studebaker-Packard Corporation to understand why and how the shutdown came to play a role in the political history of ERISA. Briefly, the shutdown played an important role in pension reform because the United Auto Workers union was prepared to take advantage of the political opportunity the shutdown created. By the time the plant closed, the UAW was well aware that "default risk" - the risk that a pension plan will terminate without enough funds to meet its obligations - threatened union members. Studebaker-Packard had terminated the retirement plan for employees of the former Packard Motor Car Company in 1958. Packard workers got even less than their counterparts at Studebaker would receive in 1964. The Packard termination convinced UAW president Walter Reuther that the union needed to protect its members from default risk. In the early 1960s, the UAW devised a remedy - a proposal for "pension reinsurance" - that is a precursor of the termination-insurance program created by Title IV of ERISA. The Studebaker shutdown gave the union an opportunity to move default risk and termination insurance onto the legislative agenda. The success of this effort in agenda-setting indelibly linked Studebaker to the cause of pension reform.

Banking, Antitrust and Derivatives: Untying the Antitying Restrictions

Abstract: This article argues that expressly requiring a borrower to enter into an OTC derivative with a bank as a condition for receiving credit does not violate the antitying restrictions of the Bank Holding Company Act ("BHCA"). Part I of this article discusses the nature of OTC derivatives and demonstrates through examples how OTC derivatives can enable a borrower to minimize various business risks. Part II examines how banks are encouraging their borrowers to utilize various risk management techniques such as OTC derivatives and discusses the impact of BHCA on such efforts. Finally, Part III analyzes the elements of tying a claim under BHCA and argues that a requirement to enter into an OTC derivative with a bank as a condition to obtaining credit will not constitute a violation of the BHCA. Part III first discusses how a loan combined with an OTC derivative such as an interest rate swap is not really two tied products, but is actually in substance a fixed rate loan. The part then argues that these tied products do not satisfy the "anticompetitive in nature" requirement because typically only the lending bank is willing to enter into the OTC derivative with the borrower. Finally, the part concludes that the traditional banking practice exception to the antitying rules would exempt such tying arrangement from the antitying provisions.

The Limits of Saving

Abstract: Like Rip Van Winkle, baby boomers have awoken to find that they have aged. Their retirement is looming, and now it seems that everyone is worried about saving for it. The popular press, with the assistance of the financial services industry, has made saving for retirement a trendy topic. Financial planning advice and products devoted to retirement savings fill the daily newspaper, the media, and even the Internet. When concerns over retirement income arise, we usually look to the private pension system for solutions. Recently, Congress has been considering a set of proposals that increase the amount people can save through the private pension system by raising limits on contributions to defined contribution plans. The current limits have not been raised in several years. In fact, in many respects, they are much lower than they were in the early 1980s. These reform proposals would largely restore previous limits, reversing a twenty-year trend of restricting pension contributions in order to reduce federal budget deficits and distribute tax benefits more evenly.