Richard C. Shea

Richard Shea is a senior partner in Covington’s employee benefits and executive compensation practice.  Mr. Shea is widely regarded as the nation’s leading authority on cash balance, pension equity, and other complex benefit plan designs.  His practice spans the full breadth of activities needed to help his clients resolve novel, sensitive, or intractable issues.  His approach focuses on developing important new legal insights and ideas, and then combining them into effective litigation, legislative, regulatory, and benefit design strategies for his clients.  The representative matters described below offer a sampling of the many important and challenging assignments he has handled.

Before joining Covington in 1991, Mr. Shea served as Associate Benefits Tax Counsel at the Treasury Department, where, together with his colleagues at the Treasury Department and the Internal Revenue Service, he was responsible for developing federal tax legislation and regulations governing employee benefits and executive compensation.

Representative Matters

• In 1992, several of the nation’s largest manufacturers approached Covington to seek assurances that offering repeated early retirement windows in response to recession and international competition would not risk the tax qualification of their pension plans.  Other major law and accounting firms had repeatedly told the manufacturers that no such assurances could be given under existing law.  Mr. Shea developed a new analysis of existing law that contradicted the prevailing wisdom.  In a collaborative effort between Mr. Shea and his colleague John Vine, Covington not only was able to provide the legal assurances the manufacturers sought, but persuaded the Internal Revenue Service to issue Revenue Ruling 92-66, which adopted the legal reasoning developed by Mr. Shea.
• In 1999, Mr. Shea assisted Eastman Kodak Company in converting its traditional defined benefit plan to a cash balance plan.  The conversion is frequently cited by members of Congress, regulators, benefits consultants, and the press as the model for a successful cash balance conversion.  The case is just one of the many cash balance and pension equity conversions Mr. Shea has assisted clients in implementing successfully and without incident.
• In 2004-06, on behalf of a coalition of cash balance and pension equity plan sponsors that included both Fortune 100 companies and smaller regional employers in key states, Mr. Shea, together with his colleague Robert Newman, developed a legislative proposal clarifying the legal status of cash balance, pension equity, and related traditional pension plans.  The proposal attracted the endorsement of every major business group, including the U.S. Chamber of Commerce, the Business Roundtable, and the National Association of Manufacturers, and formed the basis of the hybrid pension plan provisions included in the Pension Protection Act of 2006, which was passed by Congress on a bipartisan basis and signed into law by the President in August 2006.
• In August 2006, the Seventh Circuit also handed down its seminal decision in the Cooper v. IBM case, the first federal appeals court decision to address whether cash balance and pension equity plans violate federal age discrimination laws.  The decision handed plan sponsors a major victory against a floodtide of class action litigation against cash balance and pension equity plans.  As counsel to IBM, Mr. Shea was instrumental in developing the legal arguments advanced by IBM, and, together with his colleagues at Covington and IBM, molded those arguments into the winning litigation strategy that prevailed in Cooper.  The victory in Cooper followed on earlier district court victories in which Mr. Shea played a similar, pivotal role, including Eaton v. Onan Corp., the first federal district court decision to address the cash balance age discrimination question.
• In 2002, at the request of the Treasury Department, Mr. Shea briefed the Democratic and Republican staffs of the Senate Finance and Senate Health, Education, Labor, and Pensions Committees.  The staffs were meeting to address legislation passed by the House that would have enshrined the so-called “whipsaw” calculation of lump sums in federal law.  In a detailed briefing, Mr. Shea explained to the staff that the whipsaw calculation had an inherent, and disturbing, age discriminatory effect―an effect that had eluded the responsible federal agencies, two federal courts of appeals, and academic commentators.  At the end of the briefing, the staffs unanimously agreed on a bipartisan basis to recommend to their bosses that the Senate not take up the House proposal.  The House proposal died that session and was never reintroduced.
• In 1996-98, on behalf of a pro bono client of the firm, Mr. Shea developed and negotiated a legislative proposal to transfer the unfunded pension liabilities of the District of Columbia to the federal government.  At the time, almost every observer assumed that the District was to blame for its pension deficit, which by the mid-1990’s had reached $5 billion and was growing.  In collaboration with the American Academy of Actuaries, Mr. Shea gathered data conclusively demonstrating that the entire deficit was attributable to the period of federal control before the District was granted home rule in 1979.  Mr. Shea structured the proposal in such a way that it was scored as cost-neutral for federal budget purposes.  In the end, the proposal gained the enthusiastic support of the White House, the bipartisan leadership of both houses of Congress, and even the previously skeptical Washington Post.  When it was enacted into law, the legislation immediately moved the entire District budget from an annual structural deficit of $200 million to an annual surplus of $100 million and avoided the District’s imminent bankruptcy in the early 2000’s when pension contributions were projected to mushroom.  Officials estimate that the legislation saved each household in the District of Columbia approximately $21,000.
• From 1997-2000, Mr. Shea assisted several major employers in refinancing their leveraged ESOPs to accommodate the growth in their stock values and the simultaneous contraction of their workforces during the 1990’s.  To accomplish the refinancings, Mr. Shea secured key rulings from the Internal Revenue Service and, together with his colleague Rod DeArment, critical field guidance from the Department of Labor.
• In 1989-90, while serving at the Treasury Department, Mr. Shea developed the idea for a novel plan design that would add a 401(h) retiree medical account to a money purchase ESOP.  He dubbed the new design an “HSOP” and briefed his government colleagues on the idea.  As a result of Mr. Shea’s work, when Wall Street subsequently brought the same plan design to market, the government was in a position to respond immediately.
• In 1993, after joining Covington, Mr. Shea traveled to Jamaica on behalf of the Inter-American Development Bank (IDB) to interview key government officials and business leaders regarding the budgetary effects of comprehensive ESOP legislation pending in the Jamaican parliament.  Because Jamaica at the time depended on IDB loans for its financial survival, Mr. Shea’s report to the Bank was critical to determining the legislation’s future.

Honors and Rankings

• The Best Lawyers in America, Employee Benefits
• Chambers USA - America's Leading Business Lawyers, Employee Benefits & Executive Compensation (2007)
• Distinguished Volunteer Service Award, DC Appleseed Center (1997)
  

Publications and Speeches

• "The Seventh Circuit Decision in Cooper v. IBM," Buck Consultants Webcast (August 2006)
• "Cash Balance Plans: Dead or Alive?," Annual Conference, Institutional Investors Institute (Spring 2004)
• "Fear Factor: Court Cases Affecting Pension Plans," Annual Conference, Joint Board for the Enrollment of Actuaries (Spring 2004)