Category: Benefits

At first glance, this seems like “not putting your money where your mouth is.” At second glance, you realize it is more likely that it involves ERISA plan fiduciaries of a retirement plan seeking to act solely in the interests of plan participants and beneficiaries even though such action goes against what is good for the company that sponsors the retirement plan. [ERISA section 404(a)(1)]

The American Benefits Council states on their website that “Congressional appropriations conferees are expected to meet no later than November 12 to reconcile the House and Senate versions of the Treasury/Transportation appropriations bill (H.R. 2989) containing harmful cash balance plan provisions.” They also state that “[a]s part of the Council’s continuing effort to strip these provisions from the final conference report” they have developed a draft letter for plan sponsors to complete and fax to the appropriations conferees and congressional leadership staff. You can access this information on their website.

At the ALI-ABA “Annual Fall Employee Benefits Law and Practice Update” (discussed in previous posts here and here) Bill Sweetnam, Benefits Tax Counsel for the Department of Treasury, encouraged practitioners to write their Congressmen regarding cash balance plans, since he said that there seems to have been very little support for cash balance plans expressed on the House or the Senate floor when the Sanders and the Harkin’s measures were passed.

The American Benefits Council also has a legal opinion on cash balance plans prepared by Richard Epstein which you can access here. Highlights of the opinion are as follows:

(1) “In the House floor debate, the proponents of Section 742 [Sanders Amendment] portrayed CBF pension plans as a witch’s brew of age discrimination, breach of contract, and theft of employe pension assets, which they claimed the Cooper decision remedies. Their portrayal of CBF plans and Cooper does not withstand scrutiny. . .”

(2) “The apparent aim of this provision is to block the Treasury Department from issuing further regulations on ERISA section 204(b)(1)(H) or from participating in the Cooper litigation or other litigation insofar as it wishes to register its disagreement with Cooper. Even the requirement that the Department be silent on the entire matter would be deeply troublesome. Even more troublesome is that the agency may be allowed to speak on one side of the issue but not the other (i.e. it may not assist in overturning, but could assist in upholding Cooper) . . . . It is a generally accepted principle of constitutional law that the Congress may not through its legislation trample on the prerogatives of the Executive Branch in the discharge of its duty to see that the laws are faithfully executed. . . .”

(3) “The IBM plan and all other CBF plans satisfy ERISA section 204(b)(1)(H) by using the same rate of interest throughout the plan. The district court, however, ruled that the rate of benefit accrual referred to in that provision is the same as the employee’s total benefit accrued, thereby requiring the same dollar amount of interest for the 24- and 64-year old employees in the above example. The district court, in effect, confused velocity with distance. It is as though the court decreed that two people, one 24 and the other 64, running at the same speed, will be deemed to have run at the same speed only if both cover the same distance by the time each reaches age 65, 40 years apart. That, however, is a conceptual muddle and a physical impossibility. Congress clearly did not mandate such a nonsensical result.”

(4) “The result in Cooper cannot be justified on a public policy basis to avoid discrimination against older employees. To the contrary, it effectively mandates reverse age-discrimination, on an unprecedented scale.”

(“CBF” stands for “cash balance formula.”)

The irony of all of this is that tomorrow will be a big day for deciding issues pertaining to reverse age-discrimination: Congressional appropriations conferees will be deciding the fate of the Sanders and Harkin’s measures while at the same time the U.S. Supreme Court will hear oral arguments in the General Dynamics case to decide the fate of reverse age-discrimination claims.

The following were “best” picks in the Encore edition of the Wall Street Journal today:

• Financial worksheet to plan your retirement: The T. Rowe Price Retirement Income Calculator. “The calculator helps people who are approaching retirement, or who are already retired, figure out whether their monthly income goals are realistic. To do so, it uses “Monte Carlo” simulations — a type of probability analysis that generates hundreds of computer scenarios of what might happen to your money over any given period, and then uses that information to determine your portfolio’s probability of success. You have to supply your starting retirement age, retirement length, marital status, retirement assets, monthly income goal, and investment mix of stocks, bonds and short-term securities. The calculator does the rest.”

• Information about Social Security: Ask Mary Jane. The National Committee to Preserve Social Security and Medicare, a Washington advocacy group, has this spot on its Web site where you can e-mail a question about Social Security to Mary Jane Yarrington, “a longtime congressional caseworker who joined the group in 1986 as a senior policy analyst and has written her question-and-answer column for 14 years.” There is a list of Q & A’s where she has already answered many questions that can arise.

• Information about IRAs: IRAhelp.com. Ed Slott, a certified public accountant, hosts this website.

The “Best” Advice: Free information is great, but it is always best to get the advice of a qualified professional so that he or she can address the facts and circumstances of your particular situation.

The U.S. Supreme Court is scheduled to hear oral arguments in a reverse age-discrimination case on Wednesday. The following article highlights the challenging issues which could arise in the retirement plan arena if the court rules in favor of the younger workers: “High court to hear younger employees’ bias case.” Ann Reesman, an attorney for the U.S. Chamber of Commerce who filed a friend-of-court brief supporting the employer in the case, General Dynamics, said “any decision in favor of the younger workers would threaten hundreds of retirement plans that skew benefits toward older employees.” The article notes that such a ruling could threaten corporate practices of offering early retirement, special severance packages to workers based on age, “age-weighted” retirement plans, and even “catch-up” contributions.

Law.com‘s article–“Now for Law Firms, Too: Competing for Business Online“–has some very interesting information, but the most surprising, in my opinion, is this statement:

Other GE divisions have sought to reduce legal costs by outsourcing work to lawyers in India.

I have heard of the outsourcing to India in the computer industry and even in the financial services industry, but this is the first I have heard of the outsourcing to India occurring in the legal field. If anyone else has any good information or links on this, I would love to read them and would pass them along to readers.

UPDATE: I should have known that my friend, Carolyn Elefante (solo and small firm practice guru and creator of MyShingle.com) would have the scoop on this issue. You can access previous posts from her site about legal outsourcing to India here and here.

Roth CPA is giving out the Procrastinator of the Year Award here:

Thirteen years is enough time for your kindergartener to start attending college classes; if you lose your IRS check, you need to take action by middle school.

And if you have trouble with procrastination, you might want to read about “Structured Procrastination.” Or, if that doesn’t help, maybe this will:

“Procrastination: A hardening of the oughteries.” (Anonymous)
“You may delay, but time will not.” (Benjamin Franklin)

Today’s Federal Register contains corrections to the final regulations governing split-dollar life insurance arrangements which you can access here. I have added the final split-dollar regulations (with related links) to the “Hot Topics” section on the right (scroll down):

• Final Split-Dollar Life Insurance Regulations
  
• Revenue Ruling 2003-105 (clarifying status of prior administrative guidance)
  
• Corrections to Final Split-Dollar Life Insurance Regulations
  
• Kirkpatrick & Lockhart LLP: “Final Regulations on Split-Dollar Life Insurance Arrangements“
  
• Seyfarth Shaw: “ IRS Finalizes Split Dollar Regulations – Time for Action for Existing Arrangements“

Denise Howell, who coined the word “blawg” for law blog, has a great deal to say about the benefits of blogging over here.

By the way, the term “blogress” (female blogger) seems to be catching on. . .Taranto keeps using it at Best of the Web Today (here). (Calblog mentions it here.)

At the ALI-ABA Annual Fall Employee Benefits Law and Practice Update mentioned in a previous post, Jim Holland, Employee Plans Group Manager (Actuarial 1) for the IRS, discussed a new phenomena in the benefits world–how U.S. attorneys are seeking to levy against qualified plan assets pursuant to the Federal Debt Collection Procedures Act of 1990 (“FDCPA”). The Act authorizes the federal government to collect against all property of individuals for payment of criminal fines or for restitution to victims of crimes. Mr. Holland stated that the IRS did not know that this practice under the FDCPA was going on until they received a request for a private letter ruling from a federal district court. When they received the request, they discovered that there had already been two federal district court cases on the subject allowing the garnishment, and holding that garnishment should not disqualify the plan under the anti-alienation provisions of section 401(a)(13) of the Internal Revenue Code or under the anti-alienations provisions of section 206(d)(1) of ERISA.

In response, the IRS issued Private Letter Ruling 200342007 (via Benefitslink.com) which held that “the general anti-alienation rule of Code section 401(a)(13) does not preclude a court’s garnishing the account balance of a fined participant in a qualified pension plan in order to collect a fine imposed in a federal criminal action.” The IRS accepted the reasoning of the courts which had held that section 3713(c) of the FDCPA (which provides that “an order of restitution . . .is a lien in favor of the United States on all property and rights to property of the person fined as if the liability of the person fined were liability for a tax assessed under the Internal Revenue Code . . .”) was to be treated as if it were a tax lien so that it fell within the exception to the anti-alienation provision as enunciated under Treasury Regulation section 1.401(a)-13(b)(2)(ii). That exception provides:

(b) No assignment or alienation–

(1) General rule. Under section 401(a)(13), a trust will not be qualified unless the plan of which the trust is a part provides that benefits provided under the plan may not be anticipated, assigned (either at law or in equity), alienated or subject to attachment, garnishment, levy, execution or other legal or equitable process.

(2) Federal tax levies and judgments. A plan provision satisfying the requirements of subparagraph (1) of this paragraph shall not preclude the following:
      (i) The enforcement of a Federal tax levy made pursuant to section 6331.
      (ii) The collection by the United States on a judgment resulting from an unpaid tax assessment.

Mr. Holland stated that there are still a great deal of unanswered questions regarding levies against qualified plan assets under the FDCPA. In the Private Letter Ruling, the garnishment had to do with a defined contribution plan and sought immediate payment from the plan. The Private Letter Ruling stated that the participant had an account in the 401(k) plan, but also stated that “[c]urrently, Participant A [had] no right to a distribution of amounts standing to his credit under Plan X.” However, the IRS went ahead and allowed the garnishment despite the fact that the participant did not have a right to an immediate distribution.

Mr. Holland stated that there were issues pertaining to defined benefit plans that had not yet been addressed, and that the issues can be difficult, especially when plan administrators are being threatened with contempt if plan monies are not turned over.

What about the tax consequences to the individuals involved? The panel stated that the amounts garnished would be includible in the income of the participant, but that it would not be subject to the section 72(t) early withdrawal penalty since levies are exempt from section 72(t). However, the question was asked about an obligation to withhold, and the answer was that it was unclear at this point since the question had not yet been addressed.

The following may also be relevant:

• Chief Counsel Advice 199936041(PDF)
• Chief Counsel Advice 200102021(PDF)
• Chief Counsel Advice 200249001(PDF)
  

As part of Howard Bashman‘s November edition of “20 Questions for the Appellate Judge,” Howard asked Senior Circuit Judge Richard S. Arnold of the U.S. Court of Appeals for the Eighth Circuit about his most favorite aspect of being a federal appellate judge. Judge Arnold’s answer was, in my opinion, profound and refreshing:

The aspect of the job I like most is that all I have to do is do right. Every day when I come to work and pick up a file, that is my only job. Let right be done.

It is a philosophy which this generation and those after us should really learn from and take to heart. . . and unfortunately, as this article from CFO.com relates, it is not a philosophy espoused by very many today: “Whatever Happened to Doing the Right Thing?” According to the article, “[w]hen Americans were asked what the main business benefit of being a responsible corporate citizen is, their number-one response was “improving brand image.” One-third of the respondents replied “increase sales,” according to the survey. Doing the right thing was apparently way down the list.”

Another article from Beth Matter of Vanderbilt University highlights the issue: “After Enron: the (Un)Certain Future of Corporate Responsibility.” The article notes:

The Enron debacle resulted from a total failure of professionals to do their jobs— from executives running the company to investment bankers giving advice—which helped to push the pendulum into the Sarbanes Oxley Act . . Companies are worried about extra liabilities, but many of the regulations can be distilled down to four words: Do the Right Thing. For companies already doing the right thing, the future is not uncertain. Those not doing the right thing are going to have to venture into different territory, but it is not uncharted. Shouldn’t audit committees already have been independent? Shouldn’t officers already have been responsible for their financial statements?”