Category: Benefits

From an Associated Press article (via Findlaw.com)–“Bush Calls for Streamlining Tax Code“:

President Bush on Friday called streamlining and reforming the U.S. tax code an “essential task for our country,” but offered few hints of how he intends to get it done.

Treasury Secretary John Snow said “everything’s on the table,” including possibly the popular home mortgage and charitable deductions and a former senator leading a tax-reform panel for Bush said that a national sales tax or flat tax also could be in the cards.

Also, there is a press release containing the Executive Order establishing the President’s Advisory Panel on Federal Tax Reform (from the TaxProfBlog) as well as this Announcement of the appointment of members to the Advisory Panel. The Wall Street Journal here notes that the members are a “mix of academics, Wall Street types, and former government officials including former Minnesota Rep. Bill Frenzel, who served on Mr. Bush’s Social Security commission in 2001.”

Also, another article from the Wall Street Journal has more:

Snow insisted the administration is committed to tax reform and said he saw no reason why legislation couldn’t be ready to go to Capitol Hill by autumn. For one thing, he said the administration will be in close touch throughout the process with the tax panel so its recommendations won’t come as a complete surprise.

The tax panel will hold numerous hearings both in Washington and around the country both to get new ideas and to make the case for its recommendations, Mack said.

Senate Finance Committee Chairman Charles Grassley, R-Iowa, is urging the Panel “to use the tax scoring conventions of Congress’s Joint Committee on Taxation in fashioning its tax overhaul proposals” as reported here in the Wall Street Journal:

The chairman and ranking minority member of the Senate Finance Committee on Friday urged President George W. Bush’s new tax reform panel to use the tax scoring conventions of Congress’s Joint Committee on Taxation in fashioning its tax overhaul proposals.

“We fear that failure to adhere to Congressional estimating standards would severely undermine any proposals recommended by the advisory panel,” said Senate Finance Committee Chairman Charles Grassley, R-Iowa, and Sen. Max Baucus, D-Mont., the senior Democrat on the committee.

And don’t miss this op-ed on tax reform by William F. Buckley, Jr. (from NPR.com)–“Whither Taxes?”–in which he makes this observation about tax reform:

[T]ax reform is a new code enacted after massive wrestling and eye-gouging and threats and excoriations, presented as a civilized enhancement of social policy. It is an assertion of justice, justice understood as a blend of considerations: the necessities of the state; the toleration of the body politic; the relationships of power among the affected interests; and rough justice. All of the above decocted from the minds and hearts of 535 legislators.

U.S. Secretary of Labor Elaine L. Chao issued the following statement on the December unemployment numbers released today:

“The economy created 157,000 jobs in December, many in higher paying fields including education and health services and professional and business services. This emphasizes the importance of the President’s economic programs and job training initiatives.”

The unemployment rate in December remained unchanged at 5.4% and more than 2.5 million jobs have been created in the last 16 months. The level of payroll employment is now 114,000 higher than in January 2001 and the annual average for 2004 shows that more Americans are working than ever before.”

USAToday reports:

President Bush called Friday’s report “a very positive set of numbers” that are proof the economy is growing. “That’s positive news,” he said at the end of a meeting with the leaders of a bipartisan panel he’s tasked with recommending reforms to the tax code.

The report didn’t sour economists, but it didn’t wow them either.

There is a great article here from Pepper Hamilton LLP entitled “The Death of the Discount Non-Qualified Stock Option.”

Want to know what time it really is–officially, that is? You can go to The Official U.S. Time site to find out. I will put a permanent link for the site over in the right-hand column.

Read about it here from KaiserNetwork.org. Excerpt:

Treasury Department Secretary John Snow has denied a request from Senate Finance Committee Chair Chuck Grassley (R-Iowa) to revise a rule that requires employees at the end of the year to return to their employers any unspent funds in their flexible spending accounts, the Wall Street Journal reports (Herman, Wall Street Journal, 1/5).

Also, this excerpt from the Wall Street Journal article mentioned above:

In a letter to Sen. Chuck Grassley , Mr. Snow contends the Treasury Department doesn’t have “sufficient legal authority” to change the rule administratively. But in the letter, which was reviewed by The Wall Street Journal, Mr. Snow leaves open the possibility of some tinkering with the Treasury’s “use it or lose it” rule. Mr. Snow says Treasury officials are searching for “creative solutions.”

One possible approach may be to provide “a brief administrative grace period” each year, thus “effectively extending the period slightly beyond one year before amounts are forfeited,” Mr. Snow says in the letter. He doesn’t explain how long a grace period that might be, or when such a change might become effective.

The Treasury and IRS have announced some revisions and clarifications to IRS Notice 2005-1 providing guidance on the executive compensation provisions of new section 409A of the Internal Revenue Code, which was added by the American Jobs Creation Act of 2004. An advance version of the notice was released to the public on December 20, 2004 and was discussed here and here.

This article from Law.com–“Employment Law Forecast: Stormy Weather“–lists the cash balance pension plan litigation as one of the hot topics in 2005 for general counsels to keep an eye on:

. . . [I]n the wake of IBM’s massive settlement, other companies with pension plans are wondering whether they, too, could pay a steep price. Bank of America Corp., Allied Waste Industries Inc., Monsanto Company, and AT&T Corp. are among the companies that are defendants in class action suits that challenge cash-balance plans. GCs may soon be making a cost-benefit decision: Is the risk of class action litigation worth the savings from switching from a defined-benefit pension plan to a cash-balance or 401(k) plan?

(Link from George’s Employment Blawg.)

I have created a permanent spot over in the right-hand column for a table containing the 2005 retirement plan limitations and FICA wage base limit for future reference. The table reads as follows:

401(k)/403(b) Elective Deferral Limit (402(g)(1))	$14,000
Government/Tax Exempts Deferral Limit (457(e)(15))	$14,000
Catch-up Cont.’s Limit	$4,000
Annual Compensation Limit	$210,000
HCE Comp. Limit	$95,000
Key Employee Officer Comp.	$135,000
Max. Annual Benefit: DB Plan	$170,000
Max. Annual Contribution: DC Plan	$42,000
SEP Minimum Comp.	$450
SEP Compensation	$210,000
SIMPLE Employee Cont. Lmt.	$10,000
SIMPLE “Catch-Up” Deferral Lmt.	$2,000
FICA Wage Base	$90,000

RothCPA.com is reporting:

The leaders of the Senate Finance Committee have proposed allowing a 2004 deduction for cash contributions made to Tsunami relief efforts during January 2005. Normally, of course, such deductions would only be deductible on 2005 returns.

It appears that the plan is non-controversial and likely to pass, but you shouldn’t claim January 2005 deductions on 2004 returns until it is signed into law.

Link: Grassley/Baucus press release on the plan (pdf format)

Imagine the following scenario: Participant of a 401(k) plan obtains a divorce, and the divorce court enters a decree that the spouse will receive 50% of the increase in value of the account from the date of marriage until the date of divorce. The court directs the spouse’s attorney to prepare a QDRO to effectuate the terms of the divorce decree. The spouse’s attorney prepares a QDRO and submits it to the employer for processing. But before the QDRO is approved, the participant dies. The employer informs the spouse that the plan will not honor the QDRO because it has not been approved by the court. The spouse’s attorney submits the QDRO to the court and the court approves the QDRO nunc pro tunc (meaning “now for then”). The spouse then submits the QDRO to the plan for payment, only to find that the children of the deceased participant have also submitted a claim for payment of that portion of the decedent’s account, claiming that the QDRO approved by the court after the death of the participant is invalid. What should the plan fiduciaries do?

The fiduciaries of the IBM Tax-Deferred Savings Plan decided to let the court settle the controversy, and thus filed an action for interpleader to determine the proper beneficiaries of the account. (See IBM Savings Plan v. Price.) Who prevailed? The spouse, based upon a holding that as long as a QDRO meets the other statutory requirements of ERISA contained in 29 U.S.C. § 1056(d)(3), it can be issued nunc pro tunc. The court noted that the 8th, 9th and 10th Circuit had each reached the same conclusion based upon similar facts.

Was the spouse entitled to attorneys’ fees? Apparently not, since the court concluded that the children’s claim for that portion of the account under the plan were not without some merit.