Words Cannot Adequately Express. . .

How I feel about this case: McCauley v. First Unum Life Insurance Company. Justice at last. . . sorrow that one of my fellow tax attorneys had to fight such a legal battle for over 13 long years when he should have been able to focus on fighting the disease that was ravaging his body. . .gratefulness that the Second Circuit was able to finally deliver a proper result with a little help from MetLife v. Glenn.

As usual, Roy Harmon has provided a summary of the legal arguments of the case in his wonderful style here. However, besides the obvious importance of the case in its post-Glenn analysis, I have the following comments:

(1) The McCauley case is a perfect example of what the Supreme Court had in mind when it said this in the Glenn case:

We believe that Firestone means what the word “factor” implies, namely, that when judges review the lawfulness of benefit denials, they will often take account of several different considerations of which a conflict of interest is one. . . In such instances, any one factor will act as a tiebreaker when the other factors are closely balanced, the degree of closeness necessary depending upon the tiebreaking factor’s inherent or case-specific importance. The conflict of interest at issue here, for example, should prove more important (perhaps of great importance) where circumstances suggest a higher likelihood that it affected the benefits decision, including, but not limited to, cases where an insurance company administrator has a history of biased claims administration. See Langbein, supra, at 1317–1321 (detailing such a history for one large insurer). . .

Interesting to note is the fact that the Second Circuit, in a discussion of the insurer’s “history of deception and abusive tactics”, refers to episodes of “60 Minutes” and “Dateline” as being indicative of such history.

(2) Although Glenn will at least provide some help to employees seeking to perfect claims under their employer-based disability policies, employers may still want to consider structuring their disability programs for employees as non-ERISA plans in order to ensure a greater possibility of recovery. Read more about this quagmire in the law in this previous post here: Voluntary Benefits Becoming a Catch 22 for Employers.

Making Matters Worse. . .

From the Washington Times: “States set to impose bevy of new taxes: Likely to prolong recession, critics say.” Excerpt:

One of the most sweeping revenue packages comes out of New York, where Democratic Gov. David A. Paterson wants to raise $4 billion with 137 new or increased taxes and fees in the budget, including an 18 percent so-called “anti-obesity tax” on non-diet soft drinks. Satellite TV, cigars and professional licensing fees also are targets.

Of course, many states will likely feel pressure to impose taxes to shore up underfunded public pensions, which have taken a hit in the recent economic crisis, and to fund post-retirement health care for public workers.

Resource for Retirement Plans Impacted by Madoff Scheme

For those looking for some good info to assist with recovery for retirement plans and IRAs impacted by the Madoff Ponzi scheme, Proskauer Rose has posted a Transcript which contains some helpful information. Excerpt:

As Ed mentioned earlier, SIPC has said that the Madoff firm records are not in good order. Therefore, it is essential you gather your own documentation and be sure that it is in order and complete. . . You should gather all of your records relating to receipt, that you received from the Madoff firm of your deposits. This could be extremely important as proof of what entity it is that your money was deposited into. SIPC insurance, as you heard earlier, applies to the Madoff broker/dealer, which was called Bernard Madoff Investment Securities, LLC. But SIPC does not apply to any funds deposited with other entities Madoff may have been operating. Therefore, if your money was deposited into an entity different from the broker/dealer, your deposit may not be covered by SIPC insurance. An opinion about SIPC coverage for you would require a full evaluation of your individual documents.

More. . .

. . . [F]or the institutional contacts, where assets are invested through asset managers, advisors, fiduciaries, feeder funds, and the like, it is likely that those institutional holders also have their own insurance coverage, their own investment management coverage, their own fiduciary liability coverage, their ERISA bonds, their fidelity bonds, that should be endorsed in a way to provide coverage for the activities of off-site managers that commit fraudulent and dishonest conduct that results in a loss of the investment. So, to the extent assets are held in those areas, there should be additional sources of policies, often with very substantial limits and very broad coverage to allow for recovery of additional losses. And so, really, the overriding point here is to look at insurance with an open mind and, most importantly, look at it early, because otherwise the potential avenues of recovery might well be forfeited.

(Also, the transcript answers a question many lawyers are being asked these days: Can the SEC be sued for this mess? Answer: pg. 18 of the Transcript)

Source: A Taxing Matter

President Bush Signs WRERA

On Tuesday, December 23, 2008, the President signed H.R. 7327, the “Worker, Retiree, and Employer Recovery Act of 2008” into law.

A Very Handy List

Wow, a Christmas present for benefits lawyers: A Chronological Summary of all the Major Benefits Legislation enacted since ERISA. (from Hewitt)

(Also, a great illustration of why benefits lawyers continue to be in demand–even in an economic meltdown–and why benefit plan documents tend to be so complicated.)

RMDs for 2008 – No Relief

For those waiting to take their Require Minimum Distributions (“RMDs”) for 2008, hoping that relief might come from the IRS, please note that the latest news is that the Treasury has declined to provide such relief (2009 RMDs have received relief under WRERA). From the Washington Post: IRS, Treasury Keep Rule Requiring Retirees to Withdraw Their Savings:

The Treasury Department and Internal Revenue Service decided not to change a rule that requires seniors to withdraw money from their individual retirement accounts and 401(k) plans by the end of the year. . .

We are disappointed that the Treasury Department declined to act to help those seniors forced to take withdrawals from their depleted retirement accounts,” said Aaron Albright, press secretary for the House Education and Labor Committee. “Congress acted to provide relief for seniors in 2009 with the understanding that Treasury was actively working on a solution for this tax year.”

In a letter to Congress, Kevin I. Fromer, the Treasury’s assistant secretary for legislative affairs, said “the scope of Treasury’s ability to make administrative changes has constraints. Thus, any steps Treasury could take would be substantially more limited than the relief enacted by Congress and could not be made available uniformly to all individuals subject to required minimum distributions.”

He also wrote that making any changes this year would be “complicated and confusing for individuals and plan sponsors.”

Many seniors have already taken their required minimum distribution for this year. One of the main concerns with suspending the rule was the difficulty in determining how to deal with those who had already complied with it.

Update: Access the text of the Treasury’s letter to Congress indicating the Treasury will not provide any relief for 2008 RMD’s here.

Listen to Pandora While Reading. . .

I have provided some of my Pandora stations in the sidebar on the right. I highly recommend the White Christmas Radio station if you like Christmas music. And if you haven’t discovered Pandora yet, well. . . you are in for a treat!

Cycle C Determination Letter Deadline is Groundhog Day

For those who end up waiting until the last minute to file a Cycle C determination letter application, the IRS has these words in their latest Employee Plan Newsletter:

The Cycle C deadline for submitting determination letter applications for individually designed plans under Revenue Procedure 2007-44 ends January 31, 2009. A question has been raised as to whether the deadline is extended to Monday, February 2, 2009, since January 31, 2009 is a Saturday. Although this does not generally fall within the rules of Code §7503, the IRS will accept an application for a Cycle C determination letter if it is submitted no later than February 2, 2009. Please note that although February 2 is Groundhog Day, this does not give applicants unlimited do-overs as in the movie by the same name.

409A Affecting NFL Players

Even though 409A has been around now for three years, employers continue to be surprised at the implications, as evidenced by this story:

NFL agents were sent an urgent memo this week from the NFLPA, requiring immediate attention to Federal Tax Code 409A. This provision, originally aimed at bloated executive compensation packages, potentially calls for a full tax burden on signing bonuses and future guaranteed money in the year the package is negotiated, even if the money is deferred over several years. This would have dramatic ramifications.

Virtually every signing bonus of any significance in an NFL contract is paid out over a period of at least a couple of years. For instance, if an NFL player signed a contract in March 2008 with an $8M bonus, payment terms of that bonus might have looked something like this:

$2M upon execution of the contract;
$2M in October 2008;
$1M in both March and October 2009;
$1M in both March and October 2010.

Some teams have more deferrals than others, but the amount of deferral is usually not a sticking point in negotiations with agents, as the money is guaranteed. . .

The NFLPA was clear about the importance of this provision in its memo to all agents: “This memorandum identifies an extremely important tax issue that may affect your player-clients and requires your immediate attention. The NFL has just informed the NFLPA that NFL clubs did not draft or amend many NFL player contracts in order to bring them into compliance with Section 409A of the Internal Revenue Code. As a result, many player contracts that include certain deferred compensation arrangements may not comply with the new tax provisions, thereby resulting in accelerated taxable income and/or an additional 20% tax, imposed on the player-client, unless the contracts are amended on or before December 31, 2008.”

H.R. 7327 Passes

Links for The Worker, Retiree, and Employer Recovery Act of 2008 which passed the Senate on December 11, 2008:

  • Text of the Bill
  • Joint Committee on Taxation Explanation
  • House Committee on Education and Labor Press Release
  • Gov Track Webpage. Excerpt:
    The bill may now proceed to a conference committee of senators and representatives to work out differences in the versions of the bill each chamber approved. The bill then goes to the President before becoming law.

    News coverage:

    Wall Street Journal
    Associated Press


    CCH Tax Briefing. Excerpt:

    Major Provisions of H.R. 7327 in a Nutshell:

  • Relief for retirees from RMDs from qualified plans and IRAs
  • Relief for employers from asset depreciation by clarifying permitted use of smoothing over 24 months for pension plan funding
  • Relief from funding transition rules by eliminating 100-percent funding for failures
  • Relief for multi-employer plans, by allowing sponsors to elect to temporarily freeze at funding status held in previous plan year
  • Relief from mandatory accrual of pension benefits
  • Increases in failure-to-file penalty fees for partnerships and S corps

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