Month: December 2004

Read about it here: “SEA-EAT Blog Mobilizes Fast For Tsunami Relief.” The four-day old blog known as “SEA-EAT” which stands for “the South-East Asia Earthquake and Tsunami” blog had clocked 100,000 site visits as of Wednesday, noon PST. Also, the authors of the blog have created a wiki site which contains helpful pages related to the tsunami relief effort.

Roth CPA.com has information here regarding deductibility of charitable contributions to aid such relief.

2004 was a busy year in the benefits arena. I have compiled a list of key posts here at Benefitsblog, highlighting some of the legal developments that occurred in 2004:

January:

Directors and the Duty to Monitor Under ERISA
Plan Settlements: Guidance for Fiduciaries in PTE 2003-39

February:

U.S. Supreme Court Draws a Line in the Sand: Reverse Age Discrimination Claims Not Cognizable
IRS Announcements Regarding Abusive Life Insurance Policies in Retirement Plans

March:

Health Savings Accounts: IRS Issues Another Round of Guidance
IRS Issues Proposed Regulations Governing Elimination of Retirement Plan Distribution Options
U.S. Supreme Court Decision Impacts Retirement Plans Involved In Bankruptcy Proceedings
DOL’s Proposed Regulations: Safe Harbor for ERISA Fiduciary Responsibility Pertaining to Automatic Rollovers

April:

DOL Auditing Fee Arrangements and Market-Timing Practices under ERISA, WSJ reports
U.S. Supreme Court: Central Laborers’ Pension Fund v. Heinz
Another Cash Balance Plan “Whipsaw” Case

May:

PBGC Announces Enforcement Proposals
Directors and the Duty to Monitor under ERISA (Part II)

June:

Getting Emotional Over Pension Funding
IRS Strengthening Its Enforcement Initiatives
IRS Tax Exempt Compensation Initiative
Federal District Court Upholds Cash Balance Plan Conversion
Supreme Court Issues Opinion in Central Laborers’ Pension Fund v. Heinz
Chao Speaks on Pension Plan Governance
Tenth Circuit Issues Opinion in Millsap v. McDonnell Douglas Corporation

July:

More HSA Guidance
DOL Settles With Global Crossing Former Executives and Benefits Committee Members
Final “deemed IRA regulations” Issued
SEC Scrutiny Involving Retirement Plans
When the U.S. Attorney Comes Knocking . . .

August:

DOL Amicus Brief Supporting Health Plan Recovery under Reimbursement/Subrogation Provisions

September

IBM Class Action Pension Settlement
DOL Issues Final Automatic Rollover Safe Harbor Regulations
Working Families Tax Relief Act of 2004
Treasury Encourages Banks and Credit Unions to Offer HSAs
ERISA’s 30th Anniversary
DOL Issues Draft USERRA Regulations
HSA Correction Guidance and Final Forms Issued
Third Circuit: Bad Faith Claims Preempted under ERISA
HR professionals impacted by SEC Form 8-K filing requirements

October:

Is Market-Timing Activity Protected under ERISA? It depends. . .
ERISA Fiduciary Lawsuits on the Rise
Action Required by ERISA Fiduciaries in Recent Insurance Probe

November:

The Plan Document Requirements of the Newly-Proposed 403(b) Regulations
IRS Notice 2004-79 Clarifies WFTRA Confusion
Developments in the Insurance Brokerage Controversy
IRS Notice 2004-78 and PFEA’s 415 Change
IRS Issues 403(b) Regulations
Seventh Circuit Issues Opinion (Written by Judge Posner) Defining A Partial Termination

December:

IRS Issues Warning Letter on Abusive S Corporation ESOP Arrangements
Treasury Issues Nonqualified Deferred Compensation Guidance
DOL Provides Guidance on ERISA Fiduciary Responsibilities of Directed Trustees
FASB Issues Stock Option Expensing Rule
Working Group on Plan Fees Recommends Increased Disclosure
Preparing for Amendments to Nonqualified Deferred Compensation Plans
Common Law Marriage Abolished in Pennsylvania–Again

Have a great holiday season! No posts here until the end of the year.

About 1700 business and retirement plan sponsors will be receiving something in the mail from IRS this season–and it won’t be a holiday greeting. The IRS announced yesterday that it has recently issued letters to certain businesses and retirement plan sponsors (1) alerting them of a change in the law effective January 1, 2005 applicable to S corporation ESOPs and (2) warning them of the consequences of participating in abusive schemes involving ESOPs and S corporations. The letters are being mailed to S corporation ESOPs reporting 10 or fewer participants. (You can read the letter here.)

The change in the law has to do with section 409(p) of the Internal Revenue Code, enacted by Congress in 2001, to address concerns about ownership structures involving S corporations and ESOPs that concentrate the benefits of the ESOP in a small number of persons. The section imposes income and excise taxes on prohibited allocations made by an S corporation ESOP in a “nonallocation year.” A “nonallocation year” is deemed to occur under the provision when the ownership of the S corporation is so concentrated that disqualified persons own or are deemed to own at least 50 percent of the S corporation shares. Disqualified persons are persons who own at least 10% of S corporation stock held by the ESOP (or 20% with family members). For S corporation ESOPs in existence on March 14, 2001, section 409(p) is effective for plan years beginning after December 31, 2004.

On December 16, 2004, the IRS announced the issuance of section 409(p) regulations, replacing proposed and temporary regulations that were issued in 2003 and addressing a wide variety of issues under section 409(p), including such issues as the definitions of a prohibited accrual or allocation, a disqualified person and a non-allocation year. The regulations generally go into effect for plan years beginning on or after January 1, 2005, subject to several special effective date rules. A public hearing on the regulations is scheduled for April 20, 2005.

The IRS also has a special website set up and dedicated to “S Corporation ESOP Guidance” which you can visit here and which includes a section entitled “What you should do if you are involved with an abusive ESOP.” What’s the advice* being given? The IRS says to consult your tax advisor immediately, and if you are unfortunate enough to have one of these arrangements that are deemed “abusive” under IRS rules, the IRS advises that you should immediately file an amended return for all open years affected by the arrangement.

And there’s more bad news for those who have entered into these types of arrangements–the IRS makes it clear in their “holiday” letter that EPCRS (the “Employee Plans Compliance Resolution System“) is not available for businesses and taxpayers wishing to unravel such arrangements.

Update: Roth CPA.com has more here.

Many thanks to David Giacalone for the beautiful gift of haiku here. David recently honored some of his fellow friends and bloggers by posting haiku for them, myself included. David describes himself as a “prematurely-retired (but no longer prematurely-gray) attorney and mediator, living in the Capital Region of New York State.” After graduating from Harvard Law School in 1976, he spent a dozen years emersed in antitrust law and competition policy at the Federal Trade Commission. He states: “In 1988, my first mid-life crisis took me from Washington, D.C., to a small city in Upstate New York, where I began a decade of practice centered in family court, mostly representing children and developing a divorce mediation practice.”

(Nestled in the middle of the array of haiku is one for the haiku president.)

Roth CPA.com has a post here discussing a proposal in Iowa to eliminate state taxes on pension income.

Are you dying to know what’s on the IRS’s agenda in the benefits arena for the coming year? Take a peak here in this December 21, 2004 Update to the 2004-2005 Priority Guidance Plan. The overall Plan includes 33 new projects to implement the American Jobs Creation Act of 2004.

And, if you are so inclined, this press release here invites you to make suggestions for additions to the list. (Thanks to the Tax Prof Blog for the link.)

The Tax Guru is at work again here. (I guess this is a “dream” and a “dilemma” all rolled up into one for some, since CPAs and Tax Lawyers (not to mention IRS employee jobs) may appear there as well if the “fair tax” becomes a reality.)

The Wall Street Journal had a good article here discussing the relief provided under Notice 2005-1 (issued yesterday and discussed here) for stock appreciation rights:

Businesses won a victory Monday when the Treasury Department agreed to exempt public companies’ stock appreciation rights from new restrictions on deferred executive compensation plans.

The Treasury and Internal Revenue Service said stock appreciation rights will have “limited exceptions” from new rules that tighten the tax treatment of deferred compensation programs.

Elizabeth Buchbinder, a partner with Ernst & Young LLP in Washington, said the new rules provide a permanent exception from the new law for certain stock appreciation rights , or SARs, issued by public companies. The exception applies for SARs that are settled in stock and granted at fair market value, she said.

The article goes on to note that the heads of the House and Senate tax-writing committees wrote to Treasury Secretary John Snow last week urging him to consider carving out stock appreciation rights. In addition, according to the article, reaction to the rules issued by Treasury were positive from the author of the tax bill, Senate Finance Committee Chairman Charles Grassley, R-Iowa, who said he looks forward to working with Treasury on the rules, “including the preservation of stock appreciation rights with a belt-and-suspenders approach to prevent abuse.”