Month: January 2005

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:

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.

An article here–“The Tech Evolution: Change or Die“–provides some possibilities for New Year’s resolutions for corporate counsel and law firms which want to keep up with the times. Excerpt:

As we welcome 2005, our corporate landscape is littered with the remnants of companies (including law firms) that failed to see the future and seize opportunities. It’s time to heed their warnings. Clients are already demanding change from their law firms. Unless you want to join the other fossils, it’s time to change your ways.