Month: October 2005

As most have heard by now, President Bush has selected Third Circuit Judge Samuel A. Alito, Jr., as his nominee for the U.S. Supreme Court. The President’s announcement and Judge Alito’s remarks can be found here.

Interestingly enough, Judge Alito had been mentioned previously at Benefitsblog in this post–“Memorable Benefits Quote: “Accrued Benefits Are Like Chalk Marks . . . .”

Read more about the nomination here at SCOTUSblog.

The Treasury Department and IRS last week issued new limits for 2006 on the maximum contribution levels for Health Savings Accounts (HSAs) and out-of-pocket spending limits for high deductible health plans (HDHPs) that must be used in conjunction with HSAs. These amounts have been indexed for cost-of-living adjustments for 2006 and are included in Revenue Procedure 2005-70 on pg. 14.

The new levels are as follows:

New Annual Contribution Levels for HSAs:

For 2006, the maximum annual HSA contribution for an eligible individual with self-only coverage is $2,700. (Note: for any individual, the maximum contribution is the lesser of the indexed amount or the deductible of the HDHP.) For family coverage the maximum HSA contribution is $5,450. Catch up contribution for individual who are 55 or older is increased by statute to $700 for 2006. Both the HSA contribution and catch up contribution apply pro rate based on the number of months of the year a taxpayer is an eligible individual.

New Amounts for Out-of-Pocket Spending on HSA-Compatible HDHPs:

The maximum annual out-of-pocket amounts for HDHP self-coverage will increase to $5,250 and the maximum annual out-of-pocket amount for HDHP family coverage is $10,500.

Minimum Deductible Amounts for HSA-Compatible HDHPs:

For 2006, the minimum deductible for HDHPs increases to $1,050 for self-only coverage and $2,100 for family coverage.

Cartoonists haven’t even begun to fully tap into all of the humor that exists in the EB world, have they? Try this one from Dilbert here. (Source: The TaxProfBlog and readers.)

(You can even have that one printed on a mug or t-shirt for a Christmas gift. Somehow I can’t really picture it on a “Kids Hoodie” though.)

Internal Revenue Service officials yesterday announced a “broad-based, limited-in-time” opportunity for taxpayers to come forward and settle certain transactions that the IRS considers abusive. (Sixteen of the transactions are “Listed Transactions” and five are not per this link.) Taxpayers who undertook one of the “covered” deals will have until January 23, 2006 to submit their settlement papers to the IRS.

The initiative, described in Announcement 2005-80, identifies 21 transactions eligible for the program. The ones which relate to benefits are as follows:

• Rev. Rul. 2004-98, 2004-42 I.R.B. 664 (“Reimbursements” for parking expenses previously paid by an employer or previously paid by an employee through salary reduction)
• Rev. Rul. 2004-20, 2004-1 C.B. 546, Situation 1 (Pension plan fails to satisfy § 412(i) where amounts accumulated under life insurance contracts and annuities held by the plan exceed benefits payable under plan terms) and Situation 2 (Employer contributions to pension plan are not currently deductible when used to pay premiums on life insurance contracts that provide for death benefits in excess of the participant’s death benefit under the terms of the plan), and Rev. Rul. 2004-21, 2004-1 C.B. 544 (Pension plan fails to satisfy nondiscrimination requirements due to differences in the value of participants’ rights to purchase life insurance contracts from the plan)
• Notice 2004-8, 2004-1 C.B. 333 (Abusive Roth IRA Transactions)
• Rev. Rul. 2004-4, 2004-1 C.B. 414 (Transactions that involve segregating the business profits of an employee stock ownership plan (ESOP)-owned S corporation in a qualified subchapter S subsidiary, so that rank-and-file employees do not benefit from participation in the ESOP)
• Notice 2003-24, 2003-1 C.B. 853 (Tax Problems Raised by Certain Trust Arrangements Seeking to Qualify for Exception for Collectively Bargained Welfare Benefit Funds under § 419A(f)(5))
• Rev. Rul. 2003-6, 2003-1 C.B. 286 (Certain arrangements involving the transfer of ESOPs that hold stock in an S corporation for the purpose of claiming eligibility for the delayed effective date of § 409(p))
• Rev. Rul. 2002-3, 2002-1 C.B. 316; Rev. Rul. 2002-80, 2002-2 C.B. 925 (“Reimbursements” of employees for salary reduction amounts previously excluded from gross income under § 106; “Advance reimbursements” or “loans” without regard to whether an employee has incurred medical expenses)
• Notice 2000-60, 2000-2 C.B. 568 (Stock Compensation Corporate Tax Shelter)
• Management S Corporation ESOP Transactions (Transactions where the taxpayer has claimed that it is entitled to exclude income of an operating business by asserting, incorrectly, that the taxpayer had established, on or before March 14, 2001, an employee stock ownership plan entitled to an exemption from unrelated business income and an S corporation that is a management corporation, and whatever actions that were taken to attempt to establish an employee stock ownership plan and a management S corporation were taken on or before March 14, 2001)

This document here provides information on what the IRS will require as part of the settlement for some of the transactions. Taxpayers will be exempt from penalties if they meet certain requirements, one of which is that the taxpayer obtained “a written tax opinion before filing the tax return that (1) was not an opinion that was part of the package sold by the promoter, but was given by a tax adviser meeting certain tests, and (2) was a ‘more likely than not’ opinion, that is, it concluded at a confidence level greater than 50% that the significant tax issues would be resolved in the taxpayer’s favor.”

For more details of the program:

Announcement
Fact Sheet 2005-17
Attachment to Fact Sheet 2005-17
Announcement 2005-18 [pdf]
Announcement 2005-80 Transaction-Specific Settlement Provisions [pdf]

From CBS MarketWatch.com, “House panel OKs pension-plan hike: Lawmakers wrangle over cutting $50 billion from budget.” Excerpt:

A House panel on Wednesday approved legislation that would boost premiums paid to the Pension Benefit Guaranty Corp. by more than $6 billion over the next five years.

The legislation, approved by the House Education and Workforce Committee by voice vote, would provide the agency with about $6.2 billion in additional premiums.

The article notes that the House proposal, authored by Workforce Committee Chairman John Boehner, R-Ohio, would phase in increases in employer-paid premiums, “first by increasing them from $19 to $30 per pension plan participant beginning in 2006.” The PBGC would then have the discretion to annually increase premiums by as much as 20 percent, “although Congress would have the right to vote down the proposed increases.”

You can access two press releases here and here on the proposal. See also A Plan for Fiscal Responsibility: Strengthening Higher Education and Protecting Retirement Security on Behalf of Students, Workers, Retirees, & Taxpayers [pdf] by Rep.Boehner (R-OH), especially Part Two: Strengthening the Financial Condition of the Pension Benefit Guaranty Corporation on Behalf of Workers, Retirees, & Taxpayers [pg.11]. Excerpt:

Just four years ago, the PBGC operated with an annual surplus. However, the agency’s financial health has been on a strikingly rapid decline ever since. Although the PBGC has enough resources to make benefit payments for the near future, the long-term outlook for the agency is anything but certain. With some $450 billion in pension plan underfunding among financially weak companies looming on the horizon, the PBGC’s deficit is expected to grow even further. In relatively short order, the PBGC has gone from a little-known agency among most Americans to one that is now consistently in the headlines – and for good reason. Taxpayers have a major stake in its long-term outlook. . .

Two important steps are essential to improving the financial condition of the PBGC and ensuring its long-term solvency: (1) reforming funding rules to ensure pensions are more adequately and consistently funded; and (2) increasing premiums paid by employers to the PBGC in a responsible fashion. The Pension Protection Act, which is expected to be voted on by the House later this fall, would take both of these steps. The budget reconciliation process presents an opportunity to accomplish the second of the two.

Text of the proposed legislation is here.

For those interested in the development of the law surrounding the standard of review applied to benefits denial cases, don’t miss Scott Hagen‘s article in the Utah Bar Journal (which you can access here [pdf] at pages 20-23) discussing the Tenth Circuit’s opinion in Fought v. Unum Life Insurance Company, 379 F.3d 997 (10th Circ. 2004). In Fought, the Tenth Circuit clarified the standard of review to be applied in ERISA cases where the plan administrator has been provided with the Firestone discretion, but is operating under a conflict of interest.

By the way, the Utah State Bar has a blog.

CCH is reporting here:

Highly-paid wage earners will see a moderate increase in the wage base on which Social Security taxes are due for 2006. . . The 2006 wage base of $94,200 is $4,200 higher than the 2005 amount, and the maximum additional Social Security tax that might be collected on someone earning above the 2005 wage base is $260.40. This is the largest increase since 2002 in both dollars and in percentage, and reflects the largest increase in national average wages since 2000.

. . . The wage base for 2006 is $1,200 more than the highest estimated increase published in the 2005 Annual Report of the Board of Trustees of the Federal OASDI Trust Funds issued in March of this year. The 2006 wage base reflects national average wages for 2004, the variable upon which the 2006 wage base formula is based. The 2004 national average wage index of $35,648.55 is 4.65 percent higher than the 2003 national average wage index, the highest increase since 2000.

More here on the increase from the Social Security Administration‘s website.