Month: October 2008

Great cartoon from the Tax Guru here. It is also acts as a statement about all of the talk of replacing the current 401(k) with a government-run retirement system.

From Workforce Management: House Democrats Contemplate Abolishing 401(k) Tax Breaks. Excerpt:

Powerful House Democrats are eyeing proposals to overhaul the nation’s $3 trillion 401(k) system, including the elimination of most of the $80 billion in annual tax breaks that 401(k) investors receive.

House Education and Labor Committee Chairman George Miller, D-California, and Rep. Jim McDermott, D-Washington, chairman of the House Ways and Means Committee’s Subcommittee on Income Security and Family Support, are looking at redirecting those tax breaks to a new system of guaranteed retirement accounts to which all workers would be obliged to contribute. . .

More:

This is a battle between liberalism and conservatism,” said Christopher Van Slyke, a partner in the La Jolla, California, advisory firm Trovena, which manages $400 million. “People are afraid because their accounts are seeing some volatility, so Democrats will seize on the opportunity to attack a program where investors control their own destiny,” he said.

The Profit Sharing/401(k) Council of America in Chicago, which represents employers that sponsor defined-contribution plans, is “staunchly committed to keeping the employee benefit system in America voluntary,” said Ed Ferrigno, vice president in the Washington office.

“Some of the tenor [of the hearing last week] that the entire system should be based on the activities of the markets in the last 90 days is not the way to judge the system,” he said.

No legislative proposals have been introduced and Congress is out of session until next year.

See also this article from the Wall Street Journal for what might be in store: A Liberal Supermajority: Get ready for ‘change’ we haven’t seen since 1965, or 1933. Excerpt:

If the current polls hold, Barack Obama will win the White House on November 4 and Democrats will consolidate their Congressional majorities, probably with a filibuster-proof Senate or very close to it. Without the ability to filibuster, the Senate would become like the House, able to pass whatever the majority wants.

Access a previous post here which discusses the universal pension movement.

Interpretive Bulletin Relating to Exercise of Shareholder Rights
Interpretive Bulletin Relating to Investing in Economically Targeted Investments

The Social Security Administration (“SSA”) has announced that the maximum amount of earnings subject to the Social Security tax (taxable maximum) will increase to $106,800 from $102,000.

See this press release and the SSA fact sheet for more information.

The IRS has announced the 2009 cost-of-living adjustments to dollar limitations for pension plans and other items. The new 401(k) deferral limit will be increased from $15,500 to $16,500. The annual benefit under a defined benefit plan will be increased from $185,000 to $195,000 and the annual limitation for defined contribution plans will be increased from $46,000 to $49,000.

The Wall Street Journal today has an article today entitled: “McCain Presses Obama on Health-Plan Penalties.” Excerpt:

As the presidential candidates push their competing health-care plans, Sen. John McCain regularly presses Sen. Barack Obama to tell voters how big a fine he would impose on companies that don’t offer their workers health insurance. . .

He made the point again at Wednesday’s presidential debate. “Senator Obama, I’d …still like to know what that fine’s going to be.”

Obama officials say the campaign has no plans to answer that question before Election Day on Nov. 4. Neera Tanden, a top Obama policy adviser, said the fine is intended to discourage employers from dropping coverage, not to raise significant revenue.

Here is what Senator Obama’s website says about his proposals for health care as it pertains to employer contributions:

(4) EMPLOYER CONTRIBUTION. Large employers that do not offer meaningful coverage or make a meaningful contribution to the cost of quality health coverage for their employees will be required to contribute a percentage of payroll toward the costs of the national plan. Small businesses will be exempt from this requirement.

You can read about a similar requirement imposed now at the state level in Massachusetts in this article from McDermott Will & Emery: “The Massachusetts Health Care Reform Act–What Employers Need to Know.”

My guess is that initially large employers might be required to pay a fee under Obama’s plan similar to the ones currently adopted under laws such as the Massachusetts law, but that once the door is opened on this, the fees will be raised more and more because the costs of the program will require it. (Read about how this is already happening in Massachusetts here.)

An issue of real concern will be whether employers, once they are required to provide a minimum benefit, will then discard their more generous programs and that employees will end up footing more of the costs themselves. It is also ironic that the Obama proposal would target large employers when they are the ones typically providing more benefits to employees in the first place.

Another question is: what is a “large employer” under this plan? I do not find an answer anywhere, but if you use the Massachusetts model, employers with 11 or more employees were subjected to the “fair share” mandates. Certainly “Joe, the Plumber” would probably not be subjected to the mandate as discussed in the debates last night unless he became a “large employer” under the Democratic plan.

Notice 2008-TAAP: The Notice provides guidance on certain executive compensation provisions applicable to a financial institution from which the Treasury acquires troubled assets through an auction purchase. Section 111(c) of EESA prohibits such a financial institution from entering into entering into any new employment contract that provides a golden parachute to a senior executive officer (“SEO”) in the event of the SEO

Note Q & A-2 in new Notice 2008-94 issued today (and discussed in this previous post here) in connection with the Troubled Asset Auction Program (“TAAP”):

Q-2: Can a corporation that is not publicly traded, or an entity that is not a corporation, be an “applicable employer”?

A-2: (a) General rule. Yes. An applicable employer for purposes of § 162(m)(5) is not limited to a publicly traded corporation or even to the corporate business form. Thus, an entity, whether or not publicly traded, is an applicable employer if the entity is described in Q&A-1 of this notice regardless of whether the entity is a corporation, a partnership (or taxed as a partnership for federal tax purposes), or a trust.

There is a slight reference in EESA to pension plans being able to participate in the program which you can read about in this previous post here. Perhaps the reference to a “trust” in this Notice might be tied to this possibility? More on this somewhat confusing aspect of the legislation from the Groom Law Group here.

The Treasury today announced the development of three programs under the Emergency Economic Stabilization Act of 2008 (“EESA”): (1) the auction purchase of troubled assets; (2) the direct purchase program; and (3) interventions to prevent the impending failure of a systemically significant institution. In connection with these programs, the Treasury has issued guidance regarding the executive compensation and corporate governance standards which will apply to institutions who decide to take advantage of these programs. The standards generally apply to the chief executive officer, chief financial officer, plus the next three most highly compensated executive officers. Any firm participating in these programs will be required to adopt the standards.

Those standards were outlined in a press release as follows:

(1) Troubled Asset Auction Program- As prescribed by EESA, any financial institution that sells more than $300 million of troubled assets to the Treasury via an auction would be prohibited from entering into new executive employment contracts that include golden parachutes for the term of the program. (See Notice 2008-TAAP regarding this restriction – No link yet.) Furthermore, under the Act, (1) the financial institution may not deduct for tax purposes executive compensation in excess of $500,000 for each senior executive, (2) the financial institution may not deduct certain golden parachute payments to its senior executives and (3) a 20-percent excise tax will be imposed on the senior executive for these golden parachute payments. (See Notice 2008-94 regarding these new tax rules.)

(2) Capital Purchase Program- Any financial institution participating in the Capital Purchase Program will be subject to more stringent executive compensation rules for the period during which Treasury holds equity issued under this program. The financial institution must meet certain standards, including: (1) ensuring that incentive compensation for senior executives does not encourage unnecessary and excessive risks that threaten the value of the financial institution; (2) required clawback of any bonus or incentive compensation paid to a senior executive based on statements of earnings, gains, or other criteria that are later proven to be materially inaccurate; (3) prohibition on the financial institution from making any golden parachute payment to a senior executive based on the Internal Revenue Code provision; and (4) agreement not to deduct for tax purposes executive compensation in excess of $500,000 for each senior executive. Treasury will be issuing interim final rules for these executive compensation standards.

(3) Programs for Systemically Significant Failing Institutions- The Treasury Department is currently developing a third program to potentially provide direct assistance to certain failing firms on terms negotiated on a case-by-case basis. The Treasury will be issuing guidance for the executive compensation standards that will apply to the firms participating in such programs and their senior executives (Treasury Notice 2008-PSSFI). These standards will be similar in all respects to the Capital Purchase Programs executive compensation standards described above, with one significant difference. In situations where the Treasury provides assistance under the systemically significant failing institutions programs, golden parachutes will be defined more strictly to prohibit any payments to departing senior executives.

From Instapundit here.

I know there are truly a lot of folks who cannot get affordable health care, but it is good to remember the other side of the coin, i.e. that there are some who could get it, but simply choose not to.