Author: jfortenberry@fortenberrylaw.com

From Boston.com:

During 2008, the Massachusetts Department of Revenue (DOR) issued a directive which disallows partners and other self employed individuals a deduction for contributions made to their 401(k) plans. This directive is a clarification of an existing Massachusetts law that had not been enforced by the DOR for years. This directive does not apply to the employees of said businesses, just the owners. This will effectively increase the taxes of an individual contributing $15,500 to their 401(k) plan by $820.

View Directive 08-3 here (which indicates matching contributions are also taxed?). Excerpt:

For taxable years beginning on or after January 1, 2008, this Directive clarifies and prescribes the Massachusetts personal income tax treatment of contributions made on behalf of partners and other self-employed individuals under a so-called 401(k) plan. As explained in this Directive, under G.L. c. 62, § 2(d)(1)(D), partners and other self-employed individuals are denied any deduction for contributions to their 401(k) plans, irrespective of whether the contributions are elective contributions or matching contributions made on their behalf. This Directive supersedes or modifies all other DOR public written statements to the extent that they may appear to be inconsistent with it.

You can access testimony in the Financial Servicess Committee Hearing on the Madoff Scheme on the Committee’s webpage for the Hearing here: Assessing the Madoff Ponzi Scheme and the Need for Regulatory Reform. You can also access a link to a video of the Hearing on the webpage for the Hearing. (The video contains a discussion over whether the Hearing is really an “official” Hearing due to the fact that the 110th Congress had official concluded and the new Congress had not been sworn in yet.)

Read the testimony of one IRA investor’s nightmare here.

Also, don’t miss Leon M. Metzger’s testimony here. In his testimony, Mr. Metzger, an adjunct faculty member at Columbia University, Cornell University, New York University, and Yale University, provides a list of items he “might study” to understand better a proposed investment’s “operational controls.” (pg. 5) Mr. Metzger who teaches “hedge-fund management courses” notes the following in his testimony:

On Opening Day of the semester, I ask the students, “Imagine that the only information you have about a fund I am offering to you is its 20-year track record and that the investment has been audited by a Big Four accounting firm since its inception. How many of you would invest in it if, over the last twenty years, its annualized return, net of fees, is 40 percent? With this example, [my] aim is to illustrate that investment risk is commensurate with reward–investment fraud is not even a consideration. Typically, almost everyone in the class raises his or her hand. My objective as a teacher is to chip away at that outcome so that when I repeat that question at the last class, there is no hand in the air.

Along with Benefits Twitter, you can now access the Daily Dilbert in the sidebar!

A very interesting paper–“Legal and Economic Issues in Litigation Arising from the 2007-2008 Credit Crisis“–notes how “ERISA litigation represents an important component of the subprime litigation” due to the fact that ERISA provides “legal advantages” to plaintiffs over the securities laws:

First, plaintiffs do not need to establish scienter, as is the case under Rule 10b-5. Rather, liability is based on a defendant breaching its fiduciary duty. Second, the damages resulting from a breach of a fiduciary duty under ERISA have tended to be quite generous, at least as reflected by the terms on which ERISA lawsuits were settled pre-Dura Pharmaceuticals.

Harvard Law Professor Allen Ferrell, a co-author of the paper, discusses the paper at the Harvard Law School Corporate Governance Blog.

The Pension Protection Act of 2006 established new disclosure provisions relating to funding-based limits on benefit accruals and certain forms of benefit distributions, plan actuarial and financial reports, withdrawal liability of contributing employers, and participants’ rights and obligations under automatic contribution arrangements. The PPA gave the DOL authority to assess civil monetary penalties of up to $1,000 per day per violation against plan administrators for violations of the new disclosure requirements. The DOL has now issued final regulation setting forth the administrative procedures for assessing and contesting such penalties, but the new regulations do not address the substantive provisions of the new disclosure requirements.

Links:

Final regulations
News release

I have decided to take a stab at Twitter and have provided a link in the sidebar entitled “Benefits Twitter.” I hope to use it to provide brief statements and comments on what is going on in the benefits world.

View a list of lawyers participating in the Twitter venture here at JDScoop. See also the following links to learn more about the interaction between Twitter and the legal field:

Sixteen Reasons to Tweet on Twitter
Twitter for Lawyers 101
Legal Documents on Twitter
Lawyer News Feeds on Twitter
Steve Matthews on Twitter

You can become a “follower” of Benefits Twitter here.

See also this interesting use of Twitter: Man Tweets From Plane Crash.

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.

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.

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

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