The law
of benefits is a difficult channel, which requires careful sailing, or rude boats.
Essays Second Series
A plan amendment that retroactively (i) eliminates or reduces an early retirement benefit or a retirement-type subsidy (as defined in regulations), or (ii) eliminates an optional form
of benefit is treated as reducing accrued benefits.
Notice 98-29: optional forms of benefits under defined contribution plans
The combined effect can seriously compromise the ability
of benefit managers to deal effectively with large suppliers.
Coalition purchasing: pathway to real benefit performance. (Benefits)
While this ruling specifically deals with qualified tuition reduction plans, the conclusions reached may apply to other types
of benefit plans.
Same-sex partner benefits do not disqualify tuition plan
In fact, more than 67 percent
of benefit managers of large corporations have stated that they will reduce benefits over the next few years to mitigate their FAS 106 liability.
Will retiree health benefits survive FAS 106?
The central issue is that the "decisive distinctions" between deductible expenditures and those that must be capitalized are often distinctions "of degree and not of kind." (7) Once a court determines that the degree
of benefit is significantly longterm, the expenditure must be capitalized.
Indopco v. Commissioner: the Supreme Court takes National Starch to the cleaners
However, the court found a prohibited reduction, by interpreting "rate
of benefit accrual" to mean the rate at which the participant's accrued benefit, as defined in Sec.
Current developments
Protected benefits include accrued benefits, early retirement benefits, retirement-type subsidies and optional forms
of benefit. Features that are subject to protection include payment schedules, timing of payment, commencement
of benefits, type of distributions (in cash, in-kind) and election rights with respect to optional forms of distributions.
CLOSING THE DEAL IRONING OUT PENSION PLAN ISSUES DURING A MERGER OR ACQUISITION
The ruling's logic suggests that the answer ought to be "yes." Both types
of benefit could be provided through a single trust, and the reserves would be combined; separating the trusts, but keeping their reserves aggregated, "does not allow excess accumulation of income." Nonetheless, employers with those facts would be well advised to seek a private letter ruling.
Current developments, part I
The normal form
of benefit distribution under the cash-balance program is, by law, an annuity.
Checks and balances
132 (unless a de minimis benefit) if another Code section provides rules for the tax treatment of the general type
of benefit. The Sec.
Employee tuition reduction not excludible fringe benefit
* Relation
of Benefit to Salary Prior to Retirement--Since it had a final average plan, Tobacco's benefits were directly related to final average salary.
A pension plan for today
In a defined-contribution plan, the cessation or reduction
of benefit accruals does not create or increase the potential for reversion.
Merger of pension plan into profit-sharing plan is not partial termination
However, a mechanism within all flexible benefit programs tends to dampen the effect
of benefit cost increases.
Benefits that bend
But the human resource question is part of a broader public policy question, which asks, "What are you going to do when the well runs dry?" Corporate America may decide to fund aggressively because of financial incentives to do so, but it also needs to raise the broader issue
of benefit security before Congress.
How to meet your OPEB obligation