Tax Court upholds accelerated deduction for vacation and severance benefits funded by irrevocable letter of credit

Article Abstract:

The Tax Court ruled in Schmidt Baking Co. v. Commissioner that the taxpayer was entitled to deduct in the prior year vacation and severance benefits vested and secured within two and one half months after the end of that year, even though the benefits had not actually been paid. The taxpayer vested the benefits by the last day of the year and purchased an irrevocable standby letter of credit within the first two and one half months. The Tax Court reviewed IRC section 404 and found that Congress had intended for vesting and funding such benefits to be treated like actually paying them.

Public Finance Activities, Corporate Tax Deductions & Exemptions, Taxation, Corporate taxes, Expense deductions, Letters of credit, Deferred compensation, Employee vacations, Severance pay

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Standard plan amendment provision upheld

Article Abstract:

The US Supreme Court found in Curtiss-Wright v. Schoonejongen that section 402(b)(3) of the Employee Retirement Income Security Act (ERISA) was satisfied by a simple statement in the company's health insurance plan that stated the company reserved the right to amend the plan. Section 402(b)(3) requires that benefit plans contain an amendment procedure and requires that plan documents identify who has the authority to amend. The Supreme Court reversed the lower courts in finding that a minimal reservation of right was sufficient to establish modification procedures under ERISA.

Pension funds, Health insurance

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DOL issues draft guidance for providing investment-related materials to participants in tax-qualified retirement plans

Article Abstract:

The US Dept of Labor has responded to the reluctance of qualified benefit plan administrators to provide participants with investment educational materials by issuing an exposure draft of an interpretive bulletin identifying appropriate educational activities. The draft explains how an administrator can avoid fiduciary duty liability resulting from providing investment advice. The safe harbors detailed cover plan information, general investment information, presentation of asset allocation models and use of interactive materials such as worksheets and software.

Investments, Investment advisers, Qualified benefit plans, Fiduciary duties

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