_________________________________________________________________
E M P L O Y E E B E N E F I T S , C O M P E N S A T I O N
& P E N S I O N L A W
Vol. 5, No. 3: February 12, 2004
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Publisher: LSN Employment, Labor, Compensation & Pension Journals
a division of
Social Science Electronic Publishing, Inc. (SSEP)
and Social Science Research Network (SSRN)
Editor: PAMELA PERUN
Urban Institute
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Copyright: SSEP, Inc. 2004. All rights reserved.
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Topic of This Issue:
Tax and ERISA
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T A B L E of C O N T E N T S
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NEW and FORTHCOMING ARTICLES
"Recent Guidance Clarifies U.S. Tax Treatment of Variable
Insurance Products, Highlighting Areas of Opportunity"
Journal of Taxation and Regulation of Financial
Institutions, Vol. 17, No. 2, November/December 2003
F. ROY SEDORE
Baker & McKenzie
"Revisiting Golden Parachutes"
Tax Notes, Vol. 102, No. 2, January 12, 2004
DONALD E. ROCAP
Kirkland & Ellis
JACK S. LEVIN
Kirkland & Ellis
MARTIN D. GINSBURG
Georgetown University Law Center
"A Guide to Health Savings Accounts, and a Plea for Practicality"
Tax Notes, Vol. 102, No. 6, February 9, 2004
TODD F. MAYNES
Kirkland & Ellis
THOMAS L. EVANS
University of Texas at Austin
School of Law
Kirkland & Ellis
"New Prop. Regs. for Section 401(k) Plans Are a Comprehensive
Overhaul of Existing Guidance"
Journal of Taxation, November 2003
LEONARD S. HIRSH
Ernst & Young LLP - Human Capital
"Roth IRA Reconversion May Require Make-Up Distributions"
Tax Notes, Vol. 102, No. 6, p. 760, February 9, 2004
MICHAEL J. JONES
Thompson Jones L.L.P.
"Symposium: Justice Scalia Reinvents Restitution"
Loyola Los Angeles Law Review, Vol. 36, No. 2, p. 1063,
April 2003
TRACY A. THOMAS
University of Akron
School of Law
WORKING PAPERS
"The Paradox of the Misuse of Administrative Law in ERISA Benefit
Claims"
MARK D. DEBOFSKY
Daley, DeBofsky & Bryant
S S R N I N F O R M A T I O N
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N E W and F O R T H C O M I N G Articles
_________________________________________________________________
"Recent Guidance Clarifies U.S. Tax Treatment of Variable
Insurance Products, Highlighting Areas of Opportunity"
Journal of Taxation and Regulation of Financial
Institutions, Vol. 17, No. 2, November/December 2003
BY: F. ROY SEDORE
Baker & McKenzie
Contact: F. ROY SEDORE
Email: Mailto:f.roy.sedore@bakernet.com
Postal: Baker & McKenzie
805 Third Avenue
New York, NY 10022 UNITED STATES
Phone: 212-891-3536
ABSTRACT:
Several recent pronouncements by the U.S. Department of
Treasury, and the Internal Revenue Service both clarify the
treatment of variable life insurance products and highlight
areas of opportunity for insurers. Understanding that guidance,
and the areas of concern, will be extremely useful to insurers
who want to provide their customers with the most economically
attractive products, without endangering their favorable tax
treatment. In order to place these recent pronouncements in
context and fully understand their implication, it is helpful to
first review the U.S. tax treatment of variable insurance and
annuity products and the reason for their popularity with U.S.
purchasers. The article discusses what contracts qualify for
life insurance, annuity, and "variable contract" treatment, and
what segregation of accounts under state law means. In order to
qualify for favorable U.S. tax treatment, a variable annuity or
life insurance contract must also satisfy the diversification
requirements of Section 817(h) and Reg. 1.817-5. If the
policyholder is deemed to "control" the segregated account, he
will be treated as the owner of the underlying assets, and will
be taxed on all of the income of the account on a current basis,
without deferral. This "investor control" doctrine is not set
forth in a coherent set of regulations, but rather has evolved
over the years through the issuance of a series of Revenue
Rulings and private letter rulings, which are analyzed. The
author concludes with an examination of recent developments and
what these mean for insurance contract design.
JEL Classification: G22, H24
______________________________
"Revisiting Golden Parachutes"
Tax Notes, Vol. 102, No. 2, January 12, 2004
BY: DONALD E. ROCAP
Kirkland & Ellis
JACK S. LEVIN
Kirkland & Ellis
MARTIN D. GINSBURG
Georgetown University Law Center
Contact: DONALD E. ROCAP
Email: Mailto:drocap@kirkland.com
Postal: Kirkland & Ellis
Aon Center
200 E. Randolph Dr.
Chicago, IL 60601 UNITED STATES
Phone: 312-861-2266
Fax: 312-861-2200
Co-Auth: JACK S. LEVIN
Email: Mailto:JACK.LEVIN@KIRKLAND.COM
Postal: Kirkland & Ellis
Aon Center
200 E. Randolph Dr.
Chicago, IL 60601 UNITED STATES
Co-Auth: MARTIN D. GINSBURG
Email: Mailto:ginsburm@law.georgetown.edu
Postal: Georgetown University Law Center
600 New Jersey Avenue, NW
Washington, DC 20001 UNITED STATES
ABSTRACT:
In this article, the authors review the complex penalty tax
rules governing golden parachute payments. Recently finalized
Treasury regulations, generally effective January 1, 2004, have
made numerous changes (some clear and some subject to debate) to
the rules governing payments by a corporation to an executive
contingent on a change in the corporation's ownership or
control. The authors give an in-depth explanation of the tax
treatment of golden parachute payments, analyze how the newly
issued regulations alter the executive compensation landscape,
and provide numerous examples to illustrate the rules'
application.
______________________________
"A Guide to Health Savings Accounts, and a Plea for Practicality"
Tax Notes, Vol. 102, No. 6, February 9, 2004
BY: TODD F. MAYNES
Kirkland & Ellis
THOMAS L. EVANS
University of Texas at Austin
School of Law
Kirkland & Ellis
Contact: TODD F. MAYNES
Email: Mailto:tmaynes@kirkland.com
Postal: Kirkland & Ellis
Aon Center
200 East Randolph Drive
Chicago, IL 60601-6636 UNITED STATES
Co-Auth: THOMAS L. EVANS
Email: Mailto:tev@mail.utexas.edu
Postal: University of Texas at Austin
School of Law
727 East Dean Keeton Street
Austin, TX 78705 UNITED STATES
ABSTRACT:
In this article, the authors describe certain interpretive
issues raised by the newly enacted HSA rules, and make
suggestions as to how these issues can be resolved by the IRS in
a manner that supports the legislative goals underlying these
new rules and helps ensure that HSAs will be successful. Their
principal suggestion is that the IRS must interpret the HSA
rules in a way that is consistent with common practice (and
common sense) for health care plans. While the HSA rules clearly
do require high-deductible health plans, the HSA rules do not
require that insurers and employers change the core mechanics of
their health plans in ways that will make HSAs unattractive to
most people. If the IRS goes beyond merely requiring an increase
in deductibles and requires other changes to the way health
plans operate, the authors submit that HSAs will not be broadly
accepted by consumers in the marketplace and financial
institutions are unlikely to even offer HSA accounts.
______________________________
"New Prop. Regs. for Section 401(k) Plans Are a Comprehensive
Overhaul of Existing Guidance"
Journal of Taxation, November 2003
BY: LEONARD S. HIRSH
Ernst & Young LLP - Human Capital
Document: Available from the SSRN Electronic Paper Collection:
http://papers.ssrn.com/paper.taf?abstract_id=488302
Contact: LEONARD S. HIRSH
Email: Mailto:leonard.hirsh@ey.com
Postal: Ernst & Young LLP - Human Capital
787 Seventh Avenue
New York, NY 10019 UNITED STATES
Phone: 212-773-1943
Fax: 212-773-1117
ABSTRACT:
A multitude of statutory changes and interim published guidance
from the Service had the rules governing Section 401(k)
cash-or-deferred arrangements in less-than-optimal condition.
The new set of Proposed Regulations represents an attempt by the
IRS and Treasury - largely successful - to provide comprehensive
guidance in one place. In a handful of situations - including
prefunding of contributions - the new rules take a position
contrary to prior guidance.
______________________________
"Roth IRA Reconversion May Require Make-Up Distributions"
Tax Notes, Vol. 102, No. 6, p. 760, February 9, 2004
BY: MICHAEL J. JONES
Thompson Jones L.L.P.
Contact: MICHAEL J. JONES
Email: Mailto:mjjdlt@thompsonjones.com
Postal: Thompson Jones L.L.P.
2801 Monterey Salinas Hwy #G
Monterey, CA 93940-6401 UNITED STATES
Phone: 831-373-1800
Fax: 831-372-0899
ABSTRACT:
Michael J. Jones of Thompson Jones LLP, Monterey, Calif.,
discusses a recent private letter ruling dealing with required
minimum distributions following reconversion of a Roth IRA to a
traditional IRA.
______________________________
"Symposium: Justice Scalia Reinvents Restitution"
Loyola Los Angeles Law Review, Vol. 36, No. 2, p. 1063,
April 2003
BY: TRACY A. THOMAS
University of Akron
School of Law
Paper ID: U Akron School of Law, Pub. Research Paper No. 03-07
Contact: TRACY A. THOMAS
Email: Mailto:thomast@uakron.edu
Postal: University of Akron
School of Law
150 University Ave.
Akron, OH 44325-2901 UNITED STATES
Phone: 330-972-6617
Fax: 330-258-2343
ABSTRACT:
This Article criticizing the U.S. Supreme Court's most recent
foray into equitable restitution appears as part of the 2002
Remedies Forum, a symposium and discussion group among
international Remedies scholars on the topic of restitution. The
Article asserts that the Court, led by Justice Scalia, has
re-conceptualized equitable restitution with the effect of
denying relief to claimants. It addresses the Court's most
recent pronouncement on restitution in Great-West Life & Annuity
Insurance Co. v. Knudson, 534 U.S. 204 (2002), where a divided
Court in an opinion by Justice Scalia held that "equitable
relief" authorized by the Employee Retirement Income Security
Act of 1974 (ERISA) does not include claims for specific
performance or restitution seeking money for breach of contract.
Instead, the Court held that with respect to restitution, the
term "equitable relief" includes only those restitutionary
remedies which were historically available in courts of equity.
Using this definition, Justice Scalia narrowly classified as
equitable restitution only those claims for an accounting for
profits, equitable lien, or constructive trust that seek the
return of specific funds held by the defendant.
This Article levels two criticisms at the Court's holding in
Great-West Life. The primary critique is that the Supreme Court
distorted history and equity to reach its result on restitution.
Historically, equitable restitution was not restricted to three
types of formalistic claims seeking only the return of
plaintiff's specific funds. To the contrary, equity was a
flexible legal alternative that issued a variety of monetary
remedies in order to address the failure of the hyper-formalist
common law courts to redress wrongs. Moreover, despite Justice
Scalia's claim that the Court can easily distinguish between law
and equity, it is not a simple task to discern historical rules
of equity. The historic development of restitution resulted in
significant overlap between equitable and legal restitution, and
the historical nuances have been long forgotten. Justice
Scalia's return to the past in defining equitable relief
resurrects the outdated distinctions between law and equity and
makes them even more significant today. The Article suggests
that the dearth of scholarship on historical equity creates a
dangerous opportunity for courts, like the Supreme Court in
Great-West Life, to issue decisions unguided by accurate
knowledge, yet insulated from knowing challenge.
The Article's second criticism of Great-West Life is that the
Court improperly interpreted modern remedial statutory language
by historical reference. It suggests that statutory language
distinguishing legal and equitable remedies should instead be
interpreted by the purpose of the remedy sought. Remedies
generally are classified according to their purpose to
compensate, punish, disgorge an unjust benefit, or prevent
future harm. A purpose test rather than a historical inquiry for
defining "equitable relief" more easily delineates the available
remedies and avoids the overly formalistic approach taken thus
far by the Supreme Court.
Keywords: equity, restitution, Supreme Court, remedies
JEL Classification: K4
______________________________
W O R K I N G P A P E R Abstracts
_________________________________________________________________
"The Paradox of the Misuse of Administrative Law in ERISA Benefit
Claims"
BY: MARK D. DEBOFSKY
Daley, DeBofsky & Bryant
Document: Available from the SSRN Electronic Paper Collection:
http://papers.ssrn.com/paper.taf?abstract_id=436480
Contact: MARK D. DEBOFSKY
Email: Mailto:mdebofsky@ddbchicago.com
Postal: Daley, DeBofsky & Bryant
1 N. LaSalle St.
Suite 3800
Chicago, IL 60602 UNITED STATES
Phone: 312-372-5200
Fax: 312-372-2778
ABSTRACT:
Employee benefit claims brought under the Employee Retirement
Income Security Act (ERISA) have been mistakenly adjudicated
under an administrative law model rather than as any other civil
action brought before the federal court. This article discusses
the impropriety of the use of an administrative law paradigm in
litigation of ERISA benefit disputes and suggests a more
appropriate way of resolving claim disputes.
Keywords: ERISA, administrative law, benefits, summary
judgment, trials, standard of review, scope of review,
discovery, administrative exhaustion