1. JUSTICES EYE ANOTHER ERISA CASE, SIGNAL INTEREST IN PENN DISPUTE:
- High court heard three ERISA cases this term
- Penn case could affect other schools
The U.S. Supreme Court signaled its interest in a lawsuit over the University of Pennsylvania’s retirement plan by asking university employees to respond to the school’s petition for review. A “call for response” from the justices indicates someone at the high court is interested in the case, and it increases the chances the case will be heard from 1% to 5%, according to a Bloomberg Law analysis spanning 2010 to 2018. Penn’s petition asks the justices to correct errors in how the U.S. Court of Appeals for the Third Circuit handles allegations of fiduciary breach under the Employee Retirement Income Security Act. The Third Circuit’s decision greenlighting the Penn workers’ ERISA claims departs from settled law governing how courts evaluate complaints and “sows enormous confusion” for retirement plan fiduciaries, Penn said. Penn is one of 20 prominent universities to be sued over its retirement plan fees and investment options since 2016. The Third Circuit decision being challenged marked the first time an appeals court considered the merits of this series of lawsuits, which has spawned one trial and garnered nearly $70 million in settlements.
ERISA at SCOTUS
This signal from the justices comes two weeks after they issued their first of up to four ERISA opinions expected to be issued this term. The court on Jan. 14 sent a dispute over the company stock in International Business Machine Corp.'s 401(k) plan back to an appeals court for further review. It’s also expected to issue decisions involving ERISA’s deadline to sue and pension plan standing. And on Jan. 10, the justices granted a fourth ERISA petition in a case raising a preemption challenge to a state drug-pricing law. The court hasn’t announced when it will hear that case. In recent years, the court has typically heard no more than two ERISA cases per term. Penn is represented by Morgan Lewis & Bockius LLP. The Penn employees are represented by Schlichter Bogard & Denton LLP. The case is Univ. of Pa. v. Sweda, U.S., No. 19-784, request for response to petition for certiorari 1/27/20. Jacklyn Wille, Bloomberg Law, January 28, 2020.
2. SOUTH CAROLINA GOVERNOR CALLS FOR CLOSURE OF DEFINED BENEFIT PENSION:
South Carolina Gov. Henry McMaster wants to close the $32 billion state retirement system’s defined benefit pension plan and move all new state workers into a defined contribution plan. “I’m asking that we – at the end of this year – close enrollment in the current defined benefit plan,” McMaster said during his State of the State address. “Putting money into an open system like that is like trying to fill a bathtub with the drain open. We must close enrollment first.” According to the South Carolina Retirement System’s (SCRS) most recent valuation report, the system had unfunded liabilities of just under $23 billion as of July 1. That is up from just under $22.1 billion at the same time the previous year. McMaster’s budget for fiscal year 2020-2021 includes proviso language that closes enrollment in the South Carolina Retirement System (SCRS) to new members. A new employee eligible to become a member of SCRS after Dec. 31,2020 would instead join the State Optional Retirement Program (State ORP) administered by the South Carolina Public Employee Benefit Authority (PEBA). McMaster said that although adopting the reform will require a “concerted expenditure of political willpower” by the general assembly, he said it pales in comparison to the cost of doing nothing. “It is time for the legislature to make some hard decisions and implement systemic reforms to correct this problem,” McMaster wrote in his budget. “We must maintain our commitment to the 11.5% of South Carolina’s population that relies on state retirement systems, while protecting taxpayers from bearing any additional financial burden caused by inaction or indecision. That means enacting a date-certain transition away from defined benefit pension plans to defined contribution retirement plans for new state employees.” The State ORP is a defined contribution retirement plan PEBA administers for employees of state agencies, public and charter school districts, and public higher education institutions in South Carolina. The defined contribution plan participants are solely responsible for their retirement account, and they choose how to invest and manage their money. Like South Carolina, Kentucky proposed a pension reform plan in 2017 that included closing the defined benefit pension and moving new employees to a defined contribution pension plan. An analysis of that proposal released in late 2019 said, however, that the move would have saved the state money in the short term, but would have been more expensive over the longer term. Chief Investment Officer, January 28, 2020.
3. KOBE BRYANT AND THE IMPORTANCE OF ESTATE PLANNING:
Kobe Bryant made an estimated $680 million during his 20-year basketball career between endorsements and his actual salary. The sports world lost a titan when Kobe Bryant, along with 8 others, including his 13-year old daughter, died tragically in a fiery helicopter crash. Kobe’s influence extended far beyond his NBA stardom and eclipsed international borders, both as a result of the league’s extensive global influence and the fact that Bryant spent most of his childhood in the Italian province of Rieti. He was a citizen of the world in a way unique among American athletic stars. He is survived by three minor daughters and his longtime wife, Vanessa. As is our wont here at Wealthmanagement.com, whenever there’s a universally mourned loss such as this, we take the opportunity to focus on the importance of estate planning--to try to salvage some sort of positive from such awful events. Though it’s far too early for the exact details of Kobe’s estate to come out--and, frankly, given his business acumen and extended period as an international star, it’s a safe bet that there are vehicles in place to prevent the public ever fully knowing most of the details--there are still some insights to be gleaned from his passing. Kobe made an estimated $680 million during his 20-year career between endorsements and his actual Los Angeles Lakers’ salary. And that’s before we consider any successful business ventures or the still very legally sticky issue of his likeness rights . By any count, this will be the largest potential estate for an athlete that we’ve ever seen. As mentioned above, given Kobe’s personality, business mind and lengthy period in the spotlight, it’s highly unlikely that he died without at least some planning documents in place--likely more than a few (though it’s entirely possible that a wealthy client this young could have taken the time to set up trusts for asset protection purposes or his children’s futures but still not actually executed a will, though given his family structure and how federal intestacy laws work, I don’t think the lack of a will would matter too much estate tax-wise). However, even with a plan in place, it’s impossible to anticipate someone passing this unexpectedly and so young, so there will almost certainly be a few monkey wrenches in the works. For instance, it’s likely that any plan he may have had would involve the use of trusts or other vehicles to remove assets from his estate for federal estate tax purposes (California currently has no state estate tax). But, given Kobe and his family’s youth, it’s highly unlikely that they’d gotten too far along in actually moving those assets, as doing so simply wouldn’t make much financial sense when there was, presumably, still so much time for them to benefit Kobe during his life. There’s also the potential for civil suits brought by the families of those also killed in the crash. It was Kobe’s private helicopter and reports indicate the weather at the time was poor for flying and many vehicles had already been grounded. Also, Kobe is almost certainly the wealthiest individual involved and the nature of these sorts of things tends to see the person with the most money being the one who gets sued. No matter how thorough Kobe’s plan, I doubt that the possibility of up to seven wrongful death lawsuits was considered during drafting. So that’s a situation to keep an eye on. Since Bryant’s wife, Vanessa, survives him, most potential tax liability from assets inadvertently left in his estate will be mitigated by the spousal exemption and will likely pass to her tax-free--though they would also pass through probate, so there is a privacy price that could still end up being paid. While that’s largely fortunate (an odd turn of phrase when discussing a tragedy, but there you go) for the Bryant family taxwise, it does now shunt the majority of estate planning and wealth preservation duties for Kobe’s wealth onto his wife. Unfortunately many advisors still hold to the outdated model of interacting largely with the husband (even sometimes, bizarrely, in cases where the man may not be the wealth creator), so the question now arises as to what Vanessa’s relationship with Kobe’s advisory team actually looks like. This sad reality highlights the true value of an estate plan and trusted advisors. That’s an overwhelming responsibility to have suddenly dropped in your lap, particularly while also mourning the simultaneous loss of a spouse and young child (and with estate planning, by its nature, someone will always be dealing with a loss), so she will need her advisors more than ever. If the advisory team hasn’t taken the time to cultivate a bond with her, then they’ll certainly be kicking themselves at the potential loss of nearly a billion dollars if she decides to take the Bryant fortune elsewhere. Ultimately, however, we’re mostly trying to put lipstick on a pig of a situation here. Estate planning is an important yet highly difficult topic to broach with clients and professionals alike, and the sad truth is that celebrity tragedies like Kobe’s are one of the best opportunities to bring up the topic and have people somewhat pay attention. Make of it what you will. David H. Lenok, WealthManagement.com , January 27, 2020.
4. MAKING WISE CHOICES WHEN A REPRESENTATIVE PAYEE MANAGES YOUR MONEY:
Some of the millions of people who get monthly Social Security or Supplemental Security Income benefits need help managing this money. A person assigned to help you manage your monthly benefits is called a representative payee. We may decide you need a representative payee if we receive information that indicates you need help to manage your money. We try to select someone who knows you and wants to help you. Your representative payee should be someone who you trust, who sees you often, and who clearly understands your needs. A representative payee receives your monthly benefits on your behalf and must use the money to pay for your current needs. Eligible costs include:
- housing and utilities;
- medical and dental expenses;
- personal care items;
- clothing; and
- rehabilitation expenses (if you’re disabled).
If there is someone you want to be your representative payee, tell a Social Security representative, and they will consider your request. Social service agencies, nursing homes or other organizations are also qualified to be your representative payee. Ask them to contact us. If you receive a decision that you are appointed a representative payee and don’t agree that you need one, or if you want a different representative payee, write to us within 60 days to appeal that decision. If you can’t manage your finances, someone else can help. If you have a trusted friend or family member who can be your representative payee, our publication A Guide for Representative Payees will provide more information on our representative payee rules. Darlynda Bogle, Assistant Deputy Commissioner, Social Security Administration, January 23, 2020.
5. CREDIT REPAIR; FIXING MISTAKES ON YOUR CREDIT REPORT:
If you’ve been reading the new year, new credit series , then you have your credit report and learned how to read it . But what if you see mistakes? Maybe it’s an account that you didn’t open, an error in your name or address, or a bankruptcy that doesn’t really belong to you. Here are tips on fixing your credit, while avoiding scams. If you see mistakes in your report, contact the credit bureau and the company that provided the information. Ask both to correct their records. Include as much detail as possible, plus copies of supporting documents, like payment records or court documents. When contacting the credit bureau, the process depends on whether you’re an identity theft victim:
- If the errors are not related to identity theft: Tell the credit bureau (by mail or online) what information you think is inaccurate. By mail, you can use our sample dispute letters . Online, use the dispute portals for each credit bureau (Equifax , Experian , Transunion ) that listed the inaccuracy. The credit bureau must investigate your claim and make any necessary updates to your information within 30 days. The bureau also must contact the company that provided the information. If the company finds the information was inaccurate, they must notify all three credit bureaus to correct your file.
- If the errors are due to identity theft: You can block identity theft-related debts from appearing on your credit report. Visit IdentityTheft.gov to learn the steps and to get an Identity Theft Report to send to the credit bureaus. Remember that you can use Identity Theft Reports only for debts that are the result of identity theft. Filing an Identity Theft Report to block debts that you owe is against the law.
If you’re considering paying a credit repair organization to help fix your credit, keep in mind that anything they can do for you legally, you can do for yourself at little or no cost. Credit repair organizations can NOT legally remove accurate negative information from your credit report. If you hire a credit repair organization, don’t do business with one that:
- Insists you pay before it helps you (that’s illegal)
- Tells you not to contact the credit bureaus directly
- Disputes information in your credit report you believe is accurate
If you have a problem with a credit repair organization, report it to us. For more tips, read Fixing Your Credit, Credit Repair , and Credit Repair Scams . Lisa Weintraub Schifferle, Attorney, FTC, Division of Consumer & Business Education, Federal Trade Commission, January 16, 2020.
6. IRS AND TREASURY ISSUE GUIDANCE FOR STUDENTS WITH DISCHARGED STUDENT LOANS AND THEIR CREDITORS:
The Internal Revenue Service and Department of the Treasury issued Revenue Procedure 2020-11 that establishes a safe harbor extending relief to additional taxpayers who took out federal or private student loans to finance attendance at a nonprofit or for-profit school. Relief is also extended to any creditor that would otherwise be required to file information returns and furnish payee statements for the discharge of any indebtedness within the scope of this revenue procedure. The Treasury Department and the IRS have determined that it is appropriate to extend the relief provided in Rev. Proc. 2015-57 , Rev. Proc. 2017-24 and Rev. Proc. 2018-39 to taxpayers who took out federal and private student loans to finance attendance at nonprofit or other for-profit schools not owned by Corinthian College, Inc. or American Career Institutes, Inc. The Revenue Procedure provides relief when the federal loans are discharged by the Department of Education under the Closed School or Defense to Repayment discharge process, or where the private loans are discharged based on settlements of certain types of legal causes of action against nonprofit or other for-profit schools and certain private lenders. Taxpayers within the scope of this revenue procedure will not recognize gross income as a result of the discharge, and the taxpayer should not report the amount of the discharged loan in gross income on his or her federal income tax return. Additionally, the IRS will not assert that a creditor must file information returns and furnish payee statements for the discharge of any indebtedness within the scope of this revenue procedure. To avoid confusion, the IRS strongly recommends that these creditors not furnish students nor the IRS with a Form 1099-C. IRS Newswire, Issue number: IR-2020-11 January 15, 2020.
7. IRS FREE FILE HELPS SENIORS AND RETIREES DO THEIR TAXES FOR FREE:
Seniors and retirees whose income is under $69,000 a year should explore IRS Free File for free online tax preparation. Seniors are one of the key constituents for Free File which has served 57 million taxpayers and saved them $1.7 billion since the online filing service debuted in 2003. Free File – which features 10 brand-name tax software providers – also offers the new Form 1040-SR option for seniors over the age of 65. “When you’re on a fixed income, every penny saved matters. With Free File, you can save lots of pennies. Free File also does all the hard work for you. It finds the right forms, benefits and does all the math,” said Ken Corbin, commissioner of IRS’ Wage and Investment division. Free File supports all the major forms that can be filed electronically so even if your return is a bit more complex, you can still use a free service.
Here’s how Free File works:
- Go to IRS.gov/FreeFile to see all Free File options.
- Browse each of the 10 offers or use a “look up” tool to help you find the right product. Each Free File partner sets its own eligibility standards generally based on income, age and state residency. But if your adjusted gross income was $69,000 or less, you will find at least one free product to use. Two products are in Spanish.
- Select a provider and follow the links to their web page to begin your tax return.
- Complete and e-File your tax return only if you have all the income and deduction records you need. The fastest way to get a refund is by filing electronically and selecting direct deposit. If you owe, use direct pay or electronic options.
Free File providers also offer state tax return preparation, some for free and some for a fee. Again, use the “look up” tool to find the right product. Here’s another plus for Free File: you can use your smart phone or tablet to do your taxes. Just go to IRS.gov/FreeFile on your device. All Free File products are enabled for mobile devices. Seniors who are not comfortable preparing their own tax return still have other free options. The IRS helps support the Volunteer Income Tax Assistance program and AARP supports the Tax Counseling for the Elderly program. Volunteers will prepare your tax return for you for free. Use the VITA locator tool to find a VITA/TCE location near you. Free File is available now through October to accommodate extension filers. IRS Newswire, Issue Number: IR-2020-10, January 15, 2020.
8. U.S. SECRETARY OF LABOR SCALIA HIGHLIGHTS WORKFORCE DEVELOPMENT IN WILKES-BARRE, PENNSYLVANIA:
U.S. Secretary of Labor Eugene Scalia toured Pulverman Manufacturing and participated in a roundtable discussion with the Northeastern Pennsylvania Alliance in Wilkes-Barre, Pennsylvania. Secretary Scalia underscored the Administration's focus on training workers for jobs of the future as well as the positive impact the United States-Mexico-Canada Agreement (USMCA) will have on the region's economy. "During my visit to Northeastern Pennsylvania, I was once again able to see firsthand the historic economic growth our nation has experienced over the past three years," said U.S. Secretary of Labor Eugene Scalia. "Today, job openings outnumber job seekers by more than one million. Through workforce development and passage of the USMCA, this Administration will help American workers gain the necessary skills to fill job openings. I want to thank Randy Mark of Pulverman Manufacturing, and Jeffrey Box and Phillip Condron of the Northeastern Pennsylvania Alliance for their meaningful insight and leadership as job creators." The mission of the Department of Labor is to foster, promote and develop the welfare of the wage earners, job seekers, and retirees of the United States; improve working conditions; advance opportunities for profitable employment; and assure work-related benefits and rights. Emily Weeks Release Number 20-0074-NAT, Office of the Secretary, January 13, 2020.
9. IRS ANNOUNCES 2020 STANDARD MILEAGE RATES AND VEHICLE VALUE LIMITATIONS:
The IRS has announced the 2020 standard mileage rates for business, medical and other uses of an automobile, and the 2020 vehicle values that limit the application of certain rules for valuing an automobile’s use. For 2020, the business standard mileage rate is 57.5 cents per mile (a half-cent decrease from the 2019 rate), and the rate when an automobile is used to obtain medical care -- which may be deductible under Code § 213 if it is primarily for, and essential to, the medical care -- is 17 cents per mile (a 3-cent decrease from the 2019 rate). The same lower rate applies to use of an automobile for a move that is deductible under Code § 217. For taxable years beginning after 2017 and before 2026, however, the moving expense deduction is available only for certain moves by members of the Armed Forces on active duty. The 2020 rate for charitable use of an automobile is 14 cents per mile. Standard mileage rates can be used instead of calculating the actual expenses that are deductible. For example, the business standard mileage rate can be used instead of determining the amount of fixed expenses (e.g., depreciation, lease payments, and license and registration fees) and variable expenses (e.g., gas and oil) that are deductible as business expenses. Only variable expenses are deductible as medical or moving expenses, so the medical and moving rate is lower. Parking fees and tolls related to use of an automobile may be deductible as separate items. These and other details about using the standard mileage rates can be found in Revenue Procedure 2019-46. The Notice also sets the maximum vehicle values that determine whether the cents-per-mile rule or the fleet-average valuation rule are available to value the personal use of an employer-provided vehicle. The cents-per-mile rule determines the value of personal use by multiplying the business standard mileage rate by the number of miles driven for personal purposes. The fleet-average rule allows employers operating a fleet of 20 or more qualifying automobiles to use an average annual lease value for every qualifying vehicle in the fleet when applying the automobile annual lease valuation rule. For vehicles (including vans and trucks) first made available to employees for personal use in calendar year 2020, the maximum vehicle value under both rules will be unchanged at $50,400. That amount will also be the maximum standard automobile cost for setting reimbursement allowances under a fixed and variable rate (FAVR) plan--an alternative to the business standard mileage rate that bases payments on data derived from the geographic area where an employee generally pays or incurs the costs of driving an automobile in performing services as an employee.
EBIA Comment: Transportation expenses that are deductible medical expenses under Code § 213 generally can be reimbursed on a tax-free basis by a health FSA, HRA, or HSA. (To simplify administration, some employers’ health FSAs or HRAs exclude medical transportation expenses from the list of reimbursable items.) The applicable reimbursement rate is the one in effect when the expense is incurred. Note that the mileage rate for medical care and moving expenses is lower than the mileage rate used to reimburse employees for business use of their own automobiles because the latter rate includes fixed costs (e.g., depreciation and insurance). For more information, see EBIA’s Cafeteria Plans manual at Sections XX.L.8.b (“Mileage Rate for Traveling to Obtain Medical Care”) and XX.M (“Table of Common Expenses, Showing Whether They Are for ‘Medical Care’”). See also EBIA’s Consumer-Driven Health Care manual at Sections XV.C (“What Is an HSA-Qualified Medical Expense?”) and XXIV.B (“HRAs May Reimburse Only Code § 213(d) Expenses”), and EBIA’s Fringe Benefits manual at Sections IV.F (“Employer Reimbursements for Business Use of an Employee’s Car”) and XVII.D.1.b (“Types of Expenses: Travel by Car”). Contributing Editors: EBIA Staff, IRS Notice 2020-5 (Dec. 31, 2019); IRS News Release IR-2019-215 (Dec. 31, 2019), Thomson Reuters, January 9, 2020.
10. WORKERS FILE PETITION AGAINST CALPERS SYSTEM:
Lawyers representing government workers and retirees statewide filed a petition in Los Angeles against the California Public Employee Retirement System, asking a judge to compel the agency to rescind cuts it made to the benefits of many of its retirees. In the early 2000s, many California government agencies ended automatic cost-of-living adjustment increases in favor of merit pay increases, according to the proposed Los Angeles Superior Court class-action petition. A CalPERS representative could not be immediately reached for comment. In 2006, CalPERS promised to include the merit pay increases in its calculation of an employee’s future retirement benefits, just as CalPERS had previously done for COLA increases, the petition states. To fund the promised benefits, CalPERS collected additional employee and employer contributions for the merit pay as deferred compensation, the petition states. However, in 2017, CalPERS reversed course, refused to pay benefits for merit pay for CalPERS members at the top of their salary range and confiscated the earned, deferred benefits of scores of government workers, according to the filing. CalPERS made the policy reversal without any due process or opportunity for public comment, according to the petition. To date, CalPERS has not afforded any alternative form of compensation to make up for the cuts to the retirement benefits for the affected workers, the petition alleges. Contributing Editor, MynewsLA.com , January 7, 2020.
11. DID YOU KNOW WILL ROGERS SAID THIS?:
The best way to make a fire with two sticks is to make sure one of them is a match.
12. INSPIRATIONAL QUOTES:
“The journey of a thousand miles begins with one step.” - Lao Tzu
13. TODAY IN HISTORY:
On this day in 1952, Queen Elizabeth II succeeds King George VI to the British throne and proclaimed Queen of the United Kingdom and the other Commonwealth realms including Canada, Australia and New Zealand.
14. REMEMBER, YOU CAN NEVER OUTLIVE YOUR DEFINED RETIREMENT BENEFIT.