Cypen & Cypen   Miami
Home Attorney Profiles Clients Resource Links Newsletters navigation
    
825 Arthur Godfrey Road
Miami Beach, Florida 33140

Telephone 305.532.3200
Telecopier 305.535.0050
info@cypen.com

Click here for a
free subscription
to our newsletter

Cypen building

Cypen & Cypen
NEWSLETTER
for
DECEMBER 30, 2004

Stephen H. Cypen, Esq., Editor

we wish you and yours
a very happy, healthy and
prosperous new year!!!!

1. MAXIMUM PENSION BENEFIT PAYABLE UNDER IRC SECTION 415 FROM DB PLAN MUST ACCOUNT FOR VALUE OF COLA:

A governmental pension plan recently asked Internal Revenue Service for rulings with regard to limitations on benefits under Section 415 of the Internal Revenue Code. Benefits under the plan are determined based on service and compensation. The plan also provides for cost of living adjustments of 3%, for all retired participants, commencing on the first day of the January following the third anniversary of retirement of the participant. After making reference to the general rule that “annual benefit” means a benefit payable annually in form of a straight life annuity (with no ancillary benefits), IRS concluded as follows:

  1. The maximum benefit payable under Section 415 of the Code payable at retirement must be determined taking into account the value of the cost of living adjustment provided for under the plan.
  2. A retired participant may not automatically receive an enhanced benefit reflecting the cost of living adjustment provided for under the plan merely because the benefit in the calendar year of enhancement does not exceed the maximum benefit for that calendar year under Section 415 of the Code, computed without regard to the cost of living adjustment.
  3. The maximum benefit payable under Section 415 of the Code payable at retirement must be reduced at retirement to reflect the value of the cost of living adjustment provided for under the plan, even though the cost of living adjustment provided for under the plan does not take effect until the January 1 following the third anniversary of the participant’s retirement date.
  4. The plan must correct for payments, if any, in excess of the amounts payable under Section 415 of the Code if it is to continue to be a qualified plan.

Private Letter Ruling 200452039 (September 30, 2004). A word to the wise...

2. MILITARY DISABILITY BENEFITS SUBJECT TO EQUITABLE DISTRIBUTION:

In connection with dissolution of their marriage, the former husband and the former wife agreed that she would be entitled to a direct payment of 33.96% of the former husband’s military retirement or retainer pay. They also agreed that “neither party shall take any action which shall alter or otherwise reduce the interest of the other party in the retainer pay, retired pay, deferred compensation, or other military benefit.” When the former husband subsequently retired from active duty, he applied for and was awarded veterans’ disability benefits. Under federal law, before the former husband could receive disability benefits, he was required to waive an equal amount of his military retirement pay. Waiver of retirement pay for disability benefits is common because disability benefits are nontaxable. In postdissolution enforcement proceedings commenced by the former wife, the trial court ordered that payments due to her be computed by applying 33.96% to the amount that the former husband’s military retirement would have been absent his voluntary reduction of those retirement dollars in favor of disability payments. On review, the Second District Court of Appeal affirmed: when the former husband took the voluntary action of waiving retainer pay in order to receive disability benefits, the former wife’s vested interest in his military retirement or retainer pay was reduced. As a result, equity requires that the former wife be made whole, given the totality of the situation concerning the former husband’s voluntary acts and his ability to supplement and make whole retirement benefits contemplated in the final judgment in favor of the former wife. However, the appellate court did reverse that portion of the lower court’s ruling providing for an income deduction order. Section 61.1301, Florida Statutes, limits use of income deduction orders to payments for alimony or child support, and does not permit use of such order to effectuate an equitable distribution scheme. We knew that! Padot v. Padot, 29 Fla. L. Weekly D2798 (Fla. 2d DCA, December 15, 2004).

Copyright, 1996-2004, all rights reserved.

Items in this Newsletter may be excerpts or summaries of original or secondary source material, and may have been reorganized for clarity and brevity. This Newsletter is general in nature and is not intended to provide specific legal or other advice.


Site Directory:
Home // Attorney Profiles // Clients // Resource Links // Newsletters