Jump to content
Sign in to follow this  
davef

Court case on 417(e) calculations

Recommended Posts

Has anyone had the chance to review the recent (3/22/99) ruling in Lyons v. Georgia-Pacific Corp. Salaried Employees Retirement Plan? It seems to contradict everything I've ever thought about calculating lump sum benefits under 417(e). In a nutshell, the court has said that 417(e) must be followed only in involuntary cashout situations -- it does not have to be followed if the participant has a choice between an annuity and a lump sum. Any reactions out there? Is anyone taking this ruling seriously?

Share this post


Link to post
Share on other sites
Guest Brian4

To an extent, this case was argued and decided on technical points. Title I of ERISA is applicable to US retirement plans, with exceptions that do not apply in this case. Also, retirement plans must meet the requirements of the Internal Revenue Code for favorable tax treatment. The case was argued under ERISA, quoting Section 411 of the code and the parallel provision in ERISA, so the IRS regulations would be used to decide the case. (IRS regulations are only recognized for certain sections of ERISA.) Code section 417(e) and ERISA 205(g) say the valuation rules apply to all lump sums, regardless of amount, but Code section 411(a)(11) only talks about small lump sums. The ruling does not discuss ERISA 205(g). So, perhaps one could argue that ignoring the IRS rules under 417(e) would cause the plan to be a nonqualified plan for tax purposes.

In other words, it appears there are still risks to ignoring the IRS valuation rules. A plan sponsor that ignores these rules is leaving themselves open to IRS action, possibly through participants complaining through the determination letter process.

Another point is because the Court rejected the regulations issued to interpret the law, perhaps the full meaning of the underlying statute is now less clear. Does an attorney have a comment about this?

Share this post


Link to post
Share on other sites

Create an account or sign in to comment

You need to be a member in order to leave a comment

Create an account

Sign up for a new account in our community. It's easy!

Register a new account

Sign in

Already have an account? Sign in here.

Sign In Now
Sign in to follow this  

×
×
  • Create New...