Retired employee receiving a monthly pension no longer wants her pensi

[Guest SueJ]

Retired employee receiving a monthly pension has decided that she no longer wants her pension due to religious beliefs.

Actuary told client to keep paying retiree as she owes taxes on the funds. Retiree says she will willingly pay taxes due, but still does not want the pension. She does not want to donate the funds to a charity.

She is now writing personal checks to the trust for the amount of her benefit and mailing them in. We have received two checks so far for 3 months worth of benefits.

Has anyone encountered this before and if so, what did you do? deposit the checks? hold them and let them go stale dated? something else?

[mbozek]

Under IRS rulings the plan must continue to pay a vested benefit to a participant until death. Participant can assign the payments to another person, e.g, a child, under assignment of benefit regs but must pay taxes on the benefits. She cant force the plan to cash the checks.

[Everett Moreland]

Interesting problem.

Persons other than the employer may contribute to a qualified trust. It might be an exercise of fiduciary discretion when the trustee decides whether to cash the checks. All things equal, it seems a fiduciary would accept money from any source. So the trustee might need some rationale for not cashing the checks. This is not to suggest there isn't a good rationale, just to suggest it probably is a trustee decision to be made in the interest of plan participants and beneficiaries. One rationale might be that the documents don't allow the trustee to accept contributions from others than the employer. Another might be that the trustee foresees future trouble from cashing the checks, such as a claim by the participant after a change of heart or by the participant's estate.

[Kirk Maldonado]

My guess is that the plan does not permit participants to write checks to the plan, so that accepting the funds might (in the view of the IRS) jeopardize the tax-qualified status of the plan.

[JanetM]

Could you not continue sending checks and escheat the uncashed benefits to the state?

[Guest SueJ]

Her pension is actually a direct deposit so there are no uncashed checks to the retiree to escheat.

[Mike Preston]

I would be concerned with any plan that invoked escheat laws. Unless the client was informed that there is a risk of the IRS taking the position that such laws are preempted by ERISA. Should the IRS do so, and prevail, as I believe they would, the plan would then be subject to potential disqualification. Likely? No. But likely enough.

[JanetM]

Is the participant mentally ill? She does not want the pension for religious reasons - but does not to give it to charity. Sounds like an older person whose mind is slipping. Might sound paternal - but can't try to find out what the real story is?

This person may need help.

[Guest SueJ]

She worked for a college and feels very strongly that the funds should be kept in the possession of the college.

[JanetM]

Then have to contribute the funds to the college. To a scholorship fund or the general fund. There must be be some compromise available.

[mbozek]

Since the college is tax exempt she can take an itemized deduction for contributions equal to the amount of the benefits from her income tax. This shoulld be explained by a tax advisor. She needs to be told that retirement plan funds are not assets of the college-- they are in a qualified plan for the exclusive benefit of the employees or in a 403(B) annuity contract for the participant.

[Guest Harry O]

If the pension payments are a large portion of her income, she may not be able to offset the pension income with a full charitable deduction.

[MGB]

I am not sure that everyone is in sync with what the person's concerns are. Sue stated she "worked for a college." Is she still working?

Perhaps she just finds it unreasonable that she is receiving a pension at the same time she is working. It may be that she sees this as "double-dipping." Her concern may be that she is somehow harming the college and is getting away with something. So, to rectify her guilt (the "religion" aspect), she doesn't want the pension.

[mbozek]

The income tax deduction is 50% of AGI with the excess carried forward.

[Guest b2kates]

Was it a religiously connected university.

I have worked with a number of universities, where the employee was a member of a religious order: i.e. Sisters of ..., jesuit priests, and the "employee" has taken a vow of poverty.

In that situation there is authority for them to sign over to the Order their pension and it is not taxable to the person, nor subject to the 50% of AGI limitation on charitable giving.