- Ability of retirement plan participants to sue broadened: In the case of LaRue v. DeWolff, the U.S. Supreme Court unanimously held that participants in 401(k)s and other defined contribution plans can sue for investment losses incurred in their individual accounts as a result of a fiduciary’s breach of duty. Mr. LaRue sued his former employer for investment losses that resulted from an alleged failure to respond appropriately to requests for investment changes. A prior Supreme Court decision (Russell v. Mass Mutual) seemed to state that a claim for losses due to a fiduciary breach could be brought only for the plan as a whole, and not by individual participants for losses in their own accounts. In LaRue, however, the Supreme Court limited its prior decision in Russell to defined benefit plans, explaining that the Russell decision did not apply to individual account plans like 401(k) plans, which dominate the retirement landscape today. The case is likely to generate a significant increase in 401(k) plan litigation.
- Economic stimulus payment notices to be issued: Beginning this week, the IRS will begin issuing letters to 130 million households reminding them to file a 2007 federal income tax return in order to receive a 2008 economic stimulus payment. These letters are being sent to taxpayers who filed 2006 federal income tax returns. Later this month, special notices will be issued to certain recipients of Social Security and Veterans Affairs benefits, who may not ordinarily be required to file a 2007 return, but who will have to do so to obtain the stimulus payment. Despite the media coverage of the Stimulus Act and the resulting checks, there’s still quite a bit of confusion out there–expect clients to have questions (about their parents’ checks as well as their own).
- SSA says no need for recipients to request replacement 1099s: The Social Security Administration has announced that Social Security beneficiaries who are filing a 2007 federal income tax return only to obtain a 2008 economic stimulus payment do not need to request (and wait for) replacement Form 1099s. An estimate of Social Security benefits received in 2007 is sufficient.
- 529 plans–IRS waves caution flag: In an advance notice of proposed rulemaking (Announcement 2008-17), the IRS invites comments relating to rules it intends to propose to curb perceived abuses relating to 529 plans. The IRS notes that the 529 plan beneficiary rules have the potential to be manipulated to circumvent transfer tax (e.g., multiple accounts could be established with different designated beneficiaries, with the beneficiary designations later changed to a single, common designated beneficiary). The IRS also notes the possibility that an individual might attempt to avoid gift tax by contributing to a 529 account for him or herself, and then subsequently changing the designated beneficiary to a family member in the same or higher generation. To protect against these–and other–potential abuses, the IRS intends to propose anti-abuse rules that would deny favorable tax treatment when a 529 plan is used for other than its intended purpose: providing for the qualified higher education expenses of the designated beneficiary.
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President
Live Long Live Rich
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