Academic journal article Journal of Accountancy

Score One for Small Pension Plans

Academic journal article Journal of Accountancy

Score One for Small Pension Plans

Article excerpt

A Ninth Circuit Court of Appeals decision has held that an employer's conservative actuarial assumptions used in determining the amount of deductible contributions to an individual defined benefit plan were reasonable.

This is the fourth in a series of appellate-level decisions on individual defined benefit plans. Unlike the previous decisions, this one does not deal with plans maintained by law firms. Instead, the case was a consolidation of 12 businesses' petitions to the Tax Court seeking reversal of Internal Revenue Service audit findings.

Before this case, the Fifth Circuit Court of Appeals 1993 decision in Vinson & Elkins (see JofA, Feb.94, page 29) and the Second Circuit Court of Appeals 1994 decision in Wachtell, Lipton, Rosen & Katz both upheld conservative actuarial assumptions used by law firms in contributing to individual defined benefit plans. Both of the cases were appeals from Tax Court decisions.

The Sixth Circuit Court of Appeals decision in Rhoades, McKee & Boer (see JofA, Apr.95, page 23) was in the IRS's favor. The Court decided that two of the actuarial assumptions used by the law firm in determining contributions to individual defined benefit plans were in fact unreasonable. The Sixth Circuit also found that the "substantially unreasonable" test - the standard developed by the Tax Court and used by the district court in Rhoades, McKee to uphold conservative actuarial assumptions - was wrong because it granted more deference to actuarial assumptions than was intended under the statute.

For a defined benefit plan, an employer contributes and deducts an amount that, together with accumulated contributions and expected income, will produce the defined retirement benefit. …

Search by... Author
Show... All Results Primary Sources Peer-reviewed

Oops!

An unknown error has occurred. Please click the button below to reload the page. If the problem persists, please try again in a little while.