BENEFITS BYTE

January 6, 2004
BB 04—001

In this issue:

  • FASB Requires More Pension Disclosure
  • IRS Issues Notice Classifying Some Roth IRAs as Tax Avoidance Transactions

FASB Requires More Pension Disclosure

The Financial Accounting Standards Board (FASB) has revised FASB Statement No. 132, "Employers' Disclosures about Pensions and Other Postretirement Benefits," which requires companies to provide more details about their plan assets, benefit obligations, cash flows, benefits costs, and other relevant information on the company's financial statements. The new requirements are effective for fiscal years ending after December 15, 2003 and for quarters beginning after December 15, 2003. (Companies are now required to report information on post retirement benefit plans on a quarterly basis.)

For the first time, companies are required to provide financial statement users with a breakdown of plan assets by category, such as equity, debt and real estate. Cash flows will include projections of future benefit payments and an estimate of contributions to be made in the next year to fund pension and other postretirement benefit plans. For more information, contact Jan Jacobson, Council director, retirement policy, at (202) 289-6700.

IRS Issues Notice Classifying Some Roth IRAs as Tax Avoidance Transactions

In Notice 2004-8, the Internal Revenue Service (IRS) has classified certain transactions involving Roth IRAs as tax avoidance transactions that will be subject to the 6 percent excise tax for excess contributions. In general, the transactions in question involve (1) a Taxpayer who owns a business (the "Business"), (2) a Roth IRA maintained by the Taxpayer, and (3) a corporation (the "Roth IRA Corporation") where substantially all the shares are owned or acquired by the Roth IRA. In this instance, the acquisition of shares and other business transactions between the Business and the Roth IRA Corporation are not fairly valued and result in the transferring of value into the Roth IRA (comparable to a contribution to the Roth IRA).

The IRS indicated that it would, in appropriate cases, attribute the value shifted from the Business to the Roth IRA Corporation as a payment to the Taxpayer, followed by a contribution by the Taxpayer to the Roth IRA and a contribution by the Roth IRA to the Roth IRA Corporation. These amounts would be subject to the 6 percent excise tax for excess contributions to the extent the amounts exceed the contribution limits for Roth IRAs. The IRS may also take the position that the transaction involves one or more prohibited transactions that could result in disqualification of the Roth IRA.

The transactions described in the notice, and "substantially similar transactions," are to be treated as tax shelter arrangements that are "listed transactions" subject to disclosure, list-keeping and registration requirements. For more information, contact Jan Jacobson, Council director, retirement policy, at (202) 289-6700.

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The American Benefits Council is the national trade association for companies concerned about federal legislation and regulations affecting all aspects of the employee benefits system. The Council's members represent the entire spectrum of the private employee benefits community and either sponsor directly or administer retirement and health plans covering more than 100 million Americans.