1995 Tax Ct. Memo LEXIS 421 | Tax Ct. | 1995
1995 Tax Ct. Memo LEXIS 421">*421 A decision will be entered for respondents.
MEMORANDUM OPINION
HAMBLEN,
The statutory prerequisites for this declaratory judgment action have been satisfied. Rule 210(c); see
At the time the Petition for Declaratory Judgment was filed, petitioner Terry Simmons resided in Hermitage, Tennessee, and petitioner Joe Willoughby resided in Mt. Juliet, Tennessee. At the time the Petition for Declaratory Judgment was filed, respondent MGS maintained its principal place of business in Nashville, Tennessee.
This case was submitted to the Court for decision pursuant to Rule 122(a) based upon the pleadings and stipulated administrative record as defined in Rule 210(b)(10). For purposes of this proceeding, we accept the facts and representations contained in the administrative record as true and incorporate them herein by this reference. Rule 217(b)(1).
Respondent MGS adopted a qualified defined benefit pension plan effective December 1, 1963. On December 23, 1987, respondent MGS restated and amended the plan by adopting the National Life Insurance Company Equity Services, Inc. Defined Benefit Pension Prototype Plan and Trust. The restatement and amendment, effective December 1, 1984, brought the plan into compliance with1995 Tax Ct. Memo LEXIS 421">*424 various statutory requirements as set forth in the Tax Equity and Fiscal Responsibility Act of 1982, Pub. L. 97-248, 96 Stat. 324, the Deficit Reduction Act of 1984, Pub. L. 98-369, 98 Stat. 494, and the Retirement Equity Act of 1984, Pub. L. 98-397, 98 Stat. 1426. The amendment defines compensation as the amount that is subject to tax under section 3101(a) without the dollar limitation of section 3121(a), but not including deferred compensation other than contributions through a salary reduction agreement to a cash or deferred plan under
The plan was further amended, effective as of the first day of the first plan year beginning after December 31, 1986, with the adoption of a model amendment for defined benefit plans intended to bring the plan into compliance with certain provisions contained in the Tax Reform Act of 1986, Pub. L. 99-514, 100 Stat. 1995 Tax Ct. Memo LEXIS 421">*425 2085. Section V of the model amendment, entitled "CALCULATION OF PRESENT VALUE FOR CASH-OUT OF BENEFITS AND FOR DETERMINING AMOUNT OF BENEFITS" states in pertinent part: 5.2 Determination of Present Value. * * * * 5.2(a) For purposes of determining whether the present value of (i) a Participant's vested accrued benefit; (ii) a qualified joint and survivor annuity within the meaning of 5.5 Applicable Interest Rate. 5.5(a) For purposes of this Section V, "Applicable Interest Rate" shall mean the interest rate or rates which would be used as of the date distribution commences by the Pension Benefit Guaranty Corporation for purposes of determining the present value of that Participant's benefits under the plan if the plan had terminated on the date distribution commences with insufficient assets to provide benefits guaranteed by the Pension Benefit Guaranty Corporation on that date.
Respondent MGS's board1995 Tax Ct. Memo LEXIS 421">*426 of directors held a special meeting on April 21, 1992, and adopted a resolution to terminate the plan effective June 23, 1992. Respondent MGS resolved to terminate the plan in order to adopt a profit-sharing plan under
On September 1, 1992, respondent MGS amended the plan, effective January 1, 1992, in two respects. First, the plan was amended to adopt Model
On September 14, 1992, respondent MGS filed with respondent Commissioner an Application for Determination Upon Termination (Form 5310), including as attachments a Form 6088 entitled "Distributable Benefits from Employee Pension Benefit Plans" and a written statement that the plan complies1995 Tax Ct. Memo LEXIS 421">*427 with certain requirements of the Tax Reform Act of 1986. In addition to setting forth the vesting schedule for the plan, the latter document states: (1) All eligible employees are benefitting under the plan; (2) no optional form of benefit was removed from the plan; (3) benefit accruals for 1989 (including annual additions) are limited by a compensation cap of $ 200,000, with future accruals based on the appropriate cost-of-living index; (4) the plan is not integrated; (4) excess benefits will not be returned to the employer; and (5) the requirements of
By letter dated October 23, 1992, petitioners' counsel submitted a comment letter to respondent Commissioner regarding respondent MGS's pending application. Sec. 601.201(o)(5), Statement of Procedural Rules. The comment letter includes allegations that: (1) The use of "base" compensation rather than "total" compensation for calculating benefits under the plan violates
By letter dated November 11, 1992, respondent MGS addressed several points raised in a letter from petitioners' counsel dated September 22, 1992. 2 The letter states that 1995 Tax Ct. Memo LEXIS 421">*429 the appropriate interest rates were used to compute each participant's benefits under the plan. With respect to petitioners' benefits, the letter states that the interest rate assumptions used were 6.5 percent during the deferral period to normal retirement and 5.0 percent for discounting postretirement benefits.
By letter dated December 8, 1992, Steven W. Carrick, the revenue agent assigned to review respondent MGS's application for determination, forwarded a copy of petitioners' comment letter to respondent MGS and its accountants, Thornthwaite & Co. (Thornthwaite).
By letter dated December 9, 1992, Revenue Agent Carrick requested that respondent MGS: (1) Amend the plan, effective to 1989, to comply with
1995 Tax Ct. Memo LEXIS 421">*431 By letter dated December 22, 1992, a copy of which was sent to Revenue Agent Carrick, petitioners' counsel responded to respondent MGS's letter dated November 11, 1992. With respect to respondent MGS's assurances that proper interest rate assumptions were utilized in computing the present value of plan benefits under
On December 28, 1992, respondent MGS further amended the plan, effective January 1, 1989, to limit all compensation to be taken into account in calculating accrued benefits for any employee to no more than $ 200,000 (as adjusted) in a plan year and to provide for 1995 Tax Ct. Memo LEXIS 421">*432 full vesting for plan participants with 6 years of service.
By letter dated December 29, 1992, Thornthwaite responded on behalf of respondent MGS to a number of the items set forth in Revenue Agent Carrick's letter dated December 9, 1992. With respect to Revenue Agent Carrick's request for a completed "Demonstration 3" certified as to its correctness for the years 1990, 1991, and 1992, Thornthwaite conceded that the plan does not satisfy the definition of compensation set forth in section 414(s) due to the fact that base compensation is used in determining benefits under the plan's benefit formula. Nonetheless, Thornthwaite performed general nondiscrimination testing under
By letter dated December 31, 1992, respondent MGS responded to that portion of Revenue Agent Carrick's letter dated December 9, 1992, requesting a reply to the various matters raised in petitioners' comment letter. Contrary to petitioners' position, respondent MGS asserted that plan benefits1995 Tax Ct. Memo LEXIS 421">*433 were properly calculated using "base" compensation excluding overtime, bonuses, and commissions on the ground that the plan definition of compensation was sanctioned when respondent Commissioner approved the plan and adoption agreement in May 1988. Reiterating this point, respondent MGS likewise denied petitioners' contention that the plan is discriminatory in operation. In response to petitioners' allegation that the computation of benefits under the plan using "base" compensation excluding overtime, bonuses, and commissions violates section 414(s), respondent MGS attached a copy of the Thornthwaite report (described above) setting forth that firm's test of the plan showing the plan to be nondiscriminatory in respect of either coverage of employees or benefits provided. Further, although acknowledging that its Form 5310 contained a typographical error indicating that an interest rate assumption of 8 percent was used in computing the present value of benefits under the plan, respondent MGS went on to allege that the "correct interest rate assumptions were used as required by Section 203(e)(2) of ERISA and the instructions on the PBGC Form 500, Schedule EA-S 'Standard Termination/Certification1995 Tax Ct. Memo LEXIS 421">*434 of Sufficiency' in the calculation of benefits for all participants in the Plan." Finally, respondent MGS flatly rejected petitioners' allegation that plan participants had been denied information with respect to the plan.
By letter dated January 8, 1993, Thornthwaite advised Revenue Agent Carrick that respondent MGS agreed to increase the distribution amount (to reflect 100 percent vesting in lieu of partial vesting) for those plan participants who terminated their employment within the 5-year period immediately preceding the plan termination date.
On February 2, 1993, respondent Commissioner issued a final favorable determination letter to respondent MGS stating that the plan termination would not adversely affect the plan's qualification for Federal tax purposes. On the same date, respondent Commissioner mailed separate copies of the determination letter to petitioners and their counsel.
As indicated, petitioners filed a Petition for Declaratory Judgment with this Court seeking a ruling that respondent Commissioner erred in issuing a favorable determination letter with respect to the continuing qualification of the plan. The petition includes allegations that respondent Commissioner1995 Tax Ct. Memo LEXIS 421">*435 erred as follows: (1) Respondent MGS failed to correctly compute its benefit obligations under the plan; 4 (2) respondent MGS's use of "base" compensation excluding overtime, bonuses, and commissions for calculating benefits under the plan results in discrimination in operation in violation of
1995 Tax Ct. Memo LEXIS 421">*436 Respondent Commissioner and respondent MGS each filed an answer to the petition. Both respondent Commissioner and respondent MGS denied, inter alia, petitioners' contention that respondent MGS used an incorrect interest rate assumption in calculating the present value of benefits under the plan. In this regard, paragraph 8 of respondent Commissioner's answer includes the following allegations: ii. Denies that a 6.5% interest rate would necessarily be used under the Plan when calculating the present value of accrued benefits payable. Respondent alleges that under the Amendment for Defined Benefit Plan Under TRA '86, §§ 5.3 and 5.5, benefits are calculated in accordance with iii. Admits. Respondent alleges that the sponsor has admitted that there is a typographical error on Form 5310 regarding the aforementioned interest rate and has made written representations that correct interest rate assumptions were used as required by Section 203(e)(2) of ERISA and the instructions on the Pension Benefit Guarantee Corporation Form 500, Schedule EA-S "Standard Termination/Certification of Sufficiency".
The case was subsequently submitted to the Court for decision pursuant to Rule 122(a) based upon the pleadings and stipulated administrative record as defined in Rule 210(b)(10).
Each of the parties filed simultaneous opening briefs and simultaneous reply briefs. Petitioners' opening brief does not conform with Rule 151(e) which describes the form and content of briefs filed with this Court. 51995 Tax Ct. Memo LEXIS 421">*439 In particular, petitioners' brief does not contain a table of contents, a list of citations, a statement of the issues to be decided, or proposed findings of fact in separate numbered paragraphs. In light of these defects, respondent MGS filed a Motion to Strike petitioners' 1995 Tax Ct. Memo LEXIS 421">*438 reply brief on the theory that, having failed to file a proper opening brief, petitioners would have to seek leave of Court to file a reply brief under Rule 151(b). 6 Petitioners filed a response in opposition to respondent MGS's motion asserting that respondent MGS did not suffer prejudice as the result of petitioners' imperfect opening brief.
Considering all of the circumstances, it does not appear that respondent MGS was substantially prejudiced by the defects in petitioners' opening brief. Consequently, we shall deny respondent MGS's Motion to Strike petitioner's reply brief. 7
On brief, petitioners argue that respondent erred in issuing a favorable determination letter in two respects. First, petitioners contend that respondent Commissioner erred by failing to require respondent MGS to demonstrate1995 Tax Ct. Memo LEXIS 421">*440 that the plan satisfies the requirements of
1995 Tax Ct. Memo LEXIS 421">*441
We have observed that the legislative history underlying
With the foregoing in mind, we turn to the question of whether respondent Commissioner erred in issuing a favorable determination letter in the instant case. As indicated, petitioners' initial contention is that respondent Commissioner erred in issuing a favorable determination letter without first requiring respondent MGS to demonstrate that the plan satisfies the requirements of
The administrative record in this case shows that respondent MGS had its accountants, 1995 Tax Ct. Memo LEXIS 421">*443 Thornthwaite & Co., respond to Revenue Agent Carrick's request to provide a completed "Demonstration 3" certified as to its correctness for plan years 1990, 1991, and 1992. Thornthwaite responded to this particular request by letter dated December 29, 1992. In particular, while conceding that the plan does not satisfy the definition of compensation set forth in section 414(s) due to the fact that base compensation is used in determining benefits under the plan's benefit formula, Thornthwaite performed general nondiscrimination testing under
Contrary to petitioners' view of the matter, we are unable to conclude that respondent Commissioner erred in issuing a favorable determination letter on the ground stated. While Revenue Agent Carrick originally directed respondent MGS to provide a completed "Demonstration 3" certified as to its correctness for plan years 1990, 1991, and 1992, respondent Commissioner obviously was satisfied1995 Tax Ct. Memo LEXIS 421">*444 with Thornthwaite's report setting forth its conclusions that the plan was nondiscriminatory for 1991, as well as Thornthwaite's representation that the plan would pass general nondiscrimination testing for 1990 and 1992. Obliged as we are to accept these representations as true,
Petitioners contend in the alternative that respondent Commissioner erred in issuing a favorable determination letter on the ground that respondent MGS calculated the present value of benefits under the plan by using an assumed interest rate in excess of that permitted under
Based on the record presented, we are not convinced by petitioners' argument that respondent Commissioner erred in issuing a favorable determination letter. While the record is not clear as to the particular interest rate assumptions used in the computation of the present value of benefits under the plan, it appears that respondent Commissioner accepted respondent MGS's final representation that "the correct interest1995 Tax Ct. Memo LEXIS 421">*446 rate assumptions were used * * * in the calculation of benefits for all participants in the Plan." Although petitioners obviously find respondent MGS's response unacceptable, we can find no fault with respondent Commissioner's determination which is based solely on the information submitted and not upon an independent investigation of the facts. See
In sum, petitioners have not demonstrated to this Court's satisfaction that respondent Commissioner's determination is erroneous.
1995 Tax Ct. Memo LEXIS 421">*447 To reflect the foregoing.
Footnotes
1. While admittedly lacking specific information on the point, petitioners referred to a purported distribution in excess of $ 600,000 to respondent MGS's president, Grace Grissom, as evidence that the plan is discriminatory in operation.↩
2. The letter dated Sept. 22, 1992, is not part of the record in this case.↩
3. The information requested included the participant's name, date of hire, date of participation, date of and reason for severance, account balance or accrued benefit at severance, vested percentage at severance, total hours of service worked during the year of severance, and date of payment of the vested accrued benefit.↩
4. Petitioners argue that respondent MGS's calculation of benefits is incorrect on the ground that the definition of compensation used in computing those benefits conflicts with the definition of compensation communicated to plan participants in the Summary Plan Description. By order dated July 13, 1994, we granted respondent Commissioner's motion to strike all allegations pertaining to the Summary Plan Description on the ground that said document is not contained in the stipulated administrative record.↩
5. Rule 151(e) states in pertinent part:
(e) Form and Content: All briefs shall contain the following in the order indicated:
(1) On the first page, a table of contents with page references, followed by a list of all citations arranged alphabetically as to cited cases and stating the pages in the brief at which cited. Citations shall be in italics when printed and underscored when typewritten.
(2) A statement of the nature of the controversy, the tax involved, and the issues to be decided.
(3) Proposed findings of fact (in the opening brief or briefs), based on the evidence, in the form of numbered statements, each of which shall be complete and shall consist of a concise statement of essential fact and not a recital of testimony nor a discussion or argument relating to the evidence or the law. In each numbered statement, there shall be inserted references to the pages of the transcript or the exhibits or other sources relied upon to support the statement. In an answering or reply brief, the party shall set forth any objections, together with the reasons therefor, to any proposed findings of any other party, showing the numbers of the statements to which the objections are directed; in addition, the party may set forth alternative proposed findings of fact.
(4) A concise statement of the points on which the party relies.
(5) The argument, which sets forth and discusses the points of law involved and any disputed questions of fact.
(6) The signature of counsel or the party submitting the brief. * * *↩
6. Respondent Commissioner declined to join in the filing of the Motion to Strike.↩
7. We will nevertheless take this opportunity to remind petitioners' counsel that the Court's Rules of Practice and Procedure are intended to promote fairness and order in the presentation of an action brought in this Court. In this regard, petitioners' counsel is admonished that future derelictions of the sort present in this case may be met with the imposition of an appropriate sanction.↩
8.
Sec. 401(a)(4) ↩ provides in pertinent part that a trust forming part of a pension plan shall constitute a qualified trust if the contributions or benefits provided under a plan do not discriminate in favor of highly compensated employees.9.
Sec. 401(a)(11) provides in pertinent part that a trust forming part of a pension plan shall not constitute a qualified trust unless the plan provides for payment of benefits in the form of a qualified joint and survivor annuity or a qualified preretirement annuity.Sec. 417(e)(3)(A)(i) in turn provides that for purposes of calculating the present value of a qualified joint and survivor annuity or a qualified preretirement annuity an interest rate no greater than the "applicable interest rate" shall be used if the vested accrued benefit is not in excess of $ 25,000. The term "applicable interest rate" is defined insec. 417(e)(3)(B)↩ as the interest rate which would be used by the Pension Benefit Guaranty Corporation for purposes of determining the present value of a lump sum distribution on plan termination.10. We observe that the issues raised by petitioners primarily involve the proper computation of their benefits under the plan. While this Court generally lacks jurisdiction over allegations relating to operational defects in a retirement plan,
Thompson v. Commissioner , 71 T.C. 32">71 T.C. 3229 U.S.C. sec. 1132(a)(1) ,(e)(1) (1988)↩ . Consequently, petitioners' remedy, if any, appears to lie elsewhere.
