Learning Outcomes
The Study of Taxation of Pensions and Profit Sharing Plans and Tax-Exempt Organizations
"Pensions and employee benefits continue to be a favorite subject for legislative activity. The latest evidence of this preoccupation on the part of the Congress is the 1987 Omnibus Budget Reconciliation Act (the "87 OBRA"). Congress began its current assault on the private pension industry in 1974, with the passage of the now (in) famous Employee Retirement Income Security Act ("ERISA"). ERISA completely overhauled the private pension system, and thus, necessitated the revision of virtually every existing qualified employee retirement plan in the country. Comprehensive and extremely technical, it was aimed primarily at protecting participants in such plans from the type of abuses which had occurred earlier, (e.g., discrimination, under funding of plan, back-loading of benefits, onerous vesting requirements, etc.). Thus, new minimum funding requirements were instituted along with new requirements relating to participation, vesting and benefit accrual, and a multitude of other new rules. One of the most significant changes wrought by ERISA was the creation of the Pension Benefit Guaranty Corporation ("PBGC"), to provide insurance against loss of participant's benefits when a defined benefit plan fails.
Although it was the most comprehensive pension legislation that has yet been enacted, ERISA was only the beginning of a legislative flood which has kept the pension industry reeling since 1974." (Levy and Wilkie, 1989 p.i.) Part of this course will review ERISA and those subsequent laws that deal with, profit sharing, and pension plans. Topics will include: self-employment plans, plan limitations, participation standards, and vesting standards.
The second part of this course will discuss tax-exempt organizations. "A tax-exempt organization" is a unique entity. Almost always, it is a nonprofit organization. The concept of a "nonprofit organization" is usually a state law concept, while the concept of a "tax-exempt organization" is principally a federal tax law concept.
The institutions of society within the United States are generally classified as governmental, for-profit, or nonprofit entities. Governmental entities are the branches, departments, agencies and bureaus of the federal, state and local governments. For-profit entities comprise the business sector of this society. Nonprofit organizations constitute what is frequently termed the "third sector", "the voluntary sector", the "private sector", or the "independent sector" of United States society. For a variety of reasons, the organizations making up the nation's independent sector have been granted exemption from tax liability and, in some instances, have been accorded the status of entities contributions to which are tax deductible.
Federal, state, and usually local law provide exemptions from income tax for (and, where appropriate, deductibility of contributions to) a wide variety of organizations such as churches, colleges, universities, health care providers, various charities, civic leagues, labor unions, trade associations, social clubs, political organizations veterans' groups, fraternal organizations, and certain cooperatives. Yet despite the longevity of most of these exemptions, the underlying rationale therefore is vague and varying. Nonetheless, the rationales for exemption appear to be long-standing public policy, inherent tax theory, and unique and specific reasons giving rise to a particular tax provision "(Hopkins, 1987, p.3). Topics of study will include: The advantages and disadvantages of tax exemption, criticisms of tax exemption and various organizations that qualify for tax exemption.
All of your professional skill will probably be under utilized or wasted if you are unable to communicate effectively, both in writing and orally. To further develop your communication skills, you will be expected to lead and/or participate in class discussion and to complete one paper.
By the end of this course, the student should be able to:
1) Discuss the various components of compensation and what monies received are excluded from compensation and the rationale for those exclusions.
2) Explain the characteristics of and differences between cafeteria plans, Voluntary Employee Benefit Associations, and welfare benefit plans.
3) Identify the requirements for qualified retirement plans related to qualification, participation, coverage, and assignment of benefits.
4) Identify the requirements for qualified retirement plans related to vesting, contribution limitations, and distributions.
5) Understand that employers can deduct contributions made to qualified retirement plans but that there are limits on the amounts that can be contributed and requirements for minimum funding.
6) Identify the types of distributions that can be made from qualified plans and discuss the tax effects of each kind of distribution.
7) Identify the common elements of traditional IRAs, SEP IRAs, SIMPLE IRAs, and Roth IRAs and the distinguishing characteristics of each.