AMERICAN
ASSOCIATION
OF ORTHODONTISTS
Explanation of the Pension Reform Act of 1974 Peter
W.
Herzog,
Jr., B.S., J.D.,
and
Gerald
J. ZaRt,
A.B.,
J.D.,
1L.M.
St. Louis, MO.
0
n Sept. 2, 1974, President Ford signed into law the Employee Retirement Income Security Act of 1974 (“Act”), better known as the Pension Reform Act of 1974. At the time of signing, President Ford said that the Act is the most far-reaching legislation affecting employees since Social Security. Whether his prophecy comes true or not remains to be seen. Introduction
That the Act is far reaching and affects every existing and future private employee retirement p1a.n cannot be doubted. However, for the purposes of this article, we will confine ourselves to a consideration of the major features of the Act affecting the so-called “qualified plans,” that is, those plans pursuant to which the employer’s contributions are immediately tax deductible, the plan’s earnings are tax exempt, and the employee’s benefits are not taxed until actually paid to him. Qualified plans fall into three broad categories. First, there are profit-sharing plans. Under these, the employer contributes, out of profits, such an amount as it determines, with no requirement for any minimum contribution. A few profitsharing plans may require a minimum contribution of an amount equal to a stated percentage of net profits, but whether the plan has such a provision is up to the employer. The contributions of profit-sharing plans are invested, tax free, and when an employee who is covered by the plan retires he receives whatever benefits are obtainable by the accumulated costs and earnings thereon which have been allocated to him. Except for the few plans where the employer has agreed to a minimum contribution, most profit-sharing plans have no guaranteed or fixed contribution or benefit. Pension plans comprise the second category of qualified plans. Under these, the employee is guaranteed a definite benefit at retirement. An actuarial calculation is made to determine how much has to be contributed monthly or yearly for an employee of a certain age in order to provide him with the agreed upon 92
Volunze Number
Pension Reform
67 1
Act of 1974
93
pension at age 60 or 65, or whatever the retirement age is. Both the contribution and the benefit are fixed. A third type of qualified plan is something of a hybrid. These are known as money-purchase pension plans and fall somewhere between profit-sharing plans and pension plans. Under the money-purchase pension plan, the employer agrees to a fixed contribution, usually a stated percentage of compensation paid. In this respect, the money-purchase pension plan resembles a pension plan. HOWever, the employee, upon retirement, receives whatever benefits arc obtainable by the accumulated contribution and earnings thereon which have been allocated to him, as in a profit-sharing plan. The Act generally is effective in 1976 with respect to ull plans which were in existence on Jan. 1, 1974. If the plan came into existence after Jan. 1, 1974, then the Act generally is effective for the first year of the plan which commences after Sept. 2, 1974, the date the Act was enacted. Participation
requirements
An employee must be eligible to participate in a qualified plan (pension, profit-sharing, or money-purchase) after he or she has attained the age of 25 and has completed one full year of service. A year of service is now defined to mean 1,000 hours of work during a 12-month period. If an employee is under age 25, he or she can be covered or can be required to wait until age 25, as the employer determines. In the latter event, however, he must be given credit for vesting purposes (which are explained below) for service prior to age 25, but not in excess of 3 years’ credit. A company with a pension plan may be discouraged from hiring older employees or a corporation with older employees may be discouraged from establishing a pension plan because of the cost of funding benefits for them. Therefore, the Act permits a pension plan to exclude an employee who is within 5 years of normal retirement age at the time when his period of service begins. However, neither a profit-sharing plan nor a money-purchase pension plan can exclude an employee because of a maximum age. The Act does not change the prior rules regarding nondiscrimination in favor of officers, shareholders, or highly compensated employees as to benefits or contributions. Further, the Act does not change the coverage requirements, that is, the provisions of existing law which require a plan to cover 70 per cent or more of all employees or 80 per cent or more of all eligible employees if at least 70 per cent or more of all employees are eligible. Vesting
of
benefits
Some plans permit an employee to make contributions to the plan in addition to those being made by the employer. In such cases, the employee’s benefits derived from his own contributions are fully vested, that is, they are the employee’s property and are nonforfeitable. With reference to the vesting of benefits derived from employer contributions, that is, the rate at which they become the employee’s property, there are
94
Nerxog
ami
Ztrfft
three alternative minimum vesting schctlules permittetl. The first is the “Five to Fifteen Year Rule.” I’nder this rule, the cmptoyec must! he at least 25 per ccilt vested in his accrued bencfit~s after 5 ~wtrs of covcrcd service, with a two-step graded increase in his percentage vesting during the nest, 10 years, cutmiimting in 100 per cent vesting after 15 years of service. The second alternative minimum vesting schedule is the so-called “Ten I’car Rule.” which provides that an employee’s accrued benefits from employer eontributions arc 100 per cent vestecl after 10 years of covered service. The third alternative minimum vesting schedule is the “Rule of 45.” Under this rule, an employee with 5 or more )-cars of covcrcd service must be at least 50 per cent vested in his accructl benefits from employer contributions when the sum of his age and the years of covered service is 45. Each year thereafter the employee’s vested percenta.ge increases by 10 per cent, so that after 10 years he may be 100 per cent vested. In any event, an employee with 10 years of service must be not less than 50 per cent vested, with an additional 10 per cent for each additional year of service. In order for the “Rule of 45” to be applicable, the employee must have a minimum of 5 years of service. Because an employee’s accrued benefit derived from his own contribution is always 100 per cent vested, and that, derived from employer contributions may be partly or entirely forfeitable, tlependjng upon the vesting schedule adopted, it will be necessary under each plan which permits employee contributions for the plan to allocate the total accrued benefit between the portion derived from employee contributions and the portion derived from employer contributions. In no event can the accrued benefit derived from the employee’s contributions be less than the value of his contributions, without interest. The vesting provisions are applicable to all types of qualified plans. Limitation
on
benefits
and
contributions
The Act distinguishes between pension plans, on the one hand, and profitsharing and money-purchase plans, on the other hand, in imposing limitat.ions on benefits and contributions, Pension plans are limited to paying benefits in an amount equal to the lesser of $75,000.00 per year or 100 per cent of the average salary during the highest three consecutive years. The Act permits an adjustment annually based upon cost-of-living increases. However, regardless of the limitations, an annual benefit of $lO,OOO.OOor less will generally be payable and not subject to the limitation. The $75,000.00 annual limitation will be reduced proportionately if the employee has less than 10 years of service. With reference to profit-sharing and money-purchase pension plans, the maximum annual contribution for the benefit of an employee is the smaller of $25,000.00 or 25 per cent of his salary. Most profit-sharing plans provide that when an employee terminates his employment, the portion of the contributions of the employer credited to his account which have not vested are forfeited and are reallocated to the accounts of the remaining participants. Such reallocated forfeitures would be included in determining the maximum annual contribution
Pemio?~ Reform permissible. This limitation, of-living adjustment. Plan-termination
Act of
1974
95
like the one for pension plans, is subject to a cost-
insurance
The Act sets up a nonprofit Pension Benefit Guaranty Corporation within the Department of Labor, with a board of directors consisting of the Secretaries of Labor, Commerce, and Treasury, with the Secretary of Labor as chairman. All pension plans are required to pay a premium for plan-termination insurance, whereas profit-sharing plans and money-purchase plans are not covered by this provision. Also excluded are professional service employer pension plans that have not had more than twenty-five active participants in the plan since Sept. 2, 1974. A professional service employer is any proprietorship, partnership, corporation, or other organization that is owned or controlled by a dentist or dentists. The purpose of the plan-termination insurance is to guarantee the payment of vested (that is, nonforfeitable) rights in retirement benefits. However, the maximum amount insurable may not exceed the actuarial equivalent of the lesser of (1) 100 per cent of the average wages during the individual’s highest-paid 5 years of participation in the plan or (2) $750.00 per month. In addition, the employer is liable to reimburse the Pension Benefit Guaranty Corporation for any insurance benefits paid to plan participants upon termination of the plan. Therefore, the “insurance” is really not insurance but merely a form of guaranteed payment, with the Pension Benefit Guaranty Corporation being the guarantor of the payment. of benefit to the plan participants. Funding
The Act sets forth detailed provisions dealing with minimum funding requirements for pension plans and money-purchase pension plans. A plan has to include the normal cost of funding the plan, as under present law. In the case of pension plans, the minimum funding requirements impose upon the employer the duty to amortize the cost of past service which has not been fully funded. Money-purchase pension plans are exempt from these past service amortization provisions. Reporting
and
disclosure
requirements
An employer is required to keep records of the years of service and vesting percentage of each employee. The plan administrator is required to publish a comprehensive plan description and a summary plan description. The summary plan description must be written so that it. will be understood by the average participant, and each participant must be provitled with a copy thereof. A copy of the summary plan dcscript~ion ant1 the plan tlcscription must be filed with the Secretary of Labor. The Act requires the plan administrator to file an annual report containing financial statements prepared by an independent certified public accountant.
And, in the case of pclnsion plans, the annual report, must include actuarial reports. The reporting and disclosure! rules take cffcct on Jan. 1, 1975. They are applicablc to all types of qualified plans. Enforcement
provisions
All persons who are responsible for investment of the plan or who handle funds or property of the plan must be bonded, They are called “Cduciaries” in the Act. IIowever, this requirement does not apply to corporate fiduciaries. The fiduciary is prohibited from directly or indirectly engaging in specified transactions with plan participants, employers, persons rendering services to the plan, and their respective officers, agents, and joint venturers. Such prohibitive transactions include sales, exchanges, or leases of property, loans, extensions of credit, the furnishing of goods, services, or facilities, transfer of plan assets, or acquisition of employer securities or real estate. The prohibited-transaction provisions take effect on Jan. 1, 1975. The primary administrative responsibility for the participation, vesting, and funding provisions of the Act is assigned to the Internal Revenue Service. The responsibility for the reporting and disclosure provisions will be with the Department of Labor. Self-employed
retirement
plans
The limitation on deductions of the self-employed retirement plans (the socalled “Keough” plans) has been increased to the lesser of $7,500.00 or 15 per cent of earned income. In any event, $750.00 may be deducted per year, regardless of the 15 per cent limitation. These rules are effective for taxable years beginning after Dec. 31, 1973. individual
retirement
accounts
The Act permits individuals who are not covered by any qualified plan to deduct limited amounts of their compensation. The deduction is limited to the lesser of $1,500.00 or 15 per cent of the individual’s compensation. Interestingly, the deduction is from gross income and may be taken even if the individual elects to use the standard deduction. In general, the individual retirement account, which must be established as a trust or custodial account with a bank, enjoys the same tax exemption as do qualified plans. The individual retirement account is the vehiele by which the plan permits portability, that is, the transfer of a covered individual from one plan to another. If an individual terminates his employment and, pursuant to that termination, receives a distribution from a qualified plan, rather than being taxed upon the receipt of the distribution he can transfer the property received from the former employer to an individual retirement account and then transfer that property from the individual retirement account to the new employer’s plan. These “tax-free rollovers” are permitted if (1) the amount distributed to the individual from the former employer’s account is transferred to the new em-
Volume Number
67
Pension Reform
1
Act of 1974
97
ployer not later than 60 days after it was received and (2) there is only one such tax-free rollover in a 3-year period. Tax
provisions
The Act makes no change in the taxation of annuity (monthly or annual) payments received by an employee from a qualified plan. The employee excludes that portion of each payment received which is attributable to contributions made by him and includes in income that portion of each payment received by him which is attributable to contributions made by the employer. The portion includable in income is taxed as ordinary income. The Act does change the rules with reference to the receipt of lump-sum distributions. That portion of a lump-sum distribution which is attributable to the employee’s pre-1974 service is treated as a capital gain, and that portion of a lump-sum distribution which is attributable to the employee’s post-1973 service is treated as ordinary income. The portion that is taxed as ordinary income is subject to the tax rate for single individuals, regardless of the marital status of the employee. There is a special lo-year forward averaging device which is intended to reflect the fact that individuals usually live about 10 years after retiring at age 65. The IO-year forward averaging device is elective and not mandatory. The Act changes the provisions with reference to the deductibility of employer contributions. A contribution which is required of pension and moneypurchase pension plans by the minimum funding rules is deductible by the employer currently, even though it exceeds the maximum amount which would otherwise be deductible. Contributions to profit-sharing plans continue to be subject to a maximum deduction, in an amount equal to 15 per cent of total compensation paid. The Act makes no change in the estate taxation of the death benefits payable by a qualified retirement plan. Such benefits continue to be exempt from taxation as long as they are not payable to the executor or the estate. Conclusion
The Pension Reform Act of 1974 has, indeed, been far reaching as predicted by President Ford. However, to date, the effect has been felt by employers who have qualified plans and those who are considering establishing them. In each instance, the employer, in consultation with his accountant and attorney, must review the existing plan or the proposed plan in light of the Pension Reform Act of 1974. 411
N.
Seventh
St.
ASSOCIATION
OF ORTHODONTISTS
Explanation of the Pension Reform Act of 1974 Peter
W.
Herzog,
Jr., B.S., J.D.,
and
Gerald
J. ZaRt,
A.B.,
J.D.,
1L.M.
St. Louis, MO.
0
n Sept. 2, 1974, President Ford signed into law the Employee Retirement Income Security Act of 1974 (“Act”), better known as the Pension Reform Act of 1974. At the time of signing, President Ford said that the Act is the most far-reaching legislation affecting employees since Social Security. Whether his prophecy comes true or not remains to be seen. Introduction
That the Act is far reaching and affects every existing and future private employee retirement p1a.n cannot be doubted. However, for the purposes of this article, we will confine ourselves to a consideration of the major features of the Act affecting the so-called “qualified plans,” that is, those plans pursuant to which the employer’s contributions are immediately tax deductible, the plan’s earnings are tax exempt, and the employee’s benefits are not taxed until actually paid to him. Qualified plans fall into three broad categories. First, there are profit-sharing plans. Under these, the employer contributes, out of profits, such an amount as it determines, with no requirement for any minimum contribution. A few profitsharing plans may require a minimum contribution of an amount equal to a stated percentage of net profits, but whether the plan has such a provision is up to the employer. The contributions of profit-sharing plans are invested, tax free, and when an employee who is covered by the plan retires he receives whatever benefits are obtainable by the accumulated costs and earnings thereon which have been allocated to him. Except for the few plans where the employer has agreed to a minimum contribution, most profit-sharing plans have no guaranteed or fixed contribution or benefit. Pension plans comprise the second category of qualified plans. Under these, the employee is guaranteed a definite benefit at retirement. An actuarial calculation is made to determine how much has to be contributed monthly or yearly for an employee of a certain age in order to provide him with the agreed upon 92
Volunze Number
Pension Reform
67 1
Act of 1974
93
pension at age 60 or 65, or whatever the retirement age is. Both the contribution and the benefit are fixed. A third type of qualified plan is something of a hybrid. These are known as money-purchase pension plans and fall somewhere between profit-sharing plans and pension plans. Under the money-purchase pension plan, the employer agrees to a fixed contribution, usually a stated percentage of compensation paid. In this respect, the money-purchase pension plan resembles a pension plan. HOWever, the employee, upon retirement, receives whatever benefits arc obtainable by the accumulated contribution and earnings thereon which have been allocated to him, as in a profit-sharing plan. The Act generally is effective in 1976 with respect to ull plans which were in existence on Jan. 1, 1974. If the plan came into existence after Jan. 1, 1974, then the Act generally is effective for the first year of the plan which commences after Sept. 2, 1974, the date the Act was enacted. Participation
requirements
An employee must be eligible to participate in a qualified plan (pension, profit-sharing, or money-purchase) after he or she has attained the age of 25 and has completed one full year of service. A year of service is now defined to mean 1,000 hours of work during a 12-month period. If an employee is under age 25, he or she can be covered or can be required to wait until age 25, as the employer determines. In the latter event, however, he must be given credit for vesting purposes (which are explained below) for service prior to age 25, but not in excess of 3 years’ credit. A company with a pension plan may be discouraged from hiring older employees or a corporation with older employees may be discouraged from establishing a pension plan because of the cost of funding benefits for them. Therefore, the Act permits a pension plan to exclude an employee who is within 5 years of normal retirement age at the time when his period of service begins. However, neither a profit-sharing plan nor a money-purchase pension plan can exclude an employee because of a maximum age. The Act does not change the prior rules regarding nondiscrimination in favor of officers, shareholders, or highly compensated employees as to benefits or contributions. Further, the Act does not change the coverage requirements, that is, the provisions of existing law which require a plan to cover 70 per cent or more of all employees or 80 per cent or more of all eligible employees if at least 70 per cent or more of all employees are eligible. Vesting
of
benefits
Some plans permit an employee to make contributions to the plan in addition to those being made by the employer. In such cases, the employee’s benefits derived from his own contributions are fully vested, that is, they are the employee’s property and are nonforfeitable. With reference to the vesting of benefits derived from employer contributions, that is, the rate at which they become the employee’s property, there are
94
Nerxog
ami
Ztrfft
three alternative minimum vesting schctlules permittetl. The first is the “Five to Fifteen Year Rule.” I’nder this rule, the cmptoyec must! he at least 25 per ccilt vested in his accrued bencfit~s after 5 ~wtrs of covcrcd service, with a two-step graded increase in his percentage vesting during the nest, 10 years, cutmiimting in 100 per cent vesting after 15 years of service. The second alternative minimum vesting schedule is the so-called “Ten I’car Rule.” which provides that an employee’s accrued benefits from employer eontributions arc 100 per cent vestecl after 10 years of covered service. The third alternative minimum vesting schedule is the “Rule of 45.” Under this rule, an employee with 5 or more )-cars of covcrcd service must be at least 50 per cent vested in his accructl benefits from employer contributions when the sum of his age and the years of covered service is 45. Each year thereafter the employee’s vested percenta.ge increases by 10 per cent, so that after 10 years he may be 100 per cent vested. In any event, an employee with 10 years of service must be not less than 50 per cent vested, with an additional 10 per cent for each additional year of service. In order for the “Rule of 45” to be applicable, the employee must have a minimum of 5 years of service. Because an employee’s accrued benefit derived from his own contribution is always 100 per cent vested, and that, derived from employer contributions may be partly or entirely forfeitable, tlependjng upon the vesting schedule adopted, it will be necessary under each plan which permits employee contributions for the plan to allocate the total accrued benefit between the portion derived from employee contributions and the portion derived from employer contributions. In no event can the accrued benefit derived from the employee’s contributions be less than the value of his contributions, without interest. The vesting provisions are applicable to all types of qualified plans. Limitation
on
benefits
and
contributions
The Act distinguishes between pension plans, on the one hand, and profitsharing and money-purchase plans, on the other hand, in imposing limitat.ions on benefits and contributions, Pension plans are limited to paying benefits in an amount equal to the lesser of $75,000.00 per year or 100 per cent of the average salary during the highest three consecutive years. The Act permits an adjustment annually based upon cost-of-living increases. However, regardless of the limitations, an annual benefit of $lO,OOO.OOor less will generally be payable and not subject to the limitation. The $75,000.00 annual limitation will be reduced proportionately if the employee has less than 10 years of service. With reference to profit-sharing and money-purchase pension plans, the maximum annual contribution for the benefit of an employee is the smaller of $25,000.00 or 25 per cent of his salary. Most profit-sharing plans provide that when an employee terminates his employment, the portion of the contributions of the employer credited to his account which have not vested are forfeited and are reallocated to the accounts of the remaining participants. Such reallocated forfeitures would be included in determining the maximum annual contribution
Pemio?~ Reform permissible. This limitation, of-living adjustment. Plan-termination
Act of
1974
95
like the one for pension plans, is subject to a cost-
insurance
The Act sets up a nonprofit Pension Benefit Guaranty Corporation within the Department of Labor, with a board of directors consisting of the Secretaries of Labor, Commerce, and Treasury, with the Secretary of Labor as chairman. All pension plans are required to pay a premium for plan-termination insurance, whereas profit-sharing plans and money-purchase plans are not covered by this provision. Also excluded are professional service employer pension plans that have not had more than twenty-five active participants in the plan since Sept. 2, 1974. A professional service employer is any proprietorship, partnership, corporation, or other organization that is owned or controlled by a dentist or dentists. The purpose of the plan-termination insurance is to guarantee the payment of vested (that is, nonforfeitable) rights in retirement benefits. However, the maximum amount insurable may not exceed the actuarial equivalent of the lesser of (1) 100 per cent of the average wages during the individual’s highest-paid 5 years of participation in the plan or (2) $750.00 per month. In addition, the employer is liable to reimburse the Pension Benefit Guaranty Corporation for any insurance benefits paid to plan participants upon termination of the plan. Therefore, the “insurance” is really not insurance but merely a form of guaranteed payment, with the Pension Benefit Guaranty Corporation being the guarantor of the payment. of benefit to the plan participants. Funding
The Act sets forth detailed provisions dealing with minimum funding requirements for pension plans and money-purchase pension plans. A plan has to include the normal cost of funding the plan, as under present law. In the case of pension plans, the minimum funding requirements impose upon the employer the duty to amortize the cost of past service which has not been fully funded. Money-purchase pension plans are exempt from these past service amortization provisions. Reporting
and
disclosure
requirements
An employer is required to keep records of the years of service and vesting percentage of each employee. The plan administrator is required to publish a comprehensive plan description and a summary plan description. The summary plan description must be written so that it. will be understood by the average participant, and each participant must be provitled with a copy thereof. A copy of the summary plan dcscript~ion ant1 the plan tlcscription must be filed with the Secretary of Labor. The Act requires the plan administrator to file an annual report containing financial statements prepared by an independent certified public accountant.
And, in the case of pclnsion plans, the annual report, must include actuarial reports. The reporting and disclosure! rules take cffcct on Jan. 1, 1975. They are applicablc to all types of qualified plans. Enforcement
provisions
All persons who are responsible for investment of the plan or who handle funds or property of the plan must be bonded, They are called “Cduciaries” in the Act. IIowever, this requirement does not apply to corporate fiduciaries. The fiduciary is prohibited from directly or indirectly engaging in specified transactions with plan participants, employers, persons rendering services to the plan, and their respective officers, agents, and joint venturers. Such prohibitive transactions include sales, exchanges, or leases of property, loans, extensions of credit, the furnishing of goods, services, or facilities, transfer of plan assets, or acquisition of employer securities or real estate. The prohibited-transaction provisions take effect on Jan. 1, 1975. The primary administrative responsibility for the participation, vesting, and funding provisions of the Act is assigned to the Internal Revenue Service. The responsibility for the reporting and disclosure provisions will be with the Department of Labor. Self-employed
retirement
plans
The limitation on deductions of the self-employed retirement plans (the socalled “Keough” plans) has been increased to the lesser of $7,500.00 or 15 per cent of earned income. In any event, $750.00 may be deducted per year, regardless of the 15 per cent limitation. These rules are effective for taxable years beginning after Dec. 31, 1973. individual
retirement
accounts
The Act permits individuals who are not covered by any qualified plan to deduct limited amounts of their compensation. The deduction is limited to the lesser of $1,500.00 or 15 per cent of the individual’s compensation. Interestingly, the deduction is from gross income and may be taken even if the individual elects to use the standard deduction. In general, the individual retirement account, which must be established as a trust or custodial account with a bank, enjoys the same tax exemption as do qualified plans. The individual retirement account is the vehiele by which the plan permits portability, that is, the transfer of a covered individual from one plan to another. If an individual terminates his employment and, pursuant to that termination, receives a distribution from a qualified plan, rather than being taxed upon the receipt of the distribution he can transfer the property received from the former employer to an individual retirement account and then transfer that property from the individual retirement account to the new employer’s plan. These “tax-free rollovers” are permitted if (1) the amount distributed to the individual from the former employer’s account is transferred to the new em-
Volume Number
67
Pension Reform
1
Act of 1974
97
ployer not later than 60 days after it was received and (2) there is only one such tax-free rollover in a 3-year period. Tax
provisions
The Act makes no change in the taxation of annuity (monthly or annual) payments received by an employee from a qualified plan. The employee excludes that portion of each payment received which is attributable to contributions made by him and includes in income that portion of each payment received by him which is attributable to contributions made by the employer. The portion includable in income is taxed as ordinary income. The Act does change the rules with reference to the receipt of lump-sum distributions. That portion of a lump-sum distribution which is attributable to the employee’s pre-1974 service is treated as a capital gain, and that portion of a lump-sum distribution which is attributable to the employee’s post-1973 service is treated as ordinary income. The portion that is taxed as ordinary income is subject to the tax rate for single individuals, regardless of the marital status of the employee. There is a special lo-year forward averaging device which is intended to reflect the fact that individuals usually live about 10 years after retiring at age 65. The IO-year forward averaging device is elective and not mandatory. The Act changes the provisions with reference to the deductibility of employer contributions. A contribution which is required of pension and moneypurchase pension plans by the minimum funding rules is deductible by the employer currently, even though it exceeds the maximum amount which would otherwise be deductible. Contributions to profit-sharing plans continue to be subject to a maximum deduction, in an amount equal to 15 per cent of total compensation paid. The Act makes no change in the estate taxation of the death benefits payable by a qualified retirement plan. Such benefits continue to be exempt from taxation as long as they are not payable to the executor or the estate. Conclusion
The Pension Reform Act of 1974 has, indeed, been far reaching as predicted by President Ford. However, to date, the effect has been felt by employers who have qualified plans and those who are considering establishing them. In each instance, the employer, in consultation with his accountant and attorney, must review the existing plan or the proposed plan in light of the Pension Reform Act of 1974. 411
N.
Seventh
St.
