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This page contains a single entry from the blog posted on September 7, 2011 10:04 PM. The previous post in this blog was Kroger's up for another term. The next post in this blog is Pet peeve. Many more can be found on the main index page or by looking through the archives.

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Wednesday, September 7, 2011

Heads we win, tails you lose

The retired police and firefighters whose sweet, sweet pension deals are bankrupting Portland say they get it even better than that -- they say they also don't have to repay money that the city has paid them by mistake. They should get to keep the overpayments, they contend, and they're suing the city to prove it.

Their theory appears to be that their union contracts implicitly forbid the city from correcting its mistake by reducing their future pension checks. If the city did in fact make such agreements, the whole City Council ought to be recalled.

What's really crazy is that if the union boys win, everybody's pension could become taxable under federal tax law. If that happens, you'll really see some upset blue hairs, and even bigger lawsuits.

Comments (6)

I saw no reference to the statute of limitations. If an ATM machine spit out an extra 20 dollars, seven years ago, then I think it would be too late for a bank to squawk to get it back. If I got an extra 20 yesterday, then a bank could demand it back.

If they fixed it in 2008 then there might be only about 3 years worth of overpayments that are collectible. Even then the clock is ticking, for statute of limitations purposes, to bring an action in court demanding return, or initiate some other proceeding that can result in a final determination.

Does the city carry some sort of insurance for legal block heads that delay making a demand, a lawful demand, for nearly three years? Are city lawyers exempt from legal malpractice claims?

Should Emilie Boyles have been able to keep her money, if the IRS had insisted that the city's gift to her was taxable income? The tax consequence of an action does not alter the legality of the underlying action, particularly where the IRS is not even a party nor could be joined as an indispensable party.

If the IRS wants to disqualify the Portland safety worker pension plan for tier-1 and tier-2 workers (closed classes) prospectively for future work then maybe we can go along and vote to terminate it for good. We could have a court case that spells out with precision what these workers will get and when, in the future for their past work.

All pay for future work would be a whole different controversy, for tomorrow.

The IRS can try to tax the overpayments, those that are no long collectible, however they choose. That issue does not belong in a court case to demand return of still collectible recent overpayments.

Wow, Ron. There's so much wrong and indecipherable in what you've written, I wouldn't know where to start.

As I understand it, payments of benefits outside the plan rules can result in permanent disqualification of the plan by the IRS, perhaps with retroactive effect on past benefits. The IRS is telling the city that if it doesn't get the money back, the plan is disqualified. That's why the city had to take action.

The city is seeking an offset. It is not filing a lawsuit to which a statute of limitations would apply.

The money Emilie Boyles stole was taxable income to her. I hope she reported it.

If there's some other point you're addressing, my translation skills aren't up to the task.

Plan disqualification is prospective only. This is the only tool the IRS can assert against the city, regarding the personal income tax treatment for future pay from future work for the affected workers.

The city, under state law is confined to demand return of overpayments six years back, if the city were to commence the action (or counter claim). The city should counter claim for these overpayments up to six years back, but no earlier because they have no reasonable legal basis to demand anything earlier. If the matter is brought before a court by these employee/retiree plaintiffs, as a class, rather than being negotiated in some back room then surely this counter claim would be an obvious next step.

A whiny IRS is not a reasonable legal basis.

The IRS cannot compel the city, like a tail wagging a dog, to ignore state statutory limits. ORS 12.080 limits the city to demand return of overpayments up to six years back, unless someone wants to argue fraud rather than mistake. I do not care what sort of ruse or indirection or artful characterization anyone wants to put on the issue so as to avoid the limit of looking back no more than six years, they must all be rejected.

If the IRS chooses to disqualify the plan prospectively as a result, then that is a decision that is entirely up to them. A court does not have the authority to make that decision for them, but can review the decision.

The tax treatment of overpayments made more than six years ago should not concern the city at all. That is a wholly private matter between the recipients and the IRS. The IRS can craft some formula to factor in the now-uncollectible overpayments to use when deciding what proportion of future pension payments are subject to tax versus not subject to tax. This option does not compel the IRS to demand that the current pension scheme be disqualified. Rather, the threat of disqualification is being misused because it is just the most immediate and convenient tool at hand.

Ron, are you an employee benefits expert? I didn't think so. Neither am I, but I know enough about it to know that you're talking through your hat.

The trustees of the plan have a fiduciary duty to the participants. If the tax treatment gets screwed up, the trustees could be held liable to the participants for a breach of their duty.

"Plan disqualification is prospective only. This is the only tool the IRS can assert against the city"

Sounds like a heckuva tool losing your tax exemptions for the entire plan. If the plan does get disqualified, then the next step will be for CoP to bump everyone's benefits to cover the additional tax liabilities?

I only say this since the union has govt by the short hairs still. As an example, the latest give-back on health insurance was employees paying 5-10% (I forget) of their benes. Of course, the state gave everyone a raise to cover it.

I'm hoping Randy stands up and takes credit for the wonderful PFDR he designed and gets to participate in. Of course, he gets PERS too thanks to his making a rule allowing him and Minnis to do that.

If the plan for tier-1 and tier-2 safety workers is terminated then the workers can find some alternative plan to take advantage of the federal government's offer of tax breaks for all future pay for future work. The federal offer to employees does not mean that local governments must create a retirement plan, or continue a plan. Even the unions can create a plan. So, let them create one (funded and with individual accounts, funded directly and exclusively by voluntary contributions from the workers).

Portland is out the overpayments made more than six years ago. Are you thinking that the people who did not get overpayments were harmed by the overpayments? This is a pay-as-you-go scheme here, with no investment fund. The Portland taxpayer was the harmed party, not the other plan participants, so the violation of any fiduciary duty as a pension trustee is not triggered as to the other participants.

Let the IRS disqualify the plan as to pay for all future work, then simply terminate it rather than beat this dead horse. The IRS cannot un-qualify the plan itself, retroactively, for prior years. They would have to -- preposterously -- claim such an authority as a predicate to altering how they treat deferred payments to be paid out in the future for any plan that is terminated, regardless of the reason for termination. Portland still has the obligation to make payments in the future for past work, even if the plan is terminated as to future work.

(But, by all means, do not let the PDC transform the plan into an investment slush fund, funded with bond proceeds. Government crooks never sleep.)


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