Pension Plan Schemes: Was Your Company Duped?
UPDATED: August 5, 2019
It’s all about you. We want to help you make the right legal decisions.
We strive to help you make confident law decisions. Finding trusted and reliable legal advice should be easy. This doesn't influence our content. Our opinions are our own.
If it seems too good to be true, it probably is...
Small business owners in high tax brackets say that they were told by insurance agents that they could contribute up to ten times more funds into an employee retirement plan and withdraw up to 80% of those funds on a pre-tax basis. However, as the saying goes, If it seems too good to be true, it probably is.
Steve Burgess, an insurance expert on 412(i) pension and 419 welfare benefit plans, says that the companies who trusted their insurance agents feel as though they've been duped. He explained:
I would say that for the most part they were being duped because the agent comes in and tells them that he can get them a tax deduction thats up to 10 times as large as the one they've been taking and all the money will go into their retirement account. In five years, they'll get 80 percent of it out without having to pay any taxes on it and its all completely legal. That was the story that was being sold and some of these companies went as far as to get a letter from the IRS and present it to the client as if the IRS was giving their blessing to the transaction.
Shouldn't they have known better?
Actually, no, according to Burgess, who says that perpetrators went beyond typical sales gimmicks by using tax preparers, law firms and glossy brochures to reel business owners in. He told us:
Imagine that youre having this proposal put in front of you, youve got an insurance agent and then youve got a pension designer, and they present you with a letter from the IRS that looks like the plan has been approved. Then youve got a major insurance company with their full-color, glossy brochures that also promote these plans and make it look like everything is okay.
On top of that, there were also tax preparers who said, 'Yeah, this looks like its okay.' Then, the final piece was a very slick, very formal letter of opinion written by a major law firm that says, 'Weve reviewed this plan and we believe that its okay as well.' When youre presented with that kind of background, whats left to question, really?
Who are victims suing?
Now that the IRS has discovered the schemes, it is imposing huge fines on companies that participated often without knowing that they were doing anything illegal. Some have even had to file for bankruptcy. They're angry and they're suing. Burgess says that theyre suing the agent, the insurance company, the pension plan designer, and in many cases, theyre suing the tax advisors as well if they gave their blessing.
Many companies anxious to settle
Burgess says that many of the perpetrators are settling these cases out of court. I have negotiated directly with a few of the insurance companies for my clients and weve been able to get back anywhere from 50 to 100 percent of their contributions. There are a lot of pending lawsuits right now I mean hundreds of pending lawsuits and most of them are probably going to settle out-of-court.
If you've been the victim of a fraudulent or abusive tax shelter scheme, contact an experienced pension fraudt attorney to discuss your situation and evaluate what remedies may be available to you.