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Posts Tagged ‘401K’

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In 2004 the State of Oregon decided to isolate the “employee contribution” part of PERS and put these amounts into what are called IAP (Individual Account Program) accounts. These 200,000 IAP accounts are essentially a defined contribution program, not unlike a 401K, for which members earn returns based upon market results with no guaranteed rate of return.

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Pulitzer Prize winning reporter and senior editor Mark Maremont of the WSJ wrote the following two stories, explaining how Presidential Candidate Mitt Romney built his IRA to as much as $100 million. Both stories were based upon original Parish & Company analysis.  The purpose of this analysis is not to directly disparage Romney but rather note that his conduct with respect to this scheme is worthy of discussion.

1) Bain Gave Staff Way to Swell IRA’s by Investing in Deals, Wall Street Journal, March 28, 2012

2) Bain Capital’s Unusually Young Retirement Rollover Age of 23, Wall Street Journal, April 2, 2012

The reason these stories are significant is that during Presidential Candidate Mitt Romney’s tenure at Bain, employees were able to use a special scheme, outlined in detail by Maremont of the Wall Street Journal, to put undervalued Bain related partnership investments into their SEP-IRA accounts, thereby going far above annual contribution limits afforded other taxpayers.   Some argue this is aggressive financial engineering while others argue it is outright tax fraud.  At a minimum it certainly has ignited a debate regarding fairness.

When Romney first ran for President in 2008 the law firm that handles his blind trusts, Ropes & Gray, also crafted a new pension plan for Bain Capital. Unlike the previous plan, the new plan allows the firm to hide the same scheme set up by Romney.   The problem is that this appears to be garden variety tax fraud in clear violation of important retirement plan rules.  A fraud enabled by one key provision, an official retirement rollover age of 23.

Bain’s use of an official retirement age of 23 essentially allows all existing employees, each year, to act as if they are doing a retirement related rollover from their profit sharing to IRA accounts outside the ERISA regulatory umbrella.  Of course, if I or most businesses had 23 as an official retirement age the IRS would laugh and shred the plan. (more…)

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