High court bars property in lieu of pension funds

May 25, 1993|By New York Times News Service

WASHINGTON -- The Supreme Court ruled yesterday that employers cannot meet their financing obligations to employee pension plans by selling or transferring real property to the plans.

In an 8-1 decision, the court overturned a ruling by a federal appeals court in New Orleans that federal pension regulators had viewed as opening a loophole in the rules governing defined-benefit plans.

Under these plans, employees earn the right to a particular level of retirement benefits, usually based on pay and length of service, with the employer required to maintain the plan at an adequate fund level.

Regulators are concerned that the value of real estate can be manipulated. For example, corporate insiders could act for their own benefit by overvaluing property they own and using it, rather than cash deposits, to meet pension-plan requirements.

The Internal Revenue Service told the court that in one year -- 1989 -- employers added property valued in excess of $243 million to more than 400 pension plans.

In the IRS' view, many of these transfers were prohibited transactions under a tax-law provision intended to discourage them by assessing an excise tax as high as 100 percent of the property's fair market value. By contrast, the Internal Revenue Code permits employers to take immediate deductions for qualified contributions to a pension plan.

Writing for the court, Justice Harry A. Blackmun said the government's view of the question was "a sensible one." He said a central purpose of the Employee Retirement Income Security Act of 1974 was "to bar categorically a transaction that was likely to injure the pension plan." He noted that it took more than three years for the Dallas-based Keystone Consolidated Industries pension plan to sell one of the truck terminals the employer had added to the plan.

Baltimore Sun Articles
|
|
|
Please note the green-lined linked article text has been applied commercially without any involvement from our newsroom editors, reporters or any other editorial staff.