Pension Fund Overdue? Uncle Sam Can Help

QUESTION: I left my job with a very small company and was supposed to receive a lump-sum disbursement from the pension fund. I have waited the required length of time for this check, but it still hasn’t come. The plan was set up in accordance with the rules and regulations of the Internal Revenue Service. Can the IRS help me? The company isn’t cooperating.--L. V. S.

ANSWER: The Internal Revenue Service can’t give you the help you need.

But the Labor Department’s Pension and Welfare Benefits Administration can.

Contact your local office. Walt Kuiland, a supervising investigator in the administration’s Los Angeles office, suggests that you write a letter briefly and clearly explaining your situation. Be sure to include copies--never the originals--of pertinent documents and correspondence between you and your former employer.

According to Kuiland, an administration investigator will either contact the company directly on your behalf or help you settle the matter by coaching you to do all that you can on your own. The investigator should advise you on what letters to write the company and how to create the appropriate “paper trail” of correspondence to document your efforts. If you are still unsatisfied at the end of all this, a lawsuit might be the appropriate move. Still, there is no guarantee that you will get what you are owed. The fact that your pension disbursement is late may be a tip-off that the pension fund is low on cash or even broke.

In some of these extreme cases, Kuiland says, the administration has opened formal investigations of companies whose pension practices--primarily underfunding or shoddy or fraudulent fund management--are believed to violate the law. Some cases result in the filing of civil charges against the companies and their officers. In rare cases, the administration has filed criminal complaints, Kuiland says.

Q: Over the years, we purchased stock that is now worth more than we paid for it. If we want to give these shares to our children and grandchildren, how do we handle the accounting? Is the tax basis that we pass along to them the amount we paid for the shares? What about the period we’ve held the shares--is that passed along to them, too?--V. V.

A: Yes to both questions.

Any shares of stock that you give as gifts carry as the tax basis the price you originally paid for them, plus brokerage fees on the purchase. (The tax basis is used to determine the amount of tax owed when the shares are sold.

The basis is subtracted from the sales price to produce the taxable gain.) When you give away the stock, you also pass on to the recipient your purchase date of the shares.

Let’s say you give your child 100 shares of stock for which you paid $10 each. If these shares are currently trading for $100 each and your child sells them, the child is liable to pay taxes on profits of $90 per share, or a total of $9,000.

Although it may seem unfair that the recipient’s gift carries such a large tax liability, authors of the tax code recognized the potential loophole that they would create if they allowed parents to pass along shares at their current--rather than original--market value. Just think of how many of us would avoid paying taxes if we could give away stock whose value has increased to a friendly relative? The relative could sell the stock at a minimal gain and split the untaxed profits with the donor. Obviously, Uncle Sam wouldn’t want this to happen!

Of course, if you don’t want to pass along this tax liability, you could always sell the shares yourself, pay the required tax and give your children and grandchildren the proceeds. The tax laws allow any individual to give any other person $10,000 per year tax free.

Q: I am a resident legal alien of the United States who will be taking a permanent job assignment overseas. I have paid Social Security for the last 12 years. It will take me another 15 years to reach age 65. Can I expect any benefits if I am residing out of the United States? Should I continue to pay Social Security overseas--perhaps to the U.S. Embassy--in order not to lose what I have already contributed for the past 12 years?--G. V.

A: According to the Social Security Administration, what you have already contributed to Social Security is protected forever, and moving out of the country will not change your ability to collect benefits when you are ready to retire. You would simply notify the agency of your intention to retire, complete the required paper work, submit the proper forms and wait for your check to arrive.

However, whether you should continue to pay Social Security taxes is another, and more complicated, matter.

First of all, it depends on whether you will be working for a U.S. company. If you’re not, then you should not make any Social Security contributions. However, if your employer is an American company and its employees are covered by Social Security, then you would be required to have the taxes withheld from your paycheck, just as they are now. Your employer will know if its employees are covered by Social Security.

In any event, because you have paid Social Security for at least 40 quarters--the equivalent of 10 years--you are entitled to collect benefits based on the contributions you have made before retirement.