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winktax
winktax, Enrolled Agent
Category: Tax
Satisfied Customers: 425
Experience:  18 years experience as an Enrolled Agent, insurance agent, stock broker and financial advisor.
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I am a soon-to-be-retired executive from a publicly traded

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I am a soon-to-be-retired executive from a publicly traded financial institution. A portion of my employer paid pension is in a Benefits Equalization Plan for highly compensated individuals (a SERP). I have heard that FICA taxes need to be paid on this amount based on the present value of the pension payments over my life expectancy; I'm 63 years old. Are you able to direct me to where I may find the methodology (i.e., discount rate, actuarial tables, etc.) for caluculating the present value. Also, it sounds like the calculated FICA taxes are all paid upfront at commencemtn of receipt of the pension. Is that correct?
Submitted: 5 years ago.
Category: Tax
Expert:  Lindie-mod replied 5 years ago.
Hi, I’m a moderator for this topic and I wonder whether you’re still waiting for an answer. If you are, please let me know and I will do my best to find an Expert to assist you right away. If not, feel free to let me know and I will cancel this question for you. Thank you!
Customer: replied 5 years ago.
Yes, I am still looking for information on the FICA treatment for Benefit Equalization Pensions. I find it very odd that no one in my company's pension area has any knowledge on this topic, even though there is specific language in communication to me stating "BEP pension benefits are to be taxed for FICA. The calculation is to determine the present value over the life expectancy. FICA will need to paid at the commencement of pension payments." Beyond this, they are not able to tell me anything more.
Expert:  Lindie-mod replied 5 years ago.
Sometimes, finding the right Expert can take a little longer than expected and we thank you greatly for your understanding. We’ll be in touch again shortly.
Expert:  winktax replied 5 years ago.

A SERP is also referred to as a Nonqualified Deferred Compensation (NQDC) Plan.

Pension plans, lump sum payments, present value calculations are normally preformed using rates and formula’s provided by the PBGC “Pension Benefit Guaranty Corp” a US Govt Agency which is the agency that insures private pensions of certain employers (ie. Employers that go bankrupt). While the PBGC has many rates and formula’s the most basic formula used is the present value of an annuity formula using the prescribed rates from the PBGC. The current long term rate for lump sum’s is 4%.

The web site for PBGC rates & formula is http://www.pbgc.gov/prac/interest/monthly.html

Expert:  winktax replied 5 years ago.
I am not aware of any specific IRS rules as to how to value present value's of pensions, NQDC plans, there are lots of rules on taxablity of NQDC's. However in my experience all pension administrators use the PBGC rates as well as any pension plan covered under Employee Retirement Income Security Act (ERISA) which are most pension arrangements in the US. PBGC is a US government agency, use of their rates would be reasonable. If you were offered a lump sum payment on your base pension, the trustee would figure the payout using PBGC rates.
winktax, Enrolled Agent
Category: Tax
Satisfied Customers: 425
Experience: 18 years experience as an Enrolled Agent, insurance agent, stock broker and financial advisor.
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