No Spill Blood

Life just gets ever more complicated for the PERS retiree. While there is no decision yet in the Lipscomb appeal, more and more questions keep getting raised about mechanisms for implementing the decision should the court uphold it. A few posts back, I raised the issue of the "repayment" of the "overcredit" from 1999. I wondered aloud whether PERS would be required to send all retirees revised 1099-R forms so that they could adjust their taxes for the overcredit. In a word, the answer is "no" because 1099-R recipients are considered "cash" payees for the purpose of income tax. Income is taxed in the year it is paid out, whether there is an overpayment or not. The tricky part comes in when the "repayment" occurs. If a retiree agrees to a benefit reduction for the purpose of repaying any excess interest credited, the 1099-R form issued for each year in which the benefit reduction occurs will reflect a lower benefit and, hence, the "tax" issue is solved annually. But, if a retiree opts to repay the overcredit in a lump sum, PERS walks away from the matter and the retiree and his/her tax adviser have to work out all the complex tax issues that arise. How much can you "repay" a pension plan in a given year? How much excess can be carried forward to future years, if at all. PERS offers NO tax advice in the situation. Their strategy seems to be: "if you owe us money because WE made a mistake, it is YOUR problem to work out any tax consequences of repaying us."

(what is the law)
No spill blood
What is the law
(no spill blood)

(who makes the rules)
Someone else
Who makes the rules
(someone else)

The rules are written in the stone

Break the rules and you get no bones
All you get is ridicule, laughter
And a trip to the house of pain!