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Fiduciary Duties of Pension Plans

Do pension plans have a duty to warn of the tax consequences of withdrawing funds?

Key point: Pension plans should carefully review the representations and assurances set forth in their plan documents and informational brochures, since they may be legally accountable to employees if such representations are not honored.

• Do pension plans have a fiduciary duty to warn participants of the tax consequences of a decision to withdraw their funds? That was the question addressed by a federal court in Michigan. An employee received a lump sum distribution from his pension plan in the amount of nearly $120,000 and promptly rolled it over into an individual retirement account (IRA). By investing in an IRA within 60 days of the distribution, the employee avoided income taxes on the funds. However, the employee later removed the funds from his IRA and used them to buy real estate, assuming that he would still not need to pay income taxes on the funds since they had been ...

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Richard R. Hammar is an attorney, CPA and author specializing in legal and tax issues for churches and clergy.

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Posted:
  • May 2, 1994

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