Lincoln Pension-Plan Enrollee Is in Bind
QUESTION: I was previously employed by the now-infamous Lincoln Savings & Loan and was almost fully vested in its retirement plan, which was an employee stock ownership plan of Lincoln’s parent, American Continental Corp. Do I have any chance of recovering my pension assets through any of the pending lawsuits against American Continental and Lincoln? Also, because I was covered by Lincoln’s retirement plan, I was unable to take advantage of IRA contribution benefits over the last four years. Is it possible to make my IRA contributions retroactively now?--E. B. F.
A: Let’s take your final question first. No, you are not entitled to make retroactive contributions to an IRA because your company pension plan has soured. During the years for which you now want to make the contributions, you were covered by a qualified pension plan, which, of course, is the test as to whether you can make a tax-deferred IRA contribution.
As to your first question, as you probably are already aware, there are several lawsuits pending against Lincoln Savings and American Continental on behalf of shareholders, including the trustee of Lincoln’s employee stock ownership plan. So it is possible--but maybe not probable--that there could be some recovery for the employee shareholders through these suits.
You might also file a complaint with the Department of Labor against the trustees of your ESOP on the grounds that they breached their fiduciary duty by failing to reinvest the pension’s assets when it became apparent that American Continental stock was falling. However, such a complaint might presume that the trustees had advanced knowledge of the firm’s troubles and could, in fact, trade on this inside information.
By the way, in case you are wondering, your ESOP is not covered by the Pension Benefit Guaranty Corp., a federal insurance program for some pension plans. The program, established under the Employee Retirement Income Security Act of 1974, applies only to pension plans that offer defined benefits, such as a prescribed retirement income. An ESOP is not such a retirement plan.
No Tax Break for Trust Deed Holder
Q: In 1979, I sold a piece of commercial real estate and took back a long-term first trust deed to stretch out the tax bite. Recently, this property was condemned by the city for a parking lot and the new owner was forced to sell it. I realize that the owner has two years to reinvest the proceeds from the sale to defer taxes on any gain. But is there any way the holder of a trust deed can likewise defer taxes on the gain when eminent domain laws produce an early lump-sum prepayment?--S. C. G.
A: In a nutshell: No. You are no longer the property owner and are not entitled to similar treatment from the IRS as the property owner. Basically, you are stuck with the gain. However, if you have any poorly performing investments, you might consider selling them to generate a capital loss that could offset some of the gain you expect from the prepayment of the mortgage.
Dollar Cost-Averaging Can Be Sound Strategy
Q: I am puzzled about what to do with my “high-yield” mutual fund investment. For several years, I have been reinvesting my dividends in additional shares of the fund. But recently the value of the shares has been falling. I have been hoping that by reinvesting my dividends I would eventually lower the total overall cost of my investment to a favorable point. The dividends are great and the fund is supposed to be a strong one. Further, I have more than enough income from my other investments on which to live. Should I continue with my strategy or should I collect the dividends and invest them elsewhere?--J. M. H.
A: Our experts say your strategy is sound and you should stick with it as long as the per-share price of the fund remains low. This strategy, called dollar cost-averaging, allows you to lower the overall cost of your investment. It makes sense as long as the current per-share price is lower than your historical cost and you continue to believe that the fund has the potential to increase in the future.
Carla Lazzareschi cannot answer mail individually but will respond in this column to financial questions of general interest. Please do not telephone. Write to Money Talk, Business Section, Los Angeles Times, Times Mirror Square, Los Angeles, Calif. 90053.
Carla Lazzareschi cannot answer mail individually but will respond in this column to financial questions of general interest. Please do not telephone. Write to Business Section, Los Angeles Times, Times Mirror Square, Los Angeles, Calif. 90053.
