IAM EO Pkg and IRS Tax rules

[UALIADCS]

I would like very much to apply for the early out program, but I am troubled that the document says "severance" and then grants "retirement" benefits. A quick read of section 132 of the Internal Revenue Code indicates that those who are severed or separated from service (not for a disability) must treat any benefits granted as income, i.e., the flight benefits will be considered INCOME to the recipients. Only employees and "retirees" can get flight benefits tax free.

Still, I see that the IAM is indicating that the terms "age 45" and "15 years of service," which are conditions for qualification for the buyout, were designed to pass muster with the IRS regarding the tax advantaged retirement benefits. MY question IS: Does anybody out there know where the IRS says its ok for those severing, but who are 45 with at least 15 years of service, to get the flight benefits tax free?

 

[FlyMeBabe]

Still, I see that the IAM is indicating that the terms "age 45" and "15 years of service," which are conditions for qualification for the buyout, were designed to pass muster with the IRS regarding the tax advantaged retirement benefits. MY question IS: Does anybody out there know where the IRS says its ok for those severing, but who are 45 with at least 15 years of service, to get the flight benefits tax free?
[/quote]


I've been wonderng the same thing. I wonder if there is something in the Railway Labor Act? I guess the big question would be "WHO could you ask at the IAM or with UA that could give you a CORRECT, informed answer?"

I wonder if someone wth the FA's would know--didnt they get the same deal?

The troubling thing about the early out agreement is the use of the term SEVERANCE. Severed folks cannot transform themselves into RETIRED folks.

 

[jimntx]

Severance, as in severance pay, does not necessarily mean vountary resignation or termination, though those are included in the term. Severance simply means that you left the company by some means--retirement, early retirement, quit, died, retired, got fired. Not all of those options would earn you severance pay.

In general, if the company calls it retirement or early retirement, it is not taxable. If it is voluntary resignation or termination--like the executives and their golden parachutes--its taxable. The IRS has always looked askance at these "even if you mess up totally and we fire you, you will get umpty million dollars for your pain and suffering" type plans.

That being said, it wouldn't hurt to get it in writing from your union, your company, or both. For that matter, you can call the IRS and get an opinion from them. However, anything they tell you over the phone is non-binding on them.

 

[FlyMeBabe]

I've been trying to research this.

The controlling document (agreement between IAM and UAL) calls it a voluntary separation from service. It's definitely not termed an early retirement. Therefore, I think Internal Revenue Code Section 132 controls--and makes the flight benefits taxable. Under that section (in the related treasury regulations) flight benefits are tax free only to airline employees, their families(spouses, kids under 25, parents), retirees, and people separated from service due to disability.

Just my humble opinion. I wish someone would show me a legal cite that says I could take those flight benes and run!

Getting an opinion from the IRS, in writing (you request a "private letter ruling"), costs alot of money and takes a long time. Much longer than we have been given to decide. Too bad, because I'd really like to read their analysis on the proffer.

Anyway, thanks for your help!
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Here's a copy of the agreement for anyone interested.

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United Airlines Early Out Package - Public Contact Employees


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Printable Version of Agreement
Early Out Package Request Form
Early Out Package Q&A

LETTER OF AGREEMENT

BETWEEN

UNITED AIRLINES, INC

AND

THE PUBLIC CONTACT EMPLOYEES

IN THE SERVICE OF

UNITED AIRLINES, INC.

AS REPRESENTED BY

THE INTERNATIONAL ASSOCIATION OF MACHINISTS AND

AEROSPACE WORKERS



THIS LETTER OF AGREEMENT is made and entered into in accordance with the Railway Labor Act by and between UNITED AIRLINES, INC. (hereinafter referred to as the “Companyâ€) and the INTERNATIONAL ASSOCIATION OF MACHINISTS AND AEROSPACE WORKERS - IAMAW (hereinafter referred to as the “IAMâ€).



The Company shall offer certain eligible full-time Public Contact employees a one-time opportunity to separate voluntarily from the Company with a severance payment and full retiree pass travel benefits (hereinafter referred to as the “Early Out Program†or “Early Out Packageâ€) as set forth below:



1. Eligibility: Up to the number of full-time Customer Service Representatives and Service Directors – Customer Service identified on Attachment A (the “Attachment A Number(s)â€) who satisfy the following conditions: a) are eligible to be furloughed, without regard to one’s seniority and whether or not the individual actually will be subject to an imminent furlough, and B) as of September 7, 2008, will be at least 45 years of age with at least 15 years of service to the Company. If the number of eligible applicants exceeds the Attachment A Number(s), Early Out Packages will be awarded by Company seniority to the senior eligible applicants at the particular named location and within the named job classification. Additionally, the Company reserves the right to award Early Out Packages in excess of the Attachment A Number(s) if the number of eligible applicants exceeds the stated number at a location and within a job classification.



2. Subsequent Early Out Offer: The Company also may make an Early Out Program available to mitigate the impact of schedule changes planned for an early November implementation. If the Company offers a subsequent Early Out Program, the Company will provide an updated Attachment A and the Company will provide the IAM with an updated date for benefit commencement/employment separation in early November 2008, as well as new dates for determining eligibility and application processing timelines. All other terms of this Early Out Program will remain unchanged in a subsequent program offering.



3. Pass Travel Benefit: Commencing September 7, 2008, participants in the Early Out Program shall be entitled to retiree pass travel benefits on the same terms and subject to the same conditions, present and future, as retirees.



4. Severance Payment: Participants in the Early Out Program shall receive a severance payment of $500.00 per full year of service to the Company, up to a maximum of $12,500.00. Severance payments shall be divided into 12 equal installments. Participants shall be paid one installment on or about the first business day of each calendar month of 2009. All payments will be subject to applicable taxation and withholding.



6. Separation from Employment: Participants in the Early Out Program shall terminate their employment with the Company effective September 7, 2008 (i.e., last day of employment shall be September 6, 2008).



7. Application Process: Participation in the Early Out Program is voluntary. Applications for Early Out Packages must be received on or before 8:00 a.m. Central Time on July 25, 2008, and applicants will be notified of their inclusion or exclusion in the program on or before August 1, 2008. The Company will meet and confer with the IAM regarding other details of the application process.



8. Forfeiture for Conduct: If an eligible employee is awarded an Early Out Package, but before September 7, 2008, is charged with conduct that could lead to discharge, the employee’s Early Out Package shall be held in abeyance pending an investigative review hearing pursuant to the provisions of Article XVII of the Public Contact Agreement. If the outcome of the investigative review hearing is anything other than termination of employment, the employee retains the Early Out Package. If the outcome of the hearing is termination of employment, the employee forfeits the Early Out Package. In a case of termination, if the System Board of Adjustment orders reinstatement, the employee shall have the option of receiving the Early Out Package in lieu of reinstatement



9. No Implied Changes to the Public Contact Agreement: This Letter of Agreement does not modify the Public Contact Agreement except as specifically provided herein.



IN WITNESS WHEREOF, the parties have signed this Letter of Agreement this 11th day of July 2008.





FOR UNITED AIRLINES, INC. FOR THE PUBLIC CONTACT

EMPLOYEES

IN THE SERVICE OF UNITED

AIRLINES, INC.





_/s/ Thomas M. Sullivan_________ _/s/ S.R. Canale________________

Thomas M. Sullivan S.R. (Randy) Canale

Managing Director Labor Strategy President and Directing General Chairman

International Association of Machinists

And Aerospace Workers – District 141

IN THE IAM'S Q & A section it says this:

7. Why is the Early Out Program limited to employees who are age 45 & older and who have at least 15 years of service?

The company designed the program to comply with IRS rules regarding tax-advantaged retirement benefits.