IRS to Reconsider Travelers Group Ruling

Shanney-Saborsky, Regina
August 1997
Journal of Financial Planning;Aug1997, Vol. 10 Issue 4, p28
Academic Journal
This article discusses the plan of the U.S. Internal Revenue Service (IRS) to reconsider its ruling on Travelers Group Inc., regarding an innovative retirement planning technique which combines stock options and 401(k) qualified retirement plans to encourage and expand employee ownership in its business operations. The concept initially received a favorable ruling from the IRS regarding deductibility and other tax issues relating to the grant of the options to a retirement plan qualified under Section 401(a) of the Internal Revenue Code. However, the IRS subsequently announced on April 15, 1997 that the ruling is being reconsidered. Such reconsiderations are a highly unusual practice made by the IRS only three or four times in the past. The business purpose underlying the Travelers 401(k) program was to replace, in part, its matching contribution funded by company stock with a stock option contribution. The options would be contributed on behalf of all employees, except certain company officers who were restricted by the Securities and Exchange Commission. The options were nondiscriminatory, since the contribution was made only on the first 40,000 U.S. dollars of a participant's salary.


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