NUA cost basis determination by lot versus by average cost
Ed Slott & Co Advisor Forum Members:
I’ve been searching everywhere to learn if corporate pension plan administrators are required to report NUA cost basis [b]by lot [/b](rather than by average cost) when requested by a retiring employee. I already know they can use average cost bais but I want to find some precedent to use so they will instead provide the by lot cost basis.
I’ve written many experts and no one seems to know, and typically I’m given a best guess response. This doesn’t really help much.
The reason I need an answer to this question is because I just left my firm after 25 years of service and they are unwilling to provide me with the cost basis [b]by lot [/b]for the company stock placed in my ESOP and 401 (K) over the years. Needless to say, this will have a significant impact on the taxes I will have to pay for the non-NUA portion of my distribution. (By the way, I worked those 25 years for a brokerage firm, so I know they have access to the cost by lot).
Any thoughts you can share on this subject will be greatly appreciated.
Again, specifics will be much more helpful than guessing. I’m hoping to find case law.
Thanks, John K/NY
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Permalink Submitted by Alan Spross on Fri, 2008-04-11 04:29
I have never heard of a case where a plan administrator could be forced to provide this accounting by lot, if the plan was not already set up on that basis. The majority just offer average cost basis accounting. Rather than being overly aggressive with the plan, perhaps the longer term employees could lobby for such a change in accounting. If agreed, those who separated the last few years would probably have a gripe, so discrimination would be a challenge for the plan if it was not sep up this way from Day 1.
Apparently you want to use less than the full amount of shares for NUA, since if you used all of them, there would be no difference. But with lot accounting you could of course have a lower cost basis % and higher NUA % for each distributed share of appreciated stock. You would also have a lower total exposure to the stock for diversification purposes by selling the higher cost basis shares in the plan prior to the LSD.
Some companies that spun off subsidiaries provide some of these benefits just be having different shares eligible for NUA in the plan, some of which had not purchased in recent years, if the spin off was several years back.