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Workers & Retirees

Important Tax Information for Participants in the Affiliated Foods Plan

The Affiliated Foods Plan (the Plan) required participants to make after-tax contributions to the Plan. These contributions provide all or part of your benefits from the Plan. The tax rules that apply to benefit payments which include employee contributions are very complex. Under Internal Revenue Service (IRS) rules, you and/or your beneficiary recover your contributions tax-free when you receive pension payments, as an annuity and/or in a single-sum payment.

In January 2010, PBGC’s paying agent, State Street Retiree Services, sent Forms 1099-R for 2010 to everyone who received a benefit payment from PBGC. You may have received more than one 1099-R if you received both annuity payments and a single-sum payment from PBGC. The rules for recovering your employee contributions tax-free depend on when and how you received benefit payments from PBGC.

Here is a summary of the IRS rules that PBGC applied if you withdrew your contribution in a single sum and/or received annuity payment in 2010 and additional information that you may find helpful in filing your 2010 Federal tax return:

Withdrawal of Employee Contributions

  1. Taxable amount of withdrawal. If you withdrew your contributions from PBGC, rather than having them paid as part of the annuity payments you are due, you were paid the full amount of your contributions plus interest in a single sum. However, as required under IRS rules, only part of your contributions were recovered tax-free at the time of the withdrawal and part of your annuity payments remain non-taxable when paid. PBGC calculated the taxable amount of the withdrawal as follows:
  2. Amount of the Payment X
    Amount of Your Contributions
    Present Value of Your Benefit

    An explanation of this formula and an example can be found in IRS Publication 575 Annuity and Pension Income (For use in preparing 2010 Returns), in the section titled Distribution Before Annuity Starting Date from a Qualified Plan (page 16), available at www.irs.gov.

  3. Rollovers to another qualified retirement plan or IRA. If you elected a direct rollover of all or part of the payment to a :
    • Qualified retirement plan or traditional IRA. None of the withdrawal payment was taxable. The tax is deferred until you withdraw the money from the receiving pension plan or IRA.
    • Roth IRA. The payment was taxable except for the tax-free part of your contributions that was included in the rollover payment.
  4. The tax-free amount of your contributions included in the rollover is recovered tax-free when you withdraw funds from the receiving pension plan or IRA.

  5. Form 1099-R. Form 1099-R for the withdrawal payment will show:
    • Box 1: The total payment including interest that you were paid.
    • Box 2a: The taxable amount of the payment, which equals Box 1 minus Box 5. However, if the payment was made as a direct rollover to a qualified retirement plan or traditional IRA, Box 2a will be blank.
    • Box 5: The non-taxable amount of the payment or the amount of contributions recovered tax-free, calculated using the above formula. If the payment was taxable, Box 5equals Box 1 minus Box 2a. If the payment was a direct rollover, as previously described, the amount in Box 5 is recovered tax-free when withdrawn for the receiving plan or IRA.
  6. Box 5 generally is less than the amount of your contributions. You and/or your beneficiary will recover the difference between the amount of your contributions as of the date that the plan terminated and the amount in Box 5 tax-free from any subsequent annuity payment that you are due, as described below in Annuity Benefits.

Annuity Benefits

  1. When you make after-tax contributions to a pension plan, a portion of any annuity payment you receive from that plan generally is non-taxable. This is usually true even if you withdrew your contributions in a single sum, as described above in Withdrawal of Employee Contributions. The IRS refers to your contributions as “your cost (investment in the contract)”or “your cost in the plan (contract).”
  2. Pension plans frequently determine the non-taxable and taxable amounts of the annuity payment for retirees. However, as permitted by the IRS in some circumstances, PBGC does not make this determination.
  3. Form 1099-R for your annuity payments from PBGC will show:
    • Box 1: The total amount paid to you by PBGC in 2010.
    • Box 2a: Blank.
    • Box 2b: “Taxable amount not determined” box checked.
    • Box 5: Blank.
  4. When you file your Federal tax return, you must determine the taxable amount of your annuity payments. IRS Form 1040 and its instructions (1040 Instructions) and IRS Publication 575 Pension and Annuity Income (For use in preparing 2010 Returns), which can be found at www.irs.gov, provide instructions on determining the taxable amounts of your annuity payment. Identifying the information you need to do this depends on if you first began receiving annuity payments from the Plan or if you first received payments from PBGC
    • a. Annuity payments first paid by the Plan. You may already have information from the plan about your contributions and the taxable amount of your annuity.
      • This would have been provided on any Form 1099-R that you receiving from the plan. The amount in Box 5 of the 1099-R divided by the number of months you received payments, generally will be the non-taxable amount of your monthly payment. If you received payments for 12 months, this will be the yearly amount.
      • Box 9b of Form 1099-R from the plan for the first year you received payments from the plan may have shown the amount of your contributions as of the date your retired. A portion of your annuity payments remain tax-free until your recover this amount.
    • The Plan also should have given you information about the amount of your contributions as of your retirement , the non-taxable and taxable amounts of your annuity, and the method used by the Plan to determine these amounts.
    • b. Annuity payments first paid by PBGC.If you withdrew your contributions and/or first began receiving annuity payments from PBGC, you may have received information about your contributions in the Benefit Estimation that PBGC sent to you.* On the second page of this document, your contributions should be listed as “Employee Contributions Without Interest.
      • Withdrew contributions. If you withdrew your contributions in a single-sum, you already recovered a portion of your contributions tax-free when the withdrawal was made, as described above in the section 1. Withdrawal of Employee Contributions. You will recover the difference between the contributions you made and the amount that was already recovered tax-free. This is the amount listed as “Employee Contributions Without Interest” in your Benefit Estimation minus the amount in Box 5 of the 1099-R for the withdrawal payment.
      • Did not withdraw contributions. If you did not withdraw your contributions in a single sum, as described above in section 2. Withdrawal of Employee Contributions, the amount listed as “Employee Contributions Without Interest” in your Benefit Estimation is the amount that should be used to determine the non-taxable amount of your annuity payments.
    • *Unfortunately, not all of the Benefit Estimations included the “Employee Contributions Without Interest.” Please contact PBGC for a written statement showing your employee contribution as of the date the plan terminated or the remaining amount of your tax-free contributions to be recovered from your annuity payments.
    • Note: The estimation also provided the amount of your contributions with interest; this amount must not be used to determine the taxable amount of your payment.

Applicable Tax Method

You figure the tax-free part of your annuity using either the Simplified Method or the General Rule. You must use the Simplified Method if your annuity starting date is after November 18, 1996 and you were under age 75 on your annuity starting date. You generally must use the General Method if you were age 75 or older on your annuity starting date. If you retired before November 19, 1996, you must continue to use the method that you have been using.

Other Sources of Tax Information

PBGC realizes that tax information can be complicated and difficult to understand. Sources of additional tax information and guidance that you may find helpful, include:

  • IRS Publication 575 Pension and Annuity Income (For use in preparing 2010 Returns),which can be found at www.irs.gov.
  • IRS Form 1040 and its instructions (1040 Instructions), which can also be found at www.irs.gov.
  • The Internal Revenue Service (IRS) provides help for tax questions in several ways, many of them free. These are listed in IRS Publication 575 and on the IRS website at www.irs.gov.

The above information may not address your particular situation. We suggest that you check with your own tax consultant to address your specific situation. Please do not hesitate to contact our Customer Contact Center at 1 1-800- 400-7242 for help, but recognize that PBGC cannot speak for the IRS.