Q: My husband and I are retirees of Security Pacific National Bank, which is about to merge with Bank of America. We have fine health benefits as a part of our retirement package and want these to continue. Is there any danger that these will be cut, and are our retirement benefits protected by any law? --M.K.
A: I wish I could allay your jitters, but I can't; your health benefits could change on a moment's notice.
According to Norman Snell, vice president for compensation and benefits at Bank of America, the bank is still studying the various retirement programs governing Security Pacific's 6,000 retirees as well as its own 10,000 retired workers in the hopes of "harmonizing" the benefits packages now available to the two groups. Snell says it is still too early to say what the study will show, but he acknowledges that "anything can happen" to either increase or reduce the health and welfare benefits available to retirees.
For example, Snell notes that Bank of America retirees now have dental insurance, while Security Pacific retirees do not.
"It would be nice if we could treat all retirees alike," Snell says. "But I don't know if that's possible."
Snell says the study should be completed by September and that retirees will be notified by mail individually if there are changes to their health and welfare benefits. Any changes to health insurance would affect only future coverage, and would not apply retroactively, says David Ganz, pension and welfare benefits administrator for the Department of Labor's office in Los Angeles.
By the way, the amount of your actual pension or annuity payments will not be affected by the merger. These payments are protected under the federal Employee Retirement Security Income Act and are not permitted to change, except as prescribed under the terms of your pension plan, under any circumstances.
Treat Bond Recovery as a Capital Gain
Q: I got an extension for filing my income tax return so I could find out how to handle the 6 cents-on-the-dollar recovery we received on our American Continental Corp. bonds last year. I have gotten several conflicting opinions. Can you tell me what I should do? We had purchased $40,000 worth of bonds and have been writing them off at the rate of $3,000 per year since 1989. --M.F.P.
A: If you treated your investment in the bonds as a capital loss--and it appears that you have--then you should treat the $2,400 recovery as a capital gain. By treating it this way, the $2,400 would be offset by an equal amount of your remaining unrecognized loss in the bonds. You would still be able to write off another $3,000 of your losses against your ordinary income in 1991.
Widow Must Let IRS Know About Home Sale
Q: My mother is an 84-year-old widow and recently sold the home in which she lived for 65 years. I believe she should take the $125,000 capital gains exclusion to minimize her tax obligation. However, a lawyer has said that she does not have to file for this exemption because she is not required to pay any income taxes. Is the lawyer right? My mother hasn't filed an income tax return in 20 years because her income is so low. --R.N.
A: Despite your mother's income and despite the fact that she hasn't filed a tax return in two decades, she is required to file a return for the year in which she sold her home--even if she has no tax liability as a result of the sale. Why?
According to our experts, the Internal Revenue Service is expecting a return, and what it expects, it likes to get. Catch the drift? The service is routinely notified of all home sales by escrow companies, so it knows the home has been sold. Your mother should complete IRS Form 2119 and return it to the IRS.
By the way, her cost basis in the house should be taken from the date of her husband's death. If they held the house as community property, then the entire value of the house was reset as of that date; if they held it as joint tenants, then his half of the house was valued as of that date, while her half retains its original value.
Best Way to Pay Off Your Credit Card Debt
Q: I have two ways to repay a $5,000 credit card debt. I can either continue paying off my Visa card at 15.12% APR at $110 per month or get a $7,500 personal loan ($5,000 principal plus $2,500 interest) at 16.5% APR with a $125 monthly payment. Which way is better? --A.S.
A: Your choices are about equal. According to our calculations, it will take you about 68 months (five years, eight months) to pay off your Visa card at the rate of $110 per month, for a total payout of $7,480, compared to 60 months (five years) at $125 per month for the $7,500 credit union loan.
Why go through the bother of getting a credit union loan when the difference is so minimal? Frankly, since the interest on neither loan is deductible, we would recommend that you continue with the Visa payments, but increase them to at least $125 per month, since you can apparently manage another $15 per month out of your budget. This would reduce the length of time it takes to pay off the Visa bill and ultimately save you money. In fact, if you can manage it, you should try to whittle down your Visa bill even faster.