Deals & People October 5, 2010

Franklin Templeton Expands and Restructures IO Team

The Investment-Only (IO) team at Franklin Templeton will now be able to better assist advisers who are focused on the retirement plan market.   
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The newest addition to the IO team is Tyler Johnson, who is transferring from Franklin Templeton’s retail sales division to serve as DCIO Key Account Manager. Johnson will work closely with the team’s three existing senior DCIO specialists.

The team also includes a five-member IO sales specialist group, headed by IO Sales Manager Peter Conneely, which serves both the defined contribution (DC) and variable annuity (VA) markets. This group focuses on partnering with record keepers and VA providers, as well as providing value-added support to financial advisers whose practices include a retirement plan component. They provide practice management resources to help advisers add and retain clients.

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Supporting these DCIO and IO sales specialist groups will be three IO hybrid specialists, serving primarily as internal sales support.

“We have seen a continuing consolidation of financial advisers who have reshaped their practices to compete effectively with traditional consultants for retirement plan business. And at the same time, there continues to be a large but fragmented financial adviser population that does occasional to moderate business with retirement plans and requires assistance in selling and servicing these plans,” said Franklin Templeton’s Investment-Only Division Head Yaqub Ahmed. “In looking at the future of the investment-only market, we are realigning the structure of our IO sales team to serve the unique needs of each of these divergent groups of advisers and best support their chosen business models.”

Compliance October 5, 2010

Decision Stands in Nestle Purina Case

The U.S. Supreme Court denied a request by Nestlé Purina Petcare Co. to review an 8th U.S. Circuit Court of Appeals decision that the company cannot deduct from its taxes cash distribution dividends paid when it redeemed stock held in an employee-stock ownership plan.
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The 8th Circuit agreed with a tax court ruling that Nestlé Purina Petcare Company – or Ralston, its name during the relevant years – could not deduct payments for cash distribution redemptive dividends. Ralston seeks to deduct $9,406,030, the value of the cash distribution redemptive dividends, arguing that 26 U.S.C. § 404(k)(1) allows a deduction for the cash distribution redemptive dividends, or alternatively that a deduction is permitted by § 162(k)(2)(A)(iii).  

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The appellate court previously found in General Mills, Inc. v. United States, that § 162(k)(1) bars a deduction under § 404(k) for amounts paid to a corporation’s ESOP trust in order to redeem shares of the corporation’s stock. “Since the facts of GMI do not materially differ from the facts here, GMI controls,” the 8th Circuit said in the Nestle Purina decision.  

In addition, the appellate court noted that the conference report out of Congress on the deduction-for-dividends-paid exception in § 162(k)(2)(A)(iii) indicates the scope of the exception, and provides that no portion of payments by a corporation in connection with a redemption of its stock is deductible.  

Under the ESOP, when a participant left Ralston, the participant was required to direct the ESOP to convert the value of preferred stock allocated to his or her ESOP account into cash, shares of Ralston common stock, or a combination of both. If a participant elected cash, the trust could require that Ralston purchase stock from it, paying the trust a “redemptive dividend.” From the redemptive dividend, the Trust could distribute to the participant a “cash distribution redemptive dividend” as part of the total cash distributed to a participant.   

The 8th Circuit opinion is in Nestle Purina Petcare Co. v. Commissioner of Internal Revenue, No. 09-1381.

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