Class Claims Axed In Tax Shelter Suit Against Insurer


A North Carolina federal judge on Monday axed class action claims in a lawsuit alleging The Lincoln National Life Insurance Co. disguised abusive tax shelters as welfare benefit plans, saying the claims will be better pursued individually.
U.S. District Judge Catherine C. Eagles said the class action claims, which allege under state law that Lincoln National made untrue statements of material fact in selling a now-infamous plan called the Benistar 419 Plan, are barred by the Securities Litigation Uniform Standards Act, which prohibits class action suits that are based on state law and allege misrepresentations in securities sales.

“The class claims and the plaintiffs’ claims for class action relief are dismissed with prejudice to the class aspects of these claims but without prejudice to any individual who was a potential member of the class bringing his or her own claim against the defendant,” the order says.

David Smyth, an attorney for the plaintiffs, said his clients are weighing their options.

“We’re obviously disappointed, we thought the law suggests a different result,” Smyth said. “We will move forward with the individual claims, but we haven’t decided what we will do with the class claims as far as an appeal.”

Named plaintiff Dennis Reittinger is president of a North Carolina auto body shop and in 2002, he sought tax planning advice for his business. Lincoln National contacted Reittinger to discuss its tax planning offerings, and encouraged him to purchase a welfare benefit plan called the Benistar 419 Plan.

Welfare benefit plans are employer-sponsored plans that provide various benefits to employees like life insurance or health insurance. Plans that have multiple contributors, like the Benistar 419 Plan, receive preferential tax treatment — in the case of the Benistar 419 Plan, employers would make contributions to a Benistar 419 Plan & Trust that Lincoln National allegedly maintained were tax-deductible as ordinary and necessary business expenses, according to Reittinger’s amended complaint.

Lincoln National allegedly used its life insurance policies as funding vehicles for the plans and Reittinger claims the Benistar 419 Plans in actuality were illegal tax shelters that exposed him and others to Internal Revenue Service audits, penalties, and other tax liabilities.

Reittinger maintains that Lincoln National marketed the Benistar 419 Plans against the advice of their general counsel and assured him that the plan was legitimate, yet also issued several disclaimers about the program.

“Lincoln National attempted to ‘have it both ways’ by endorsing and encouraging plaintiffs’ participation in the Benistar 419 Plan & Trust while at the same time attempting to have plaintiffs deny that Lincoln National ever did so by signing ‘disclosure’ and ‘acknowledgement’ documents that were included in the voluminous paperwork plaintiffs were required to sign in connection with their participation in the Plan but never discussed with or explained to plaintiffs,” the lawsuit says.

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