IRS Extends, Expands Transition Relief In Group Trust Rules For Retirement Plans.

Part I

Section 401. -- Qualified Pension, Profit-Sharing, and Stock Bonus Plans

Section 501. -- Exemption from Tax on Corporations, Certain Trusts, Etc.

(Also 26 CFR 1.414(l)-1, 1.933-1, 1.501(a)-1, and 301.7805-1)

I. PURPOSE

This notice extends and expands the transition relief provided under Rev. Rul. 2011-1, 2011-2 I.R.B. 251, and Rev. Rul. 2008-40, 2008-2 C.B. 166, for certain group trusts, certain retirement trusts that qualify under the Puerto Rico Internal Revenue Code (Puerto Rico Code) and that participate in group trusts, and certain qualified retirement plans that benefit Puerto Rico residents. This notice also provides additional time for governmental retiree benefit plans described in § 401(a)(24) of the Internal Revenue Code (Code) (§ 401(a)(24) plans) to be amended to satisfy the applicable requirements of Rev. Rul. 2011-1.

II. BACKGROUND

Rev. Rul. 81-100, 1981-1 C.B. 326, provides that qualified retirement plans and individual retirement accounts are permitted to pool their assets for investment purposes in a group trust ("81-100 group trusts") if certain specified requirements are satisfied. Rev. Rul. 81-100 was clarified and modified by Rev. Rul. 2004-67, 2004-2 C.B. 28. Rev. Rul. 2011-1 revises and restates the generally applicable rules for group trusts described in Rev. Rul. 81-100, 1981-1 C.B. 326, as clarified and modified by Rev. Rul. 2004-67. Rev. Rul. 2011-1 permits the participation in 81-100 group trusts of certain retiree benefit plans, such as governmental retiree benefit plans under § 401(a)(24), in addition to § 401(a) qualified retirement plans, if certain requirements are met.

Section 1022(i)(1) of the Employee Retirement Income Security Act of 1974, Pub. L. 93-406 (ERISA) provides a tax exemption under § 501(a) of the Code for certain plans that satisfy the qualification requirements under the Puerto Rico Code ("section 1022(i)(1) plans").

Rev. Rul. 2008-40 holds that a transfer of amounts from a trust under a plan qualified under § 401(a) to a nonqualified foreign trust is treated as a distribution from the transferor plan. Rev. Rul. 2008-40 holds further that a transfer of assets and liabilities from a qualified plan to a plan that satisfies the plan qualification requirements under section 1165 of the Puerto Rico Code is also treated as a distribution from the transferor plan, even if the plan is a section 1022(i)(1) plan. Rev. Rul. 2008-40 provided transition relief for a transfer from a qualified plan to a section 1022(i)(1) plan that occurred before January 1, 2011.

Rev. Rul. 2011-1 provides temporary relief relating to investments of the assets of certain section 1022(i)(1) plans in 81-100 group trusts, and modifies the transition relief provided in Rev. Rul. 2008-40 relating to transfers from qualified plans to section 1022(i)(1) plans. Specifically, under the heading "Plans Described in Section 1022(i)(1) of ERISA," Rev. Rul. 2011-1 provides that:

III. EXTENSION AND EXPANSION OF RELIEF

The Service anticipates issuing guidance responding to comments received in connection with Rev. Rul. 2011-1. Accordingly, the following relief is provided.

In general, if an entity that is not a group trust retiree benefit plan as defined in the holding of Rev. Rul. 2011-1 (an "ineligible entity") participates in a group trust, the consequences described in the holdings of Rev. Rul. 2011-1, including the tax status of the group trust being derived from the tax status of the participating entities to the extent of their equitable interest in the group trust, would not apply to the group trust or to any of the entities that are invested in the trust. Comments are requested on whether the rule stating that the tax status of the group trust is derived from the tax status of the participating entities to the extent of their equitable interest in the group trust should be extended to cases where the equitable interest in the group trust is held by an ineligible entity that is an employee benefit plan if (a) the plan is tax exempt under § 501 or a similar rule and (b) in all other respects the requirements in paragraphs (1) through (8) of the holding of Rev. Rul. 2011-1 (including the exclusive benefit requirement in (5) and the separate account requirement in (6)) are satisfied. Comments should be submitted by April 16, 2012 (Notice 2012-6), Room 5203, Internal Revenue Service, POB 7604 Ben Franklin Station, Washington, D.C. 20044. Comments may be hand delivered Monday through Friday between the hours of 8 a.m. and 4 p.m. to CC:PA:LPD:PR (Notice 2012-6), Courier's Desk, Internal Revenue Service, 1111 Constitution Ave., N.W., Washington D.C. Alternatively, comments may be submitted via the Internet at Notice.comments@irscounsel.treas.gov. Please include "Notice 2012-6" in the subject line of any electronic communication. All materials submitted will be available for public inspection and copying.

V. EFFECT ON OTHER DOCUMENTS

Rev. Rul. 2011-1 and Rev. Rul. 2008-40 are modified.

DRAFTING INFORMATION

The principal authors of this notice are Diane Bloom and Robert Walsh of the Employee Plans, Tax Exempt and Government Entities Division. For further information regarding this notice, please call the Employee Plans' taxpayer assistance telephone service at 1-877-829-5500 (a toll-free number) between the hours of 8:00 a.m. and 4:30 p.m. Eastern Time, Monday through Friday, or at RetirementPlanQuestions@irs.gov.