Rev. Rul. 83-52

PURPOSE

The purpose of this revenue ruling is to consider the position in Rev. Rul. 71-152, 1971-1 C.B. 126 and restate the position in Rev. Rul. 73-55, 1973-1 C.B. 196 under current law in view of the Employee Retirement Income Security Act of 1974 (ERISA), Pub. L. 93-406, 1974-3 C.B. 1.

ISSUE

The issue involves the determination of the amount that may be returned to an employer upon the termination of a defined benefit plan in accordance with the nondiversion requirement of section 401(a)(2) of the Internal Revenue Code.

FACTS

A defined benefit pension plan that is not a multiemployer plan described in section 414(f) of the Code was terminated. The liabilities under the plan were discharged by an immediate distribution in cash to each participant of an amount equal to the present value of the participant's total benefits (whether or not nonforfeitable). The present values were determined on a termination basis in accordance with 29 C.F.R. section 2619.26 (1981) of the regulations published by the Pension Benefit Guaranty Corporation (PBGC) under Title IV of ERISA. The assets remaining after all distributions to the participants had been made were returned to the employer.

LAW, ANALYSIS AND HOLDING

Section 401(a)(2) of the Code and section 1.401-2 of the Income Tax Regulations provide that plan funds must not be used for purposes other than the exclusive benefit of employees or their beneficiaries prior to the termination of the plan and the satisfaction of all liabilities with respect to those individuals. Section 1.401-2(b)(2) provides that the liabilities that must be satisfied include both fixed (those nonforfeitable prior to termination) and contingent (those not nonforfeitable prior to termination) liabilities. After satisfaction of those liabilities, an employer may recover any remaining funds from the plan as surplus resulting from actuarial error.

Rev. Rul. 71-152 held that if a single payment were made at termination to discharge all liabilities of the plan, the amount of the payment must be based on assumptions no less conservative than those used in determining costs during the previous life of the plan.

Title IV of ERISA authorizes the PBGC to make a determination as to whether a terminating pension plan covered by Title IV has sufficient assets to pay all guaranteed benefits provided under the plan. Regulations published by the PBGC under 29 CFR Part 2619 provide rules for determining the present value of benefits for certain terminating plans.

For purposes of section 1.401-2(b)(2), the valuation of benefits as permitted under Title IV may be used in determining whether there is any surplus due to an actuarial error. Therefore, after cash distributions have been made to the participants in this plan in amounts equal to the present value (determined as described above) of their total benefits, any remaining assets (i.e., those resulting from actuarial error) may revert to the employer without causing a violation of the non-diversion rule of section 1.401-2 of the regulations.

Similarly, when fixed and contingent liabilities are discharged through the purchase of a contract or contracts from an insurance company which provides the benefits with respect to individuals for whom the liabilities are determined, the remaining assets may be considered surplus arising from actuarial error and revert to the employer.

This revenue ruling does not consider whether the return of assets to the employer satisfies the requirements of regulations published by the PBGC under 29 CFR Part 2618 Sub-part C.

EFFECT ON OTHER DOCUMENTS

Rev. Rul. 71-152 is revoked. Rev. Rul. 73-55 is superseded because the position stated therein is restated under current law in this revenue ruling.