PORTFOLIO

Pension Plan Terminations — Single Employer Plans (Portfolio 357)

Tax Management Portfolio, Pension Plan Terminations — Single Employer Plans, No. 357-5th, addresses the issues that arise in connection with the standard, distress and involuntary terminations of single-employer qualified defined benefit and defined contribution plans and in connection with the partial termination or spinoffs of such plans. This Portfolio also discusses the ERISA fiduciary and tax implications of plan termination.

Price: $400 Print

GET MORE WITH THE FULL PORTFOLIO LIBRARY

This Portfolio is part of the U.S. Income Portfolios Library, a comprehensive resource including 200+ federal tax Portfolios, practice tools, primary sources and timely news.

FREE TRIAL

DESCRIPTION

Tax Management Portfolio, Pension Plan Terminations — Single Employer Plans, No. 357-5th, addresses the issues that arise in connection with the standard, distress and involuntary terminations of single-employer qualified defined benefit and defined contribution plans and in connection with the partial termination or spinoffs of such plans. This Portfolio also discusses the ERISA fiduciary and tax implications of plan termination.


Among the more important of these issues are the requirements that apply to the termination of a defined benefit plan under Title IV of ERISA. This Portfolio discusses the litigation which has occurred involving the priority of PBGC's claims for employer liability upon the termination of pension plans in the bankruptcy context. The interplay between Title IV of ERISA and the Bankruptcy Code, including court decisions, is examined. Outside of bankruptcy situations, the Portfolio also considers threatened involuntary plan terminations in the context of pending corporate transactions arising from the PBGC's “early warning” program.


A number of questions with respect to the qualification of a plan under the Internal Revenue Code arise when a plan is terminated, and such questions, together with the issues of whether a plan has been partially terminated and the effect thereof, are discussed.


Buy Pension Plan Terminations — Single Employer Plans (Portfolio 357) now


AUTHORS

LONIE HASSEL
Lonie Hassel, B.A. summa cum laude, Catholic University of America (1977), Phi Beta Kappa; J.D. University of Virginia School of Law (1980); Attorney and Assistant General Counsel, Pension Benefit Guaranty Corporation 1980–1988; American Bar Association; District of Columbia Bar.

ROSIE ZAKLAD, ESQ.
Rosie Zaklad, Esq., of Groom Law Group, Chartered, made significant contributions to this Portfolio.

TABLE OF CONTENTS

Detailed Analysis

I. Introduction

A. Policies Affecting Plan Termination

B. Deciding Whether to Terminate a Pension Plan

II. Plan Terminations Under ERISA

A. Background

B. PBGC's Termination Insurance

1. Plans Covered by Termination Insurance

2. PBGC Premiums

a. Flat Rate Premiums

b. Variable Rate Premiums

c. Termination Premiums

3. Title IV Benefits (Benefits Funded by Plan Assets and Benefits Guaranteed by PBGC)

III. Standard Terminations

A. Overview

B. Requirements for Standard Terminations

1. All Benefit Liabilities Will Be Satisfied

2. Notice of Intent to Terminate

a. Proposed Date of Plan Termination

b. Deadline and “Affected Parties”

c. Notice of Reduction in Rate of Future Benefit Accrual

d. Spinoff-Termination

e. Notice of Annuity Information

3. Standard Termination Notice to PBGC

4. Notice of Plan Benefits

5. PBGC Review of Standard Termination Notice

C. Closeout of Plan and Distribution of Assets

1. Timing and Distribution of Assets

2. Missing Participants

3. Annuity Requirements

4. Post-Distribution Certification

D. PBGC Plan Audits

E. Spinoff-Terminations and Termination-Reestablishments

IV. Distress Termination

A. Overview

B. Distress Tests

C. Procedural Requirements

D. Administration of Plan During Distress Termination

V. Involuntary Termination

Introductory Material

A. Grounds for Termination

B. Proceedings in U.S. District Court

C. Setting the Date of Plan Termination in an Involuntary Termination

D. PBGC's Early Warning Program - Business Transactions Affected by Threat of Involuntary Plan Termination

E. Restoration of a Terminated Plan Under ERISA § 4047

VI. Termination of Defined Contribution Plans

Introductory Material

A. Special Distribution Considerations

B. Missing Participants

1. Locating Missing Participants

2. Distribution Options

C. Orphan Plans

1. Overview

2. Safe Harbor for Participants Who Fail to Make an Election

3. Reporting Requirements

4. Class Exemption

VII. IRS Tax Qualification of Terminated Plan

Introductory Material

A. Filing for a Favorable IRS Determination upon a Plan's Termination

B. Permanency

C. Full Vesting

1. IRS Position

2. Ninth Circuit Position

3. Sixth Circuit Position

D. Nondiscrimination

VIII. Collective Bargaining Considerations

A. Collective Bargaining Agreement as an Obstacle to Standard or Distress Termination

B. Coping with the Collective Bargaining Agreement

IX. Liabilities to PBGC

A. Liability Arising Upon Plan Termination

1. PBGC's Termination Liability Claim

a. Out of Bankruptcy

b. In Bankruptcy

2. Liability for Unpaid Contributions

a. Out of Bankruptcy

b. In Bankruptcy

3. Liability for PBGC Premiums

a. Generally

b. In Bankruptcy

B. Liability Based on Cessation of Operations at a Facility

X. Bankruptcy Considerations

A. Basic Principles of Bankruptcy

B. Interplay of the Bankruptcy Code and ERISA

XI. Employer Deductions

A. Deductibility of Employer Contributions

B. Deductibility of Liability to PBGC

XII. Taxation of Distributions to Participants or Reversions to the Employer

A. Distributions to Participants

B. Reversion of Funds to the Employer

C. Excise Tax on Reversions of Qualified Plan Assets

XIII. Partial Plan Termination

A. Introduction

B. Vertical Partial Termination

1. Significant Reduction in Participation

2. Measuring Participation

C. Horizontal Partial Termination

D. To the Extent Funded


WORKING PAPERS

Working Papers

Table of Worksheets

Worksheet 1 Notice of Intent to Terminate

Worksheet 2 Standard Termination Filing Instructions and Forms (PBGC Form 500 and Schedules and Form 501)

Worksheet 3 Sample Freeze Amendment

Worksheet 4 Distress Termination Filing Instructions and Forms (PBGC Forms 600, 601 and 602 and Schedules)

Worksheet 5 Missing Participants Filing Instructions and Forms (PBGC Schedule MP and Attachments)

Worksheet 6 Agreement for Commitment to Make Plan Sufficient for Plan Benefits

Worksheet 7 Notice of Determination

Worksheet 8 Agreement for Appointment of Trustee and Termination of Plan

Worksheet 9 DOL Information Letter to John Erlenborn on Plan Terminations

Worksheet 10 Internal Revenue Manual, Plan Termination Guidelines

Worksheet 11 PBGC Technical Update 00-3, Early Warning Program

Worksheet 12 DOL Advisory Opinion 2001-01A, Payment of Plan-Related Expenses from Plan Assets

Worksheet 13 DOL Guidance on Settlor v. Plan Expenses

Worksheet 14 EBSA Interpretive Bulletin 95-1, Fiduciary Standards under ERISA

Worksheet 14A EBSA Rule on Selection of Annuity Providers for Benefit Distributions from an Individual Account Plan

Worksheet 15 PBGC, Treasury and DOL Joint Implementation Guidelines on Asset Reversions in Plan Terminations

Worksheet 16 DOL Field Assistance Bulletin 2004-02 on Fiduciary Duties and Missing Participants in Terminated Defined Contribution Plans

Worksheet 17 IRS Chief Counsel Notice 2006-007 on Administrative Expense Claims for Pension Underfunding in Bankruptcy Cases

Bibliography

OFFICIAL

Statutes:

Regulations:

Treasury Rulings:

Cases:

UNOFFICIAL

Periodicals:

1987

1988

1989

1990

1991

1992

1993

1999

2001

2002

2005

2006

2007

2008