plan terminated in 1978 - annuity contract issues dividend - who gets

[JanetM]

Did search and found nothing like this. Company X had three DB plans for three subsidaries in late 70's. All plans were terminated and annuities purchased. Company X sold all three companies shortly thereafter and ceased operations. Now Company A, wholly owned by my company, is recieving dividend checks for Company A plan (termed in '78) and Company B plan (plan termed '78 & company sold '79).

Where do I start sorting out who is to receive checks. No EIN listed for receipient. Does the type of annuity purchased in '78 make a difference in who received dividends?

Help - not even sure where to start research.

[MGB]

Do a search on the board for "demutualization". It is the demutualizations of insurance companies that trigger these payments. There have been numerous discussions on the board concerning these checks in that context.

It is going to make a big difference if there were any employee contributions involved. If so, allocations must be provided to them. If not, generally the money is a reversion to the employer (someone is still the legal representative for the terminated companies), subject to tax and excise tax as if received in the termination process. Alternatively, they can decide to give it back to the insurance company to increase the recipient's pensions and not have to deal with it.

If they are just providing true "dividend" checks on an ongoing basis (which should not be happening), you have a bigger problem to deal with, but basically the same result.

[JanetM]

This is Principal - who acquried Bankers Life - they are not mutual company. This is first check for dividends ever received.

GC here says based on agreement when we bought Company A assets- we did not assume any pension asset or liability from seller, therefore we intend to send checks back to Principal and tell them we have nothing to do with plans.

Opinion here is if we keep the checks - we assume liability in future for two plans that have no relation to company. One check of for termed plan of company that was acquired by competitor in 1979.

[KJohnson]

Principal did demutualize. Old Banker's Life annuity contracts were part of this demutalization.

[mbozek]

The dividends are the property of whoever is the sucessor in interest to the employer who sponsored the terminated plans. Was Co X the sponsor /group policy owner? What is the relationship between Co X and Co A? There are only three possibilities for the dividend- contribute it a qualified plan, take it as income into the employer's general account or use it to pay additonal benefits to particpants under the terminated plans.

[MGB]

Accepting the checks has absolutely nothing to do with taking on any liability or assets of any plan. These are demutualization proceeds of the insurance company. The contract holders had a "stake" in the mutual company. When it demutualized and issued stock to the public, the surplus remaining at that time in the insurance company is distributed to all contract holders. The plan sponsor (or any successor) is the contract holder. It does not have anything to do with who is responsible for the plan at this time. If you send back the checks, there should be instructions to increase the plan participant's annuities.

[KJohnson]

There is one PLR regarding demutalization proceeds distributed to a terminated DB plan---200214031. Sal Tripodi has an interesting discussion of this in his 2002 ASPA outline (at page 152) that can be found here:

http://www.aspa.org/archivepages/conferenc...odi-closing.pdf

He goes into such "practical" things as 1099R implications "reactivating" a 5500 obligation etc.

[JanetM]

First I should state this is the first time we have received money form Principal. Controller at Company A has been with companys since we acquired then in 1983- he recalls no paperwork on demutualization or any correspondece regarding this.

Company X terminated the plans. They purchased annuities (not sure what kind) took reversion of assets and then sold off all the subsidiaries and disolved. Comapny A retains the same name as the division it was under Company X - other than that there is no relation.

How can Company A be successor when there were two other plans - of separate sub's involved in this whole mess. Company A does not want to be successor to Company X plans.

Why didn't Principal just keep the dividends in the contract? Why send check out of the blue like this?

[mbozek]

Under the terms of the demutualization provisions of state law, the insurer is required to distribute the surplus assets to all policyholders of record. What happens after that is not their problem. Presumably unclaimed checks become abandoned property to be escheated to the state. The question is who is the check payable to? If it is co X then only a person who is authorized by Co X can cash the check. If the check is payable to Co A and and your client is the sucessor to /owner of Co A then it could be Co A property because Co A was the owner of the group annuity policy. You need to review the purchase agreement for Co A to determine what was purchased from Co X. Also there will be a practical problem in finding Co X owners since it is dissolved. There is no liability for benefits by accepting the assets- the participants were paid off years ago and under applicable law the only thing they are entitiled to are the benefits accrued under the terminated plan. Surplus assets are not benefits. However if the employer deposits the dividend check there is a question of whether this a reversion under IRC 4980 subject to the 50% tax.

I have represented several employers who have received demutualizaton proceeds and each case is different. Your cleint needs counsel.

[JanetM]

Checks are made out to "Company A Salaried EE's Retirement Plan" and "Company B Salaried EE's Retirement Plan".

Company X was sponsor of A, B and C plans. These plans termed in 1978. Company X sold B and C to other companies. We acquired assets of A in 1983. Employees were hired by us at that time as new employees. We assumed assets and liabilities as of balance sheet closing date. As this was something not on balance sheet I don't see how Company A can be left as successor of A, B and C plans.

My company wants nothing to do with this. The family that owned X is long gone - this is not a large sum of money. But potenetially a big head ache - you should know Company B did heavy industrial manufacturing with chemicals and other carcinogenic materials.

[mbozek]

If Co B was sold to another entity then you are not sucessor to B so send the check back to Principal. If your co acquired assets and liabilities of A it may be a stock deal not an asset deal and your co has assumed liabilities as well as the right to any inchoate assets of A since the dividends relate to a plan established by the prior employer. There are services that could locate the family member of the owners of X if you want to pay for the search. They usually deal with estate administration. The only other possible party for the funds is the state athrough escheat if you refuse to accept the check. How much is not a lot?

[JanetM]

Not a lot = $500. The purchase agreement for Company A states we assume only the assets and liablilities listed on balance sheet at date of close. Since this was not listed we do not "own" it.

The controller at Company A worked for Company X and was the one who did all the work on terminating the plans. He said all the records for the term went with Company X. He recalls that the annuity purchase was in the name of Company X. Could make the arguement that the annuity contracts are owned by A, B and C.

[mbozek]

The checks are made out to the retirement plans which are usually the record owners of the group annuity contract. So your co must have some sucessorship interest to the plan to cash the check. Otherwise send the check back to Principal.