EGTRRA Deduction limit - Plan Termination across years

[Guest Joshua Meltzer]

The termination date of my client's plan was in 2001, we have just received the Det. letter from the IRS and are paying out the benefit now (2002 - 2003). The assets have declined in value and the client will contribute the shortfall now. Will the entire amount be deductible under 404(a)(1)(D) as amended for EGTRRA (<100 ees)? Does it matter that the term date was prior to 2002?

Thanks for any help.

[Blinky the 3-eyed Fish]

I don't believe you can deduct the unfunded current liability because your plan was terminated before 2002.

[mbozek]

I thought that payments which are required in order to recieve a PBGC Determination of plan sufficiency and termination are deductible under IRC reg 1.404(g). Section 404(g) provides that an employer may deduct in the year paid any amounts paid under ERISA 4041(B) or 4062 without regard to the normal 404(a) limits. See PLR 8229130. ERISA 4041(B)(1)(D) provides that a plan may terminate under standard termination only if, when the final distribution of assets occurs, the plan is sufficient for plan liabilities. If the employer cannot recieve a deduction for contributions made upon a final distribution of assets after the year of termination there is no reason for the employer to complete the termination of the plan and the PBGC will be forced to terminate the plan under ERISA 4062 and require the employer to make a payment which will be deductible.

[Blinky the 3-eyed Fish]

Mbozek, it is never mentioned that this client is covered by the PBGC, otherwise, you are correct that amounts to shore up benefits are deductible.