Demutualization Proceeds

[Guest planman]

This concerns a terminated DB plan that received some demutualization proceeds years after the termination.

The plan terminated in the late 90's after the employer made a deposit to fully fund the plan. Participants were paid out. The plan filed a final 5500 showing zero assets and also received a determination letter regarding the termination. Then this year, we find out the plan received deumutualization proceeds. The proceeds exceeded the funding deposit made prior to termination. Can we say that the deposit to fully fund the plan was a mistake since the employer incorrectly ignored the demutualization proceeds (using hindsight, of course). Therefore the plan is(was) overfunded and the employer should get back some money? Is there a way to get this money without being a reversion with heavy taxes?

A DOL opinion letter 2003-05A with similar circumstances says demutualization proceeds are not plan assets. However an IRS PLR (which one?) with similar circumstances said proceeds would be treated as plan assets, however this plan WANTED to give the money to participants. We want the money to go back to the employer but don't want to be taxed on a reversion. The DOL and IRS seem to be on different pages. How can the employer get the money and comply with both agencies?

[david rigby]

Some previous discussions on this topic. Try a search, using the word "demutualization".