How to handle unexpected receipt of demutualization funds; DB plan already terminated

[Guest pensionadmin]

We assisted a client in terminating their PBGC covered defined benefit plan. They filed with the PBGC and received a favorable dletter from the IRS. All participants were paid their full lump sums after the employer made the plan sufficient by contributing $100,000+. All participants were paid out by the end of 2002 and a final 5500 and PBGC Form 501 were filed.

Now the client has received a check, payable to the Plan Trustees, for $30,000+ in demutualization proceeds. The transaction that generated the proceeds happened well before the plan termination but we weren't aware of it at that time.

The question now is should this money go back to the Employer to offset the $100,000+ they deposited (and not consider it a reversion)? Or should it be considered excess assets and allocated back to the participants as provided for in the plan document?

Has anyone had experience with this type of situation? Thanks!

[KJohnson]

http://www.dol.gov/ebsa/regs/aos/ao2003-05a.html

[Guest pensionadmin]

Thanks for the citation. My client's situation isn't exactly the same as the employer mentioned here. Is there a possibility the IRS could look upon this as an asset reversion?

[david rigby]

Possible, since the DOL and IRS have different jurisdictions.

[mbozek]

The client needs to retain tax counsel to determine if the payment is a reversion from a qualified plan or is a dividend due the sponsor.

[KJohnson]

As to the reversion issue, PLR 200214031. There appears to be some tension between the DOL and IRS on the "plan asset" question.