Determination letter for freezing a plan?

[Guest erisa15]

Froze DB plan effective last September (Board authorized, 204(h) Notice given and amendment signed) Client now wants to go in for a determination letter for the amendment that freezes the plan (already have GUST II letter that was issued in December 2003). I don't think we need to go in for a letter. As always, your thoughts and ideas welcome.

[Mike Preston]

The letter of determination one gets on plan termination is significantly different from the letter of determination one gets from a submission with respect to an ongoing plan. Different things are reviewed. Therefore, there is different reliance.

[401 Chaos]

Mike,

Are all DB Plan freezes automatically considered plan terminations for Form 5310 purposes? What if the employer only temporarily freezes benefit accruals due to financial hardship and may possibly "thaw" the plan and continue contributions at a later date? If you have an underfunded DB plan that has been frozen with respect to future benefit accruals due to financial hardship but the employer is continuing to make required contributions to the plan and maintains the trust, etc. but has deferred a decision on whether the plan will be reinstated or terminated at a later date, would the initial amendment freezing the plan have to be filed under a 5310 or a 5300. The instructions to Form 5310 suggest that Form 5300 should be filed instead of a Form 5310 if a plan has "terminated" but the sponsor will continue to maintain the trust after termination.

[david rigby]

I can't see the value of this action. Why bother with the expense of a DL filing? What advantage does it provide?

A plan freeze (at least in the usual use of that term) is a very simple amendment stating that there will be no additional benefit accruals (and no new participants) after X date. This is not, and does not imply, a plan termination. A sponsor can "unfreeze" the plan at a later date, with the same or different rate of accrual. No decision is required at the time of the freeze.

[AndyH]

Clearly Mike misread the question as a termination, not a freeze. I don't think anybody goes for a FDL upon freeze.

I'm beginning to understand how he thinks. Scary stuff.

[Everett Moreland]

Is there value in getting the determination letter to resolve whether the freeze has caused a partial termination?

[Blinky the 3-eyed Fish]

Why would you think a freeze would cause a partial termination?

[Mike Preston]

Andy is right. Scary indeed. Maybe I can claim sleep deprivation?

In any event, there is always something that is to be gained from a more current LOD. In the case of a freeze with respect to a plan that is not overfunded, I agree that it might not be very much.

However, as has been pointed out, a freeze might be considered a partial termination if it "increases the chance of a reversion" (I *think* that is the right phrase). I have heard the IRS talk about this, but I've never seen any PLR's or other citations that back them up.

[Everett Moreland]

Blinky:

1.411(d)-2(b)(2):

"If a defined benefit plan ceases or decreases future benefit accruals under the plan, a partial termination shall be deemed to occur if, as a result of such cessation or decrease, a potential reversion to the employer, or employers, maintaining the plan (determined as of the date such cessation or decrease is adopted) is created or increased. If no such reversion is created or increased, a partial termination shall be deemed not to occur by reason of such cessation or decrease. However, the Commissioner may determine that a partial termination of such a plan occurs pursuant to subparagraph (1) of this paragraph for reasons other than such cessation or decrease."

[Blinky the 3-eyed Fish]

Yes, I am familiar with such, but was trying to get your thought process since you didn't elaborate in your first post. Now I know.

[Everett Moreland]

Blinky:

My thought process is that regulation is vague. During some prior research on that regulation I found an article by an IRS employee who said one issue is whether the potential reversion is determined on a temination basis or an ongoing basis. I plan to submit two freeze amendments for determination letters to get a ruling that the freeze does not require vesting under the partial termination rule.

[401 Chaos]

Everett, just to be sure I'm clear, I'm assuming the determination request will be made along standard lines under Form 5300? Will the Service automatically rule on the partial termination issue when you submit the freeze amendment or do you have to specifically ask for that ruling?

[Everett Moreland]

Chaos:

The Form 5300 and Form 5310 instructions state to use Form 5300 for a partial termination. You need to request a partial termination ruling. Check box 5 in line 3a and give the information requested in the instructions. See also box 12 of the Procedural Requirements Checklist for Form 5300.

This will be my first partial termination request for a freeze. Any insights others have are welcome.