Contributory DB Plan and Demutualization Proceeds?

[Guest azbenefits]

Our contributory DB plan terminated in 1985. The assets of the plan were distributed to plan participants in accordance with section 4044 of ERISA and the remaining assets reverted to the employer. Subsequently, the mutual life insurance company converted to a stock life insurance company and the demutalization proceeds received as a result of the demutualization remain in escrow.

My question is whether Advisory Opinion 2003-05A applies in this situation in that our plan is a contributory DB plan and if Advisory Opinion 2003-05A does not apply, has anyone made an argument that the market value of the demutualization proceeds at the time of the original reversion was zero and thus the plan participants received all that they were entitled to received under section 4044 and the entire demutualization proceeds can be distributed to the employer?

[mbozek]

Under ERISA participants in a contributory plan are entitled to the benefits accrued under IRC 411©. A few years ago the US Supreme Ct held that participants who contributed to a DB plan are not entitled to a portion of the surplus when the plan terminated because the employer takes investment risk. The participants are only entitled to the benefit accrued under the plan.

[Guest azbenefits]

The Supreme Court case that you refer to did not address a voluntary termination, and therefore section 4044 of ERISA was never addressed. I think section 4044 changes the analysis of whether the participants in a contributory DB plan are entitled to a portion of the surplus.

My question is more on whether the participants are entitled to a portion of the surplus if the surplus occurs after the reversion has taken place.

[KJohnson]

I don't think DOL's conclusion in 2003-05A turned on the fact that it was a non-contributory plan or that there was no reversion. DOL said that there was no plan so there can be no plan assets. 4044 only speaks to the allocation of plan assets--so I don't think this changes the analysis.

If there are no plan assets, participants don't get anything absent something "screwy" in your annuity contract. I think the people in DOL's Office of Interpretations and Regulations would be willing to talk this over with you if you called to D.C. Based on prior conversations I think you will like their always non-binding veiws.