Reversion - Termination before 1986

[Guest cphs]

It appears from the history of Code section 4980 that the excise tax on reversions does not apply to any plan that terminated prior to January 1, 1986, even if the reversion occurred after that date. Is my understanding correct? Thanks

[SoCalActuary]

Don't confuse "frozen" with terminated. IRS and PBGC maintain that a frozen plan continues, maybe with new TH accruals, maybe not, but it remains and on-going plan.

IRS & PBGC tell us a terminated plan attempted to distribute assets as soon as administratively possible. I know, I'm over-simplifying here, but maybe you could explain the intent of your question.

[Guest cphs]

The plan terminated prior to 1986 (assets distributed, annuities purchased) and now has some demutualization proceeds related to the annuity contracts. There have been numerous demutualization posts, and I'm pretty comfortable with that issue in general. I'm just trying to confirm my read of the 4980 history from TRA 86 that 4980 will not apply to these proceeds, solely becuase the plan terminated prior to 1986. Thanks

[mbozek]

Under applicable IRS rules termination of a plan occurs when all assets have been distributed. Demutualizatonal payments made long after a plan has distributed all assets under the control of the fiduciary and filed the final 5500 are not reversions because there is no plan in existance at the time the employer receives the property from the insurer's general account. Including demutualizaton payments received by an employer for a terminated plan as a reversion under IRC 4980 is similar to allocating a dividend payment credited after a taxpayer's death to the taxpayer's income instead of to his estate.

IRC 4980 does not aply to pre 86 terminations.