Post Plan Termination Contribution (non PBGC)

[jpm56]

Hopefully someone can help me with this situation -

I have a small DB plan that is not covered by the PBGC and terminated on 12/31/11. Anyway, the assets are not sufficient to cover the liabilities, so the plan sponsor has decided to make a contribution that is sufficient to cover the unfunded liabilities.

The company has already filed their corporate tax forms for 2011. Can this contribution be deducted in the 2012 plan year?

I know if this were PBGC covered, under IRC 404(g) they can certainly deduct amounts paid under various sections of ERISA, (i.e. 4062) however since this plan is NOT covered by the PBGC I don't think these regulations apply.

Thanks for your assistance!

[SoCalActuary]

You can certainly consider the deduction for payments made after year end to meet minimum funding requirements.

Some practitioners say that deduction stops when 430 no longer applies, but others say deduction continues until the plan has been liquidated (my preferred interpretation). But the IRS has avoided publishing new 404 regs since PPA, so I am guessing.

[mbozek]

Hopefully someone can help me with this situation -

I have a small DB plan that is not covered by the PBGC and terminated on 12/31/11. Anyway, the assets are not sufficient to cover the liabilities, so the plan sponsor has decided to make a contribution that is sufficient to cover the unfunded liabilities.

The company has already filed their corporate tax forms for 2011. Can this contribution be deducted in the 2012 plan year?

I know if this were PBGC covered, under IRC 404(g) they can certainly deduct amounts paid under various sections of ERISA, (i.e. 4062) however since this plan is NOT covered by the PBGC I don't think these regulations apply.

Thanks for your assistance!

IRC 404(o)(5) added by PPA contains a similar provision for DB deduction limits for plans subejct to ERISA 4041 that terminate during the plan year which allows deduction of all payments made to make the plan sufficient for all benefit liabilities under 4041(d). Maybe Congress intended to limit deductions for benefit liabilities upon termination to ERISA covered pans.

[SoCalActuary]

mb - the subtle point in the OP was that 4041 liabilities are irrelevant because the plan is not PBGC covered.

So your reference is not sufficient.

[mbozek]

mb - the subtle point in the OP was that 4041 liabilities are irrelevant because the plan is not PBGC covered.

So your reference is not sufficient.

So what IRC section allows the deduction?

[jpm56]

Thanks, I appreciate the replies.

I did come across this topic in the Plan Termination Answer Book, which referenced IRC 404(a)(1)(A)(iii). The interpretation is that any contribution in excess of the plan year's deductible limit may be amortized and deducted over 10 years. As a non-PBGC plan, do you think this rule would apply in this situation? I find it hard to believe.

[jpm56]

Does anyone have any comments on this particular topic?

This a 12.31.11 plan termination, non-pbgc, assets have not been liquidated yet, and they would like to deduct the contribution to make up for the funding S/F in 2012.

Thanks for the assistance.

[Hojo]

I basically think that what everyone is saying is that if this were a PBGC plan, then yes, BUT since it's not and there are no regulations to help you determine this, the best guess interpretation follows as if it were a PBGC plan.

[jpm56]

I basically think that what everyone is saying is that if this were a PBGC plan, then yes, BUT since it's not and there are no regulations to help you determine this, the best guess interpretation follows as if it were a PBGC plan.

Yeah, I kind of figured as much. Thanks.

I'm wondering if IRC 404(a)(1)(A)(iii) is even relevant? My interpretation of that section of the code is that for non-PBGC plans, any contribution in excess of the plan year's, (in this case 2012) deductible limit, may be amortized and deducted over 10 years.