Refund of employee contributions in DB plan

[Guest Mike Spickard]

My client has an overfunded DB plan and would like to refund employee contributions back to the employees who made them some 20-30 years ago. 9 out of the 10 employees that have ee contns. in the plan are union. I find no guidance that would permit such a withdrawal. Any thoughts of other, especially experts in this area, would be greatly appreciated.

[david rigby]

Opinion from non-expert. I am assuming that you are discussing a qualified non-governmental plan.

If the pension plan is, or was, ever negotiated, this is probably an item that the sponsor cannot do unilaterally without discussing it within the context of bargaining.

Don't forget the issue of inactive participants. Are there any current retirees and/or vested terms who would be affected? If so, be careful who is included and how the refund is defined. For example, if an EE terminated 5 years ago and got a refund of contributions, then make sure this EE does not get another refund.

I recommend advice from a qualifed ERISA attorney.

[Guest slt]

A lot of pre-ERISA revenue rulings provide that you may return employee contributions to participants without violating the "definitely determinable" requirement under the Code. See Rev. Rul. 69-277 allowing a pension plan to permit participants to withdraw their voluntary contributions, together with accumulated interest, prior to termination of employment. See Rev. Rul. 60-281 allowing a participant to withdraw his contributions along with earned interest upon discontinuance of participation in a plan and prior to termination of employment. Make sure that the interest paid out is not so high that it actually results in a distribution in excess of amounts earned. You should also look at Rev. Rul. 60-323 if you have mandatory and voluntary employee contributions in the plan.