Demutualization Dividend on fully funded Terminated Pension Plan

[MPLSLAW]

Client purchased all the assets of a company that had recently terminated its defined benefit pension plan. All benefits were funded and all participants received annuity contracts or lump sums. Several years after the termination, the buyer was contacted by insurance company which had funded the terminated plan, that it was holding demutualization shares distributable to the terminated plan. Buyer plans to claim the surplus assets pursuant to the purchase agreement. Will it be subject to the reversion excise tax if it was never the plan sponsor?

[Mike Preston]

No, but the seller will be and the purchase agreement no doubt allows the buyer to claim only the net. If it allows the buyer to claim the full amount but leaves the tax liability with the seller then the buyer had a better attorney than the seller!