Rev. Proc. 90-49

[jpod]

DB Plan subject to Title IV is terminating.  Shortly before the termination date, the employer contributed way more than the amount ultimately needed to purchase the necessary annuities and pay lump sums (either high 6 figures or very low 7 figures).  Can Rev. Proc. 90-49 be used in this situation to secure a disallowance of the deduction?  90-49 seems to be limited to a situation where you had made excess quarterly contributions towards minimum funding.  Am I reading it too narrowly?    

[Effen]

Seems to me they are only talking about refunding quarterly contributions that are deemed non-deductible.  Was the contribution the sponsor made deductible?  Was it made contingent upon it being deductible? 

Looks like Holland wrote the Rev Proc.  Maybe post the question in the ACOPPA board and see if he responds.  

 

[jpod]

I don't see how it was deductible if the amount was beyond what was than necessary to fund all benefits at termination, but I don't know for sure.

[Mike Preston]

The 404 deductible limit typically greatly exceeds the amount that would fully fund a plan. I think 90-49 would be a stretch, but I'd leave it to ERISA counsel and actuary.

[Dave Baker]

This seems to provide good news -- it's a determination letter that binds the IRS only with respect to the particular taxpayer who requested it, but it contains an explanation of the law and the facts in the taxpayer's situation, and they seem to be the same as in your situation:

   https://www.irs.gov/pub/irs-wd/201430025.pdf

[jpod]

I was aware of that ruling.  But note that it took almost 4 years to get the ruling, and you need a ruling in order to effectuate the disallowance.  By its terms a submission under 90-49 gets processed very quickly. 

[Calavera]

Thanks Dave for that awesome reference.

Jpod, keep in mind that

1. plan document should have the appropriate language
2. You will need to apply for a disallowance

[jpod]

Another option for avoiding the excise tax is that the excise tax does not apply to that portion of the reversion equal to an amount contributed based on a mistake of fact.  IRS is very rigid in how it interprets "mistake of fact."  If the employer's estimate of what the insurance company would charge was too high and/or the employer over-estimated the number of participants who would take annuities as compared to cheaper lump sums, could that be considered a "mistake of fact"?  Bottom line here is that it seems grossly unfair that an employer should be so heavily penalized for being conservative in estimating its termination liability.