IRS written determination 201430025

Private letter rulings and published taxpayer determination letters. Native document type is retained separately; a determination letter is not labeled a private letter ruling. These taxpayer-specific releases cannot be used or cited as precedent under 26 USC 6110(k)(3); applicability and current legal force are not independently certified. Keep repeated UILC subjects attached to one actual numbered document.

Significant Index Number: 4980.00-00 .
TAX EXEMPT AND
GOVERNMENT ENTITIES
DIVISION
Re:
Company=
Prior Company
Plan=
Insurer=
Date 1 =
Date 2 =
Date 3 =
Date 4 =
Date 5 =
Date 6 =
Date 7 =
Date 8 =
Date 9 =
DEPARTMENT OF THE TREASURY
INTERNAL REVENUE SERVICE
WASHINGTON, D.C. 20224
MAY 0 1 2014
!Gl4300&S

2
2G14300IS
Amount 1 =
Amount2 =
Amount 3 =
Amount4 =
Dear
This letter
is in response to your request for a ruling dated September 20, 2010, which
was submitted by your authorized representative, requesting the following rulings:
1. Because the return to the Company of the excess assets remaining in the Plan
will
not occur until after the satisfaction
of all liabilities with respect to employees
and beneficiaries under the Plan, the return
of the excess assets to the Company
will not violate the exclusive benefit rule
of section 401 (a)(2) of the Internal
Revenue Code (Code).
2. Because the excess assets remaining in the Plan exceed the amount that was
required to make the Plan sufficient for benefit liabilities and, therefore, are not
deductible under section 404(o)(5)
of the Code, the return of the excess assets to
the Company will not constitute an employer reversion under section 4980
of the
Code and will not be subject to the excise tax set forth in section 4980
of the
Code.
The following facts and representations have been submitted:
The Company is a
long-distance bus carrier. On Date
1, the Company purchased
certain assets and assumed certain liabilities from the Prior Company. In connection
with this transaction, the Company became the sponsoring employer
of the Plan.
The Plan is a single-employer, defined benefit pension plan. Benefit accruals to the
Plan ceased effective Date
2.
The Company terminated the Plan effective Date 3. The Company requested the
Internal Revenue Service ("IRS") to issue a determination letter regarding the
qualification of the Plan on its termination. The IRS issued the determination letter on
Date
4.
On Date 5, the Company filed Form 500, Standard Termination Notice Single Employer
Plan
Termination, with the Pension Benefit Guaranty Corporation ("PBGC"). During the
60-day period following the filing
of the notice, the PBGC did not object to the notice for
a standard termination.

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2&1430011
It was the Company's intention to contribute up to the amount necessary to ensure that
there were sufficient assets in the Plan to effect a standard termination. The Company
also intended to purchase a single premium group annuity contract with the Plan assets
to settle the Plan's liability. On Date
6, before receiving the bids on the annuity contract,
the Company contributed an estimated amount needed to fully fund the Plan, Amount
1,
to the Plan. On Date 7, the Company purchased a single premium group annuity
contract from the
Insurer. The price quoted by the Insurer
is neither the highest nor the
lowest bid that the Company received. On Date
8, after all the benefit liabilities of the
Plan were satisfied, Amount 2 remained in the Plan. On Date 9, Amount 3 was
refunded to the
Plan by the Insurer. The premium refund was based on the Insurer's
comparison
of the participant data on which the premium was calculated against the
actual participant data provided to the Insurer.
Plan Provisions
Section 10.2 of the Plan document, Termination of the Plan, states that after the Plan
has been
terminated and
all liabilities to Plan participants and beneficiaries have been
satisfied, any residual assets remaining in the
Plan shall be returned to the Company.
Section 12.4, Repayments to the Employer, provides that:
(1) Any Plan assets attributable to any contribution made to this Plan by the
Company because
of a mistake of fact shall be returned to the Company within
one year after the date
of contribution. '
(2) All Company ·contributions are expressly contributed based upon such
contributions' deductibility under Code section 404. Any Plan assets attributable
to any contributions made to this Plan by the Company shall be refunded to the
Company, to the extent the income tax deduction for such contribution is
disallowed. Such amount shall be refunded within one taxable year after the
date
of such disallowance or within one year of the resolution of any judicial or
administrative process with respect to the disallowance.
The above provisions.have been in effect for more than five years.
Law
Section 401 (a)(2) of the Code generally prohibits, prior to the satisfaction of all liabilities
with respect to employees and beneficiaries under the trust, the diversion
of trust assets
for purposes other than for the exclusive benefit
of the employees or beneficiaries for
whom an employer maintains a qualified pension plan.
Section 1.401 (a)-2
of the Income Tax Regulations ("Regulations") provides that section
1.401-2, a regulation promulgated prior to Employee Retirement Income Security Act
of

4
201430025
1974 ("ERISA"), provides rules under section 401(a)(2) of the Code and that this
regulation is applicable unless otherwise provided.
Section 1.401-2
of the Regulations provides rules under section 401 (a)(2) of the Code
for the impossibility of diversion under the trust instrument. Section 1.401-2(b)(1) of the
Regulations provides that the intent and purpose
in section 401 (a)(2) of the Code of the
phrase "prior
to the satisfaction
of all liabilities with respect to employees and their
beneficiaries under the trust" is to permit the employer to reserve the right to recover at
the termination
of the trust, and only at such termination, any balance remaining in the
trust which is due to erroneous actuarial computations during the previous life of the
trust. A balance due to an
"erroneous actuarial computation" is the surplus arising
because actual requirements differ from the expected requirements even though the
latter were based upon previous actuarial valuations
of liabilities or determinations of
costs of providing pension benefits under the plan and were made by a person
competent to make such determinations
in accordance with reasonable assumptions
and correct procedures related to the method
of funding.
Section 403 (c)(2)(C)
of ERISA, for which there is no parallel provision in the Code,
provides that the general prohibition against diversion does not preclude the return
of a
contribution made by an employer to a plan if the contribution is conditioned on its
deductibility under section
404 of the Code. The return to the employer of the amount
involved must generally be made within one year
of disallowance of the deduction.
Section 404
of the Code provides for the deduction for contributions of an employer to a
qualified plan.
Section 404(o)(5) provides that for certain terminating plans, the
limitation on the amount deductible under section 404(o)(2) shall in no event be less
than the amount required to make the plan sufficient for benefit liabilities.
Rev. Rul. 91-4, 1991-1 C.B. 57, provides that language providing for a return
of
contributions in the circumstances specified in section 403(c)(2) of ERISA may be
included
in a plan intended to qualify under section 401 of the Code. Thus, plans that
are amended to include language that
allows the return
of a contribution made by an
employer to a plan if the contribution
is conditioned on its deductibility under section 404
of the Code and the deduction is subsequently disallowed, will not fail to satisfy section
401 (a)(2)
of the Code solely as the result of such an amendment.
Rev. Proc. 90-49, 1990-2 C.B. 620, sets forth the procedure whereby, under certain
circumstances, a disallowance
of the deduction of employer contributions to a qualified
defined benefit pension plan may be obtained; thereby, fulfilling a condition under which
such contributions could revert to the employer.
Section 4980(a) of the Code provides for a tax of 20 percent on the amount of any
reversion
of plan assets to the employer from a qualified plan. Section 4980(b) of the
Code provides that the tax imposed by section 4980(a) shall be paid by the employer
maintaining the plan.

5
201430015
Section 4980(c)(2)(A) of the Code defines the term "employer reversion" to mean the
amount of cash and the fair market value of other property received (directly or
indirectly) by an employer from the qualified plan.
Section 4980(c)(2)(8) of the Code provides
in pertinent part that the term "employer
reversion" shall not include (i) except as provided
in Regulations, any amount
distributed to
or on behalf of any employee (or his beneficiaries) if such amount could
have been so distributed before termination
of such plan without violating section 401 of
the Code, or (ii) any distribution to the employer allowable under section 401 (a)(2) of the
Code in the case
of a plan other than a multiemployer plan, by reason of mistake of fact,
or in the case
of any plan, by reason of the failure of the plan to initially qualify or the
failure of the contributions to be deductible.
Analysis
Because. the Plan has received a favorable dete·rmination letter, the Plan has been
determined to be a qualified plan under section
401 (a) of the Code.
A surplus remains in the trust after the Plan satisfied all liabilities with respect to
employees and beneficiaries
of the Plan. This surplus came from two sources.
First, Amount 2 is the
result of the Company contributing Amount 1, which was more
than needed to fully fund the Plan's liability upon the Plan's termination. If the Company
had waited until after the selection
of bids from the insurance companies to make the
contribution,
or if the Company chose a bid from another insurance company that was
slightly higher than the bid from the Insurer, there would have been no surplus.
Nonetheless, Amount 1 falls within the range
of contributions to fully fund the Plan
based on the bids from the insurance companies. Further, facts and circumstances
indicate that the Company had no incentive to contribute more than what was needed to
fully fund the Plan and it is reasonable to conclude that Amount 1 was calculated by an
actuary using reasonable actuarial assumptions. Accordingly, Amount 2 can be
considered the result
of erroneous actuarial computations within the meaning of section
1.401-2(b)(1)
of the Regulations; therefore, the return to the Company of Amount 2 will
not violate section
401 (a)(2) of the Code.
Second, after satisfaction of all Plan liabilities, the Company was informed by the
Insurer that it was entitled to a refund
of premium totaling Amount 3. According to the
Insurer, the refund was the result of revisions to the participant data that was used in
the initial bid specifications provided to the Insurer. Therefore, the Insurer's initial higher
premium bid was based on participant data which was later revised. This caused the
Company to contribute more to the Plan than was ultimately required to satisfy all
of the
Plan's liabilities by purchasing an annuity from the Insurer. Consequently, the revisions
in calculations
by the Insurer were due to the result of an "erroneous actuarial
computation" as described in section 1.401-2 of the Regulations and accordingly may
be returned to the Company.

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201430025
Thus, with respect to your ruling requests, we conclude as follows:
The surplus remaining in the trust equal to Amount 2 plus Amount 3 (Amount 4) is
considered the result
of erroneous actuarial computations within the meaning of section
1.401-2 of the Regulations. The return
of these amounts to the Company will occur
after the satisfaction
of all liabilities with respect to employees and beneficiaries of the
Plan. Accordingly, the return to the Company of Amount 4 will not violate section
401(a)(2)
of the Code.
Further, Rev. Proc. 90-49 sets forth the procedure whereby, under certain
circumstances, a disallowance
of the deduction of employer contributions to a qualified
defined benefit plan may be obtained; thereby fulfilling a condition under which such
contributions
could revert to the employer. Rev. Rul. 91-4 provides that a plan qualified
within the meaning
of section 401 (a) of the Code may contain a provision authorizing
return of employer contributions made because the contribution is not deductible as
provided
in section 403(c)(2}(C) of ERISA. As noted above, the Plan contains such a
provision.
Amount 4 is in excess
of what was required to make the plan sufficient for benefit
liabilities. Therefore, we have determined that Amount 4 may be considered as
disallowed solely for the purpose of applying Rev. Rul. 91-4.
Accordingly, Amount 4 is described in section 4980(c)(2)(B)(ii)
of the Code, and thus the
return to the Company
of Amount 4 does not constitute an employer reversion under
section 4980
of the Code.
Ruling
1. Because the return to the Company of the excess assets remaining in the Plan
will not occur until after the satisfaction
of all liabilities with respect to employees
and beneficiaries under the Plan, the return
of the excess assets up to Amount 4
to the Company
will not violate the exclusive benefit rule
of section 401 (a)(2) of
the Code.
2. Because the excess assets remaining in the Plan exceed the amount that was
required to make the Plan sufficient for benefit liabi~ities and Amount 4 is
disallowed as a deduction solely for the purpose
of applying Rev. Rul. 91-4, it is
not deductible under section 404(o)
of the Code. Therefore, the return of the
excess assets up to Amount 4 to the Company will not constitute an employer
reversion under section 4980 of the Code and will not be subject to the excise ~ax
set forth in section 4980 of the Code.
This ruling only addresses the two issues that we have ruled upon. In particular, we are
not expressing any opinion as to deductibility
of any particular contribution to the Plan
under section 404(a)
of the Code or the effect on taxable filings made outside of the
Plan.

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201430025
This ruling is directed only to the taxpayer that requested it. Section 6110(k)(3) of the
Code provides that it may not be used or cited by others as precedent.
A copy
of this ruling letter is being sent to your authorized representative in accordance
with a power
of attorney on file in this office .
.
If you require further assistance in this matter, please contact
at
Cc:
Sincerely yours,
David
M. Ziegler, Manager
Employee Plans Actuarial Group 2