IRS no longer issuing certain retirement rulings

 

The IRS recently announced in Rev. Proc. 2022-28 that it would no longer issue letter rulings on whether an employer reversion from a qualified retirement plan occurs for purposes of Section 4980(c)(2) in connection with a spin-off/termination transaction that involves excess plan assets.

For this purpose, a “spin-off/termination transaction that involves excess assets” means a transaction in which:

  • Less than 100% of the assets of a defined benefit pension plan are spun off to another defined benefit pension plan sponsored or maintained by the same employer (or in a group of employers treated as a single employer)
  • The defined benefit plan receiving the assets that have been spun off is terminated within a short period of time after receiving those assets
  • Assets remain in the trust of the terminated defined benefit plan after all benefits are distributed to or on behalf of all participants and their beneficiaries


Section 4980 generally imposes an excise tax of up to 50% on the amount of any employer reversion from a qualified retirement plan. An employer reversion is generally defined as the amount of cash and the fair market value of other property received (directly or indirectly) by an employer from a qualified retirement plan.

This announcement makes these spin-off/termination transactions a “no-rule” area. These areas are prescribed annually by the IRS in the third revenue procedure of the year—currently Rev. Proc. 2022-3. This change applies to all ruling requests pending with or received by the IRS on or after June 21, 2022. Any requests pending as of that date will be closed and the user fee will be returned in full.

 

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