Accelerating deductions for defined benefit pension contributions.

• Author: Freidin, Howard A.
• Position: Brief Article

Sponsors of defined benefit pension plans may use a tax-saving technique to accelerate the deduction/or plan contributions. This technique involves the interplay between the timing rules for deductions with those applicable to contributions to meet the minimum funding requirements.

Sponsors of defined benefit pension plans are required to make quarterly contributions to meet their plan's minimum funding requirement (Sec. 412(m)). The contributions must be made by the fifteenth day of the fourth, seventh, tenth and thirteenth months after the beginning of the plan year. The required quarterly contribution/or 1992 and later years is 25% of the lesser of --90% of the current year's minimum funding requirement, or --100% of the preceding year's minimum funding requirement (but only ii the preceding year was 12 months long).

A plan sponsor that makes such quarterly contributions is not required, however, to deduct those contributions in the year they are made. The deduction rules in Sec. 404 are independent of the minimum funding rules in Sec. 412 (Regs. Sec. 11.412(c)-12(b)(2)and Rev. Rul. 77-82). Thus, under Sec. 404(a)(6), any quarterly contributions made before the extended due date of the sponsor's tax return for the preceding year may be deducted in the preceding tax year to the...