District Court says indirect transfer to new plan results in reversion under pre-RRA rules.

• Author: Amoroso, Vincent
• Position: Brief Article

A U.S. district court has rejected a magistrate's finding that, under rules issued prior to the Revenue Reconciliation Act of 1990 (RRA), an employer was entitled to a partial refund of Sec. 4980 reversion excise taxes when, after receiving a distribution from a terminated pension plan, the employer contributed part of the proceeds to a new profit-sharing plan (Southern Aluminum Castings Co., DC Ala., 1991).

After terminating its pension plan in June 1988, Southern Aluminum Castings Co. discovered that it had overfunded the plan by approximately $225,000. The company accepted a check refunding its overpayment, filed a reversion excise tax return and paid a 10% excise tax of $22,500. Two months later, the company transferred $100,000 to a qualified profit-sharing plan it had established to replace the pension plan - and then filed for a $10,000 refund of the excise taxes it had paid, claiming that the $100,000 transfer should reduce the reversion by $100,000.

A magistrate for the U.S. District Court in Alabama found that the $100,000 transferred indirectly to the replacement plan was not an employer reversion, citing Sec. 4980(c)(2)(B)(i), which provides that a reversion does not include any amount distributed to or on behalf of any employee if that amount could have been so distributed...