Treatment of payments made by employer to qualified plans under settlement agreement.

• Author: Meyer, Patrick J.
• Position: Brief Article

A recent development in the qualified retirement plan area has been the payment by plan sponsors to qualified retirement plans of amounts designed to make a plan whole for losses emanating from the sponsor's investment decisions.

In Letter Ruling 9513030, an employer maintained four qualified plans for the benefit of its employees; two were defined contribution plans and two were defined benefit plans. All of the plans invested in contracts of an insurance company that was later taken over by the state in which the insurance company was located. Because the plans were unable to recover the entire value of the insurance contracts, participants of the defined contribution plans brought an action against the employer for mismanaging the plan assets. The employer entered a settlement agreement under which it would make payments, to the defined contribution plans to compensate for the plans' losses. Although the participants of the defined benefit plans did not bring an action against the...