PLR 200552020: Pension contribution return preserves plan qualification

Plain-English summary

A defined benefit pension plan sought permission to return employer contributions for the plan year beginning July 1, 2004. The IRS said contributions of up to $238,394 could be treated as disallowed to the extent they were not deductible, solely for the purpose of applying Rev. Rul. 91-4. Returning no more than that amount within one year of the letter would not harm the plan's qualified status. The letter warned that § 4972 tax would apply if the amount was not returned by the employer's tax filing deadline, including granted extensions. The IRS did not approve the accuracy of the submitted calculations.

Ruling snapshot

• Question: May the plan return up to $238,394 of employer contributions without losing qualified status?
• Outcome: Approved, subject to the stated limits and timing.
• Key authorities: IRC § 4972; Rev. Proc. 90-49; Rev. Rul. 91-4.

Full text (IRS public release)

Significant Index No. 0404.00-00
200552020

DEPARTMENT OF THE TREASURY
INTERNAL REVENUE SERVICE
WASHINGTON, D.C. 20224

TAX EXEMPT AND
GOVERNMENT ENTITIES
DIVISION

OCT 04 2005

SE:T:EP:RA:T2

Re:

This letter is in response to your request with respect to the above-referenced defined benefit pension plan pursuant to Revenue Procedure 90-49 for the plan year commencing July 1, 2004.

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 pension plan may be obtained; thereby, fulfilling a condition under which such contributions could revert to the employer.

Based upon the information submitted, we have determined that contributions amounting to $238,394, which were made for the plan year commencing [redacted] may be considered as disallowed, to the extent that they are not deductible, solely for the purpose of applying Rev. Rul. 91-4, 1991-1 C.B. 57. Therefore, the return of contributions not exceeding $238,394 would not adversely affect the qualified status of the plan, provided this reversion occurs no later than one year from the date of this letter. (However, if it is not returned by your tax filing date, including extensions filed for and granted, the tax under section 4972 would apply.) In granting this approval, we are not expressing any opinion as to the accuracy or acceptability of any calculations or other material submitted with your request.

This ruling is directed only to the taxpayer that requested it. Section 6110(k)(3) of the Internal Revenue Code provides that it may not be used or cited by others as precedent.

200552020

2

When filing Form 5500 for the plan year commencing [redacted] a copy of this letter must be attached to the Schedule B (Actuarial Information). Hence, a copy of this letter should be provided to the enrolled actuary servicing the plan. We have sent a copy of this letter to the Manager, EP Classification in [redacted] to the Manager, EP Compliance Unit in [redacted] to your authorized representative pursuant to a power of attorney on file in this office. If you require further assistance in this matter, please contact

Sincerely yours,

Donna M. Prestia, Manager
Employee Plans Actuarial Group 2