If a spinoff occurs from a DB plan, is there a problem if the spun-off plan then terminates?

My understanding has been that the answer to the question is yes, because of the non-permanency issue. For that reason, if one company maintains the whole plan, it would be better to spin off the part they want to keep, then terminate the original plan.

However, of course, often this is not feasible, possibly because one company does not maintain the whole plan.

But whatever understanding I have of this matter comes from many years ago, and I am not sure it is correct. Any help would be appreciated.

I think - and, then, my knowledge is dated here - that the funded status of the spun-off and terminated plan matters. I think that, if there is a surplus, you are required to pro-rate the surplus between the two plans. Then, if the spun-off plan terminates, there is a potential reversion with all of the disadvantages thereof. If anyone has more up-to-date experience with this, I would appreciate hearing about it.

Carol Caruthers

I'm not sure of exactly the situation you have and I haven't looked at it in quite awhile but years ago the IRS/PBGC/DOL issued some joint implementation guidelines that related to, among other things, a spinoff followed by a termination of the spinoff plan. Might want to look into them to see if they have any application to this situation.

Worksheet 15 PBGC, Treasury and DOL Joint Implementation Guidelines on Asset Reversions in Plan Terminations 5-23-1984