Please help resolve a disagreement in our office. One person believes that the determination of whether a plan termination occurred due to a significant reduction in future benefit accruals (a "horizontal partial termination")only affects DB plans. Another believes this determination could also affect DC plans.

For example: If a money purchase or target benefit plan is amended to reduce the contribution formula (say from 10% to 5%), one person believes there is the possibility that the IRS would consider this a partial plan termination. The person's analysis states that this would occur if the potential for a reversion of assets to the employer (i.e. future forfeitures exceed future contributions) increases.

Each person has reviewed IRS Reg. 1.411(d)-2(B) and various court cases.

Which person do you think is correct?

I'll try. (Aren't you surprised?)

Reg 1.411(d)-2(B)(2) addresses a specific situation involving DB plans: where the reduction in future accruals will (or potentially could) increase a reversion to the plan sponsor(s). Notice the word "if" at the beginning of that paragraph. My read of this paragraph is that if the reduction in future accruals has no effect on a reversion (or possibly only a trivial effect, although that is not stated), then there is no partial termination. But don't miss the last sentence of this paragraph, that opens the door to a partial termination for other reasons. Also notice the all-important phrase "facts and circumstances".

I'm not sure that a money purchase plan would have a potential for reversion of assets.



[This message has been edited by pax (edited 03-01-2000).]

It could be argued that a money purchase plan, in essence, does have the potential for a "reversion" if forfeitures are used to reduce future employer contributions.