August 07, 2008
Retirement Plan Transfer Disallowed Under Section 401(a)
Filed under: News
Vision Payroll

In Rev. Rul. 2008-45, the IRS ruled that the transfer of the sponsorship of a retirement plan from an employer to an unrelated entity when not connected “with a transfer of business assets, operation, or employees” is a violation of the exclusive benefit rule of §401(a). The plan would no longer be maintained by an employer for its employees since the transfer was to an entity that did not employ the plan participants. The IRS also announced that it was proposing a framework for legislation that would allow transfers of so-called frozen plans, “provided certain conditions are met.” The requirements proposed by the IRS are:

  • Plan participants, their representatives, and ERISA regulators would be required to receive advance notice of a plan transfer, and the parties to the transaction would be required to provide regulators information necessary to review and approve the proposed transaction.
  • Only financially strong entities in well-regulated sectors would be permitted to acquire a pension plan in a plan transfer transaction.
  • The parties to the transaction would be required to demonstrate that participants’ benefits and the pension insurance system would be exposed to less risk as a result of the transfer, and that the transfer would be in the best interests of the participants and beneficiaries.
  • Limitations on transfers would be imposed to limit undue concentration of risk.
  • Transferees and members of their controlled groups would assume full responsibility for the liabilities of transferred plans and would comply with post-transaction reporting and fiduciary requirements.
  • Subsequent transfer transactions would be subject to the rules applicable to original transfer transactions.


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