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Treasury, IRS Pension Plan Liability Buyouts Illegal

August 7, 2008
Pension plan liability buyouts are illegal under existing U.S. law, according to the Department of Treasury and the IRS.

“A transfer of a tax-qualified pension plan from an employer to an unrelated taxpayer when the transfer is not connected with a transfer of significant business assets, operations, or employees, is not permissible under current law,” the Treasury Department said Wednesday, August 6, in a news release announcing the IRS revenue ruling.

However, the Treasury outlined a series of proposed guidelines developed with the Labor and Commerce departments as well as the Pension Benefit Guaranty Corp. for any federal legislation that would clear the way for buyouts of frozen plans.

One key guideline would include a demonstration “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 in the best interests of the participants and beneficiaries,” the news release said.

“If done right, pension plan transfers would be a very good thing,” Charles E.F. Millard, director of the Pension Benefit Guaranty Corp., said in a separate statement. “Some changes to current law will be necessary, and the principles set forth by the administration … today are sign posts that clearly mark the way. We hope Congress will act on legislation to permit transfers that strengthen pension plans.”

Rep. Earl Pomeroy, D-North Dakota, said legislation wasis unlikely as long as Democrats control Congress.

“Democratic majorities are highly skeptical of pension buyouts,” he said in a news release, adding that he was concerned the transfers of frozen plans might hurt plan participants. “I do not anticipate legislation authorizing them, period.”

This story was filed by Doug Halonen of Pensions & Investments, a sister publication of Workforce Management.