Rev. Rul. 79-237

This Revenue Ruling provides guidance as to the applicability of the minimum funding standard (section 412 of the Internal Revenue Code of 1954 and section 302 of the Employee Retirement Income Security Act of 1974 (ERISA) [Pub. L. 93-406, 1974-3 C.B. 1, 38]) and the taxes on failure to meet this standard (section 4971 of the Code) to plans that terminate.

Generally the minimum funding standard (including the obligation to make payments to amortize a waived funding deficiency as described in section 412(b)(2)(C) of the Code) applies to a plan until the end of the plan year in which such plan terminates and does not apply to the plan in subsequent plan years. Therefore, the funding standard account (or alternative funding standard account) must be maintained until the end of the plan year in which the plan terminates, even though the termination occurs prior to the last day of the plan year.

The application of the minimum funding standard in the year of termination is different for defined benefit and defined contribution plans. In the case of a defined benefit plan, the charges and credits (other than the credits under section 412(b)(3)(A), (C), (D), 412(c)(6) and the charges and credits under section 412(b)(5)) are ratably adjusted to reflect the portion of the plan year before the plan terminated. In the case of a defined contribution plan, the minimum funding standard charges will reflect the entire amount of any contributions due on or before the date of termination, but no contributions due after that date. For purposes of the preceding sentence, a contribution is due as of the earlier of (1) the date specified in the plan or (2) the date as of which the contribution is required to be allocated.

Section 412(c)(10) of the Code provides that contributions for a plan year made within 21/2 months (with a possible 6-month extension) after the end of the plan year will be deemed made on the last day of the plan year. This extension period for the plan year in which the plan is terminated will not be changed merely because the date of termination precedes the end of the plan year.

Section 4971(a) of the Code provides that a 5% tax will be imposed on an employer in a taxable year on any accumulated funding deficiency as of the end of the plan year ending with or within that taxable year. In the plan year containing the date of plan termination, the plan year will not end merely because the plan is terminated. However, no new plan year will commence after the plan year in which the plan is terminated. Therefore, the 5% penalty tax will be imposed if there is a funding deficiency as of the last day of the plan year in which the plan is terminated but no tax will be imposed for subsequent years.

It should be noted, however, that a termination does not relieve the employer of the obligation to fund the accumulated funding deficiency as of the end of the plan year in which the plan is terminated. If this deficiency is not reduced to zero, the 100% penalty tax imposed by section 4971(b) of the Code will apply.

For purposes of this revenue ruling, in the case of a plan subject to Title IV of ERISA, the date of termination is the date described in section 4048 of ERISA. For all other plans the date of termination will not precede the date on which the actions necessary to effect the termination are taken. A partial termination, within the meaning of section 411(d)(3)(A) of the Code, does not cause the minimum funding standard to cease to apply to the plan.