CLLA NEWSWIRE | FROM THE CLLA NEWSWIRE

Plan Sponsors in Bankruptcy Could Get Anti-Cutback Exception Under IRS Proposal

David Goch, Washington Legislative Counsel | July 02, 2012

On June 20, 2012, the IRS issued proposed regulations (REG-113738-12) that would provide a limited exception to anti-cutback rules, allowing a plan sponsor that is a debtor in a bankruptcy proceeding to amend its single-employer pension plan to eliminate a lump-sum distribution option in some cases.

• The proposed regulations allow an amendment to eliminate a lump-sum distribution option, or other optional accelerated payments, if the following four conditions are met: 
• The plan's actuary has certified for the plan year for which the amendment is being sought that the plan's adjusted funding target attainment percentage is less than 100%;
• The plan is not permitted to make a “prohibited payment” (a payment in excess of the monthly amounts payable under a single life annuity) because the plan sponsor is a bankruptcy case debtor;
• The bankruptcy court handling the case has issued an order stating that the adoption of the amendment is necessary to avoid a distress termination or an involuntary termination of the plan prior to completion of the bankruptcy case; and
• The PBGC has issued a determination that the amendment is necessary to avoid a distress or involuntary termination of the plan prior to completion of the bankruptcy case and that the plan assets are insufficient to cover all PBGC-guaranteed benefits.

The proposal is available in the June 21, 2012, Federal Register with an August 20 2012, comment deadline. The IRS has also scheduled a public hearing on the proposed regulation for August 24, 2012, at IRS headquarters.

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