Surplus pension assets can't be used for replacement matching contributions, IRS rules

Surplus assets from a terminating pension plan cannot be used for matching contributions under a defined contribution (DC) replacement plan, according to two recent IRS letter rulings. Transferring surplus to a DC plan has been a common way for pension plan sponsors to avoid the reversion excise tax. The rulings, which say transferred amounts must be allocated as a nonelective contribution rather than a match, reflect a change in IRS position that might catch some employers by surprise. The IRS says the result is compelled by regulations redefining the term "matching contributions."   (Select News, 11 Sep 2008)

• Full text of PLR 200836034 (IRS, released 5 Sep 2008)
• Full text of PLR 200836035 (IRS, released 5 Sep 2008)

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