rr-08-45.pdf

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Part I – Rulings and Decisions Under the Internal Revenue Code of 1986
Section 401. -– Qualified Pension, Profit-sharing, and Stock Bonus Plans
26 CFR 1.401-1: Qualified pension, profit-sharing, and stock bonus plans.
(Also, § 414.)
Rev. Rul. 2008-45
ISSUE
Is the exclusive benefit rule of § 401(a) of the Internal Revenue Code (“Code”)
violated if the sponsorship of a qualified retirement plan is transferred from an employer
to an unrelated taxpayer and the transfer of the sponsorship of the plan is not in
connection with a transfer of business assets, operations, or employees from the
employer to the unrelated taxpayer?
FACTS
Corporation A maintains an underfunded defined benefit plan with no ongoing
accrual of benefits. Corporation A transfers sponsorship of the plan to Subsidiary B, a
wholly-owned subsidiary of Corporation A. Subsidiary B does not maintain any trade or
business, has no employees, and has nominal assets. As part of the transfer, the plan
document is amended to substitute Subsidiary B as the plan sponsor and to provide for
Subsidiary B to assume Corporation A’s responsibilities under the plan.
In connection with the transfer of the plan sponsorship, Corporation A also
transfers cash and marketable securities to Subsidiary B. The amount of the
transferred assets is equal to the amount of the plan’s underfunding, as determined with
reference to specified actuarial assumptions, plus an additional margin.
Shortly after the sponsorship of the plan and these assets are transferred to
Subsidiary B, ownership of at least 80% of Subsidiary B’s stock is transferred to

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Corporation C, an unrelated corporation. After this transaction, Subsidiary B is no
longer a member of the Corporation A controlled group, within the meaning of
§ 414(b) of the Code, but instead is a member of the Corporation C controlled group.
The transaction is not in connection with the transfer of business assets (other than
cash or marketable securities transferred to Subsidiary B), operations, or employees
from Corporation A’s controlled group to Corporation C’s controlled group. The only
business risk or opportunity in the transaction for Corporation C is to profit from the
acquisition and operation of the plan.
LAW
Section 401(a) provides that, in order to be qualified under that section, a stock
bonus, pension, or profit-sharing plan of an employer must be for the exclusive benefit
of its employees or their beneficiaries. Consistent with this exclusive benefit rule of
§ 401(a), § 1.401-1(a)(2)(i) of the Income Tax Regulations provides, in part, that a
qualified pension plan is a definite written program and arrangement which is
established and maintained by an employer to provide for the livelihood of employees or
their beneficiaries after the retirement of the employees. Similarly, § 1.401-1(a)(3)(ii)
requires that a qualified plan be established by an employer for the exclusive benefit of
its employees or their beneficiaries in order to be qualified.
Section 414(a) provides that, in the case in which the employer maintains a plan
of a predecessor employer, service for such predecessor is treated as service for the
employer.
Section 414(b) provides that, for specified purposes, including § 401, all
employees of all corporations which are members of a controlled group of corporations

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are treated as employed by a single employer.
ANALYSIS
Unlike other situations where the sponsorship of a plan is transferred in
connection with the acquisition of business assets or operations, Subsidiary B does not
maintain a business and its assets only compensate Corporation C for assuming
Corporation A’s responsibility under the plan to make contributions to the plan.
Therefore, any profit or loss to Corporation C resulting from the transaction would be
solely from the use of the assets that are transferred to its controlled group in
connection with the acquisition and operation of the plan.
In accordance with § 414(b), all employees of all corporations which are
members of a controlled group of corporations are treated as employed by a single
employer. Accordingly, even though Subsidiary B has no employees of its own, it is
treated as an employer with respect to the employees of the Corporation A controlled
group while it is part of that controlled group. For purposes of the exclusive benefit rule
of § 401(a), however, Subsidiary B will no longer be treated as an employer with respect
to the employees of the Corporation A controlled group when it is no longer a member
of that controlled group.
This result is not affected by § 414(a). Section 414(a) provides that if an
employer maintains a plan of a predecessor employer, then service for such
predecessor is treated as service for the employer. By its terms, § 414(a) applies only
to an “employer” and does not create employer status for a taxpayer that is not
otherwise an employer.
Accordingly, when Subsidiary B is no longer a member of the Corporation A

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controlled group, the plan does not satisfy the exclusive benefit rule of § 401(a) because
it is not maintained by an employer to provide retirement benefits for its employees and
their beneficiaries. This conclusion would be the same even if the new controlled group
has some employees covered by the plan after the transaction, or some business
assets or operations are transferred, where substantially all the business risks and
opportunities under the transaction are those associated with the transfer of the
sponsorship of the plan.

HOLDING
The exclusive benefit rule of § 401(a) is violated if the sponsorship of a qualified
retirement plan is transferred from an employer to an unrelated taxpayer and the
transfer of the sponsorship of the plan is not in connection with a transfer of business
assets, operations, or employees from the employer to the unrelated taxpayer.
This ruling does not address any federal income tax consequences other than
those specifically addressed herein.
DRAFTING INFORMATION

The principal author of this revenue ruling is Robert M. Walsh of the Employee
Plans, Tax Exempt and Government Entities Division. For further information regarding
this revenue ruling, please call the Employee Plans taxpayer assistance number
between 8:30 a.m. and 4:30 p.m. Eastern time, Monday through Friday at (877) 829-
5500 (a toll-free number) or email Mr. Walsh at RetirementPlanQuestions@irs.gov
.