Employee Plans Compliance Unit (EPCU) - Current Projects - Noncash Contributions |
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Background
The Supreme Court has held in the decision of Commissioner V. Keystone Consolidated Industries, Inc., 508 U.S. 152(1993), that an employer’s contribution of unencumbered property to a defined benefit plan to satisfy the employer’s funding obligation to that plan is a sale or exchange within the meaning of IRC §4975(c)(1)(A) thus, automatically resulting in a prohibited transaction.
The transfer of property to reduce an obligation of the sponsor to the plan would constitute a transfer to reduce an obligation of the employer. In the absence of an applicable exemption, the contribution would be prohibited under Act Sec 406(a)(1)(A) of ERISA and Code §4975(c)(1)(A). The prohibited transaction would exist even if the value of the contribution was in excess of the sponsor’s funding obligation for the plan year in which the contribution is made and not used to reduce the plan’s accumulated funding deficiency for that plan year because the contribution would result in a credit against funding obligations which might arise in the future.
DOL issued DOL Interpretive Bulletin 94-3 dated 12/28/94, which stated their view that, with respect to defined contribution plans, an in-kind contribution to a plan reducing an obligation of a plan sponsor to make a contribution measured in terms of cash amounts would constitute a prohibited transaction under section 406(a)(1)(A) of ERISA and IRC §4975(c)(1)(A) unless a statutory or administrative exemption under section 408 of ERISA or IRC §4975(c)(2) or (d) applies. Accordingly, a non-cash contribution to a money purchase plan would also constitute a prohibited transaction, absent an administrative or statutory exemption.
The value of an item contributed to a plan other than cash is reported on Form 5500 Schedule H or I. Noncash contributions to a plan are required to be valued annually. Schedule H and I ask if the plan received any noncash contributions whose value was neither readily determinable on an established market nor set by an independent third party appraiser. This project will review the plans where an amount is indicated on Schedule H Part II line 2a(2) or Schedule I Part I line 2b.
The Project Process
Schedule H or I is reviewed to determine if noncash contributions have been made to the plan, and if they are appropriately valued. The initial mailing included ESOP plans, however these were eliminated in the second mail out. The initial concern is to verify the validity of noncash contributions to plans.
If You Receive a Letter
Please provide the information requested by the letter. You may also furnish any other documents or clarifying materials that you believe will be helpful for us to review. You should make every effort to answer the letter as accurately as possible.
Responses can be faxed (preferred) or mailed:
Fax: 801-620-3259
Mailing Address: EPCU
2637 N. Washington Blvd.
Ogden, UT 84414
If You Have Questions
Please feel free to e-mail us and we will be glad to answer any questions you have about the project and how it relates to your situation. Please include the “Noncash Contribution” in the Subject line.
Other Resources
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Page Last Reviewed or Updated: March 11, 2009