2009 FIRMA Conference Pension Protection Act – Current Operational Issues Worker, Retiree and Employer Recovery Act of 2008 Revenue Ruling “Purchasing Pension Plans” John F. LeBlond, Esq ·

Funded Status Companies in the S&P 1500: 12/31/07 1/30/09 Surplus/Deficit+$60 billion– $380 billion Funded Ratio104%75%

Adjusted Funding Target Attainment Percentage AFTAP <80% Plan Amendment increasing benefitsNo Accelerated Payments Restricted to lesser (lump sum)of 50% of benefit or PBGC guarantee ($627,509 at age 65)* Ongoing benefit accrualsYes Unpredictable contingent events benefitsYes *PBGC Technical Update 07-4 and 2009 Table of Maximum Guarantee

Adjusted Funding Target Attainment Percentage AFTAP <60% Plan Amendment increasing benefitsNo Accelerated Payments (lump sum)No Ongoing benefit accrualsNo Unpredictable contingent events benefitsNo

Unpredictable Contingent Event Description An unpredictable contingent event benefit means any benefit or increase in benefits to the extent the benefit or increase would not be payable but for the occurrence of an unpredictable contingent event. For this purpose, an unpredictable contingent event means a plant shutdown (whether full or partial) or similar event, or an event other than the attainment of any age, performance of any service, receipt or derivation of any compensation, or the occurrence of death or disability.

Unpredictable Contingent Event Description (cont’d) Thus, for example, if a plan provides for an unreduced early retirement benefit upon the occurrence of an event other than the attainment of any age, performance of any service, receipt or derivation of any compensation, or the occurrence of death or disability, then that unreduced early retirement benefit is an unpredictable contingent event benefit to the extent of any portion of the benefit that would not be payable but for the occurrence of the event, even if the remainder of the benefit is payable without regard to the occurrence of the event.

AFTAP Presumptions Apply until actuarial certification  First 4 months –Prior Year Carryover  End of 4 th month –Prior Year less 10%  1 st day of 10 th month –AFTAP < 60% All limitations apply

WRERA  Asset smoothing  Target normal cost  increased by expenses  decreased by employee contributions  $5,000 cashout permitted even if accelerated payment limitation in effect  Required minimum distributions waived (2009 only)

Revenue Ruling Transaction Diagram Corporation ACorporation C DB Plan Pre-Transaction

Revenue Ruling Transaction Diagram Corporation ACorporation C Step 1 Subsidiary B DB Plan [cash and securities]

consideration Revenue Ruling Transaction Diagram Corporation ACorporation C Step 2 Subsidiary B DB Plan 80+% <20%

Analysis “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 rules 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.”

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.