WASHINGTON — Pension plan liability buyouts are illegal under existing U.S. law, Department of Treasury and IRS officials said on Aug. 6.
“A transfer of a tax-qualified pension plan from an employer to an unrelated taxpayer when the transfer is not connected with a transfer of significant business assets, operations or employees, is not permissible under current law,” the Treasury Department said in a news release announcing the Internal Revenue Service ruling.
However, the release outlined a series of proposed guidelines developed with the Labor and Commerce departments as well as the Pension Benefit Guaranty Corp. for any federal legislation that would clear the way for buyouts of frozen plans.
One key guideline would include a demonstration “that participants' benefits and the pension insurance system would be exposed to less risk as a result of the transfer, and that the transfer would in the best interests of the participants and beneficiaries,” according to the news release.
“If done right, pension plan transfers would be a very good thing,” Charles E.F. Millard, director of the PBGC, said in a separate statement. “Some changes to current law will be necessary, and the principles set forth by the administration today are signposts that clearly mark the way. We hope Congress will act on legislation to permit transfers that strengthen pension plans.”
Rep. Earl Pomeroy, D-N.D., said legislation is unlikely as long as Democrats control Congress.
"Democratic majorities are highly skeptical of pension buyouts," Mr. Pomeroy said in a news release, adding that he was concerned that the transfers of frozen plans might hurt plan participants. "I do not anticipate legislation authorizing them, period."
