Rev. Rul. 81-27

1981-1 C.B. 228, 1981-4 I.R.B. 12.

                       Internal Revenue Service
                                 Revenue Ruling

                  PARTIAL TERMINATION; DISSOLUTION OF BUSINESS

                          Published: January 26, 1981

26 CFR 1.411(d)-2: Termination or partial termination; discontinuance of contributions

  Partial termination; dissolution of business. A partial termination of a qualified pension plan occurs within the meaning of section 411(d)(3) of the Code when an employer discharges 95 of 165 plan participants in connection with the dissolution of one division of the employer's business; Rev. Rul. 72-510 superseded.

  The purpose of this revenue ruling is to restate the position in Rev. Rul. 72-510, 1972-2 C.B. 223, in view of the enactment of the Employee Retirement Income Security Act of 1974, Pub. L. 93-406, 1974-3 C.B. 1.

  The issue in Rev. Rul. 72-510 is whether, under the circumstances described below, there has been a partial termination of a qualified, defined benefit pension plan within the meaning of section 411(d)(3) of the Internal Revenue Code.

  The employer established a qualified defined benefit pension plan that covered the employees in the two divisions of its business.  At a time when the plan covered 165 employees, the employer closed down one division.  In connection therewith, the services of 95 participants were terminated.

  Section 411(d)(3) of the Code provides that a trust shall not constitute a qualified trust under section 401(a) unless the plan of which such trust is a part provides that upon partial termination, the rights of all affected employees to benefits accrued to the date of such partial termination, to the extent funded as of such date, are nonforfeitable.  See also section 1.411(d)-2 of the Income Tax Regulations.

  Section 1.411(d)-2(b)(1) of the regulations provides that whether or not a partial termination of a qualified plan occurs (and the time of such event) shall be determined with regard to all the facts and circumstances in a particular case.  Such facts and circumstances include the severance from service with the employer of a group of employees who have previously been covered by the plan.

  In this case, a significant number of employees who had been covered under the employer's pension plan were discharged in connection with the winding up of a part of the employer's business.

  Accordingly, there was a partial termination of the plan within the meaning of section 411(d)(3) of the Code.

  This holding would apply irrespective of whether the significant decrease in participation in the plan was the result of adverse economic conditions or causes within the control of the employer.

  Similar principles also apply to plans described in section 411(e) of the Code.

  Rev. Rul. 72-510 is superseded because the position stated therein is restated under the current law in this revenue ruling.

Rev. Rul. 81-27, 1981-1 C.B. 228, 1981-4 I.R.B. 12.