Source: http://www.jdsupra.com/legalnews/irs-finalizes-guidance-on-rev-rul-81-1-46240/
Timestamp: 2017-09-22 07:26:21
Document Index: 628523921

Matched Legal Cases: ['§408', '§501', '§501', '§401', '§403', '§403', '§1', '§1', '§403', '§1', '§403', '§1', '§1', '§457', '§1081', '§404']

IRS Finalizes Guidance on Rev. Rul. 81-100 Group Trusts, and Insurance Company Separate Accounts | Eversheds Sutherland (US) LLP - JDSupra
Situs and structure
Group trust must be created or organized in the U.S. and maintained at all times as a U.S. domestic trust
Eligible plan investors
Section 457(b) governmental plans
Only if group trust limits investments to mutual funds
Section 403(b)(9) retirement income accounts
Section 401(a)(24) governmental plans
Including those providing retiree welfare benefits
Commingled trust funds maintained by PBGC as statutory trustee for terminated tax-qualified plans
Puerto Rico-only qualified plans described in ERISA section 1022(i)(1)
Insurance company separate account limited to the above plans
Separate account must be insulated from claims of the insurer’s general creditors
Each investing plan/IRA must be itself tax-exempt under §408(e) or §501(a) (or treated as tax-exempt under §501(a))
§401(a)(24) governmental plan is treated as meeting this requirement if it is not subject to federal income taxation
Group trust instrument expressly limits trust participation to eligible plan investors.
Group trust instrument expressly limits the assets that may be held by the group trust to assets that are contributed by, or transferred from, an investing plan/IRA to the group trust (and the earnings thereon)
Note that section 403(b)(1) annuities are not yet on the list of permissible plan investors.
Even where allowed by the tax law, investment by IRAs or §403(b) accounts (other than §403(b)(9) retirement income accounts), for example, in certain group trusts may be precluded by securities law or other considerations, depending on the structure of the trust.
There has been substantial prior practice of plans investing in 81-100 group trusts through insurance company separate accounts, which sometimes was expressly provided for in a group trust document approved in the IRS determination letter process. By positioning this point as a clarification, Rev. Rul. 2014-24 appears to endorse that past practice. Any existing arrangements should be reviewed for compliance with the conditions of the updated ruling.
The ruling also appears functionally to ratify the adoption of an 81-100 trust by a Puerto Rico-only qualified plan after the last applicable date authorized in earlier guidance, if any, and prior to publication of the ruling.
Finally, it appears that group trusts admitting Puerto Rico-only qualified plans pursuant to Rev. Rul. 2014-24 will continue to be able to claim U.S. tax treaty benefits for certain types of investment income received by U.S. pension plans from sources resident in the treaty partner, through the IRS Forms 8802/6166 process. Footnote 1, declaring the group trust to be liable for tax (specifically, for unrelated business income tax), appears intended to invoke the pertinent provision in at least most treaties.
Group trust is adopted as a part of each plan or IRA.
For separate accounts, insurance company must enter into a written agreement with the trustees of the group trust consistent with the requirements of Rev. Rul. 2011-1; transition relief is provided until January 1, 2016, if plans are invested in the group trust through a separate account as of December 8, 2014.
Group trust instrument must prohibit the assignment by a participating plan/IRA of any part of its equity or interest in the group trust.
Group trust instrument prohibits violation of exclusive benefit rule
Using the assets of one investing plan to provide benefits under another plan is a violation, even if the benefited participant or beneficiary is the same person
Each participating plan/IRA expressly and irrevocably prohibits in its governing document violation of the exclusive benefit rule
Plans that satisfy Treas. Reg. §1.401(a)-2 (for qualified plans), §1.403(b)-8(d)(2)(iii) (for §403(b)(7) custodial accounts), §1.403(b)- 9(a)(2)(i)(C) (for §403(b)(9) retirement income accounts), §1.408-2(b) (for IRAs), and §1.457- 8(a)(2)(i) (for §457(b) governmental plans) are deemed to comply
With respect to Puerto Rico-only qualified plans, Rev. Rul. 2014-24 notes the applicability of comparable requirements under §1081.1(a)(2) of the Puerto Rico tax code and ERISA §404(a)(1)(A).
Either loan or other extension of credit from assets in the group trust to employer, or use of assets of participating plan/IRA to provide benefits under another participating plan even if the benefitting participant or beneficiary is the same person, violates this rule
__Separate accounting
Group trust instrument expressly provides for separate accounting (and appropriate records) to be maintained to reflect the interest of each investing plan/IRA, including separate accounting for contributions to the group trust, disbursements made from the group trust, and investment experience of the group trust allocable to that account.
Transaction or accounting method which has the effect of directly or indirectly transferring value from the account of one investing plan into the account of another investing plan violates this requirement.
Transaction that merely exchanges investments at fair market value between the accounts of one investing plan to another account of that investing plan does not violate this requirement