80. Exclusive benefit

Statement of Requirement: IRC 401(a)(2), Rev. Rul. 91-4

Document Provision: _____

Sample Plan Language:

The corpus or income of the trust or custodial account may not be diverted to or used for other than the exclusive benefit of the participants or their beneficiaries.

If plan benefits are provided through the distribution of annuity or insurance contracts, any refunds or credits in excess of plan benefits (on account of dividends, earnings, or other experience rating credits, or surrender or cancellation credits) will be paid to the trust or custodial account.

If upon plan termination all plan liabilities are satisfied, any excess assets arising from erroneous actuarial computation will revert to the employer.

(Note to reviewer: For transfers made after the enactment of the SECURE 2.0 Act (12/29/2022), section 606 of the SECURE 2.0 Act amended IRC 420 to require a plan amendment in order to extend the availability of qualified transfers of excess pension assets from a defined benefit plan to a retiree health account through 2032, instead of 2025. IRC 420, as amended, also provides a de minimis transfer rule, under which a plan may make such transfers to pay retiree health and life insurance benefits if the transfer is no more than 1.75 percent of plan assets and, using a two-year lookback, the plan is at least 110% funded (instead of 125% funded). The cost maintenance period is also extended to seven years.)

(Note to reviewer: All plans that have trusts (including top-heavy sidefund trusts) or custodial accounts (whether fully-insured IRC 412(e)(3) plans or other plans funded only with insurance contracts) must include the above language. Trusteed plans that are designated as fully insured must also include LRM #87. Fully-insured nontrusteed plans must use LRM #87 in lieu of this LRM #80. Section 412(e)(3) plans with top-heavy sidefund trusts must include LRM #80 and #87.)

Any contribution made by the employer because of a mistake of fact must be returned to the employer within one year of the contribution.

In the event the deduction of a contribution made by the employer is disallowed under IRC 404, such contribution (to the extent disallowed) must be returned to the employer within one year of the disallowance of the deduction.

In the event that the Commissioner of Internal Revenue determines that the plan is not initially qualified under the Internal Revenue Code, any contribution made incident to that initial qualification by the employer must be returned to the employer within one year after the date the initial qualification is denied, but only if the application for the qualification is made by the time prescribed by law for filing the employer's return for the taxable year in which the plan is adopted, or such later date as the Secretary of the Treasury may prescribe.