[Code of Federal Regulations]
[Title 26, Volume 5]
[Revised as of April 1, 2004]
From the U.S. Government Printing Office via GPO Access
[CITE: 26CFR1.411(d)-2]

[Page 620-622]
 
                       TITLE 26--INTERNAL REVENUE
 
    CHAPTER I--INTERNAL REVENUE SERVICE, DEPARTMENT OF THE TREASURY 
                               (CONTINUED)
 
PART 1_INCOME TAXES--Table of Contents
 
Sec. 1.411(d)-2  Termination or partial termination; discontinuance 
of contributions.

    (a) General rule--(1) Required nonforfeitability. A plan is not a 
qualified plan (and a trust forming a part of such plan is not a 
qualified trust) unless the plan provides that--
    (i) Upon the termination or partial termination of the plan, or
    (ii) In addition, in the case of a plan to which section 412 
(relating to minimum funding standards) does not apply, upon the 
complete discontinuance of contributions under the plan,

the rights of each affected employee to benefits accrued to the date of 
such termination or partial termination (or, in the case of a plan to 
which section 412 does not apply, discontinuance), to the extent funded, 
or the rights of each employee to the amounts credited to his account at 
such time, are nonforfeitable (within the meaning of Sec. 1.411(a)-4.

[[Page 621]]

    (2) Required allocation. (i) A plan is not a qualified plan (and a 
trust forming a part of such plan is not a qualified trust) unless the 
plan provides for the allocation of any previously unallocated funds to 
the employes covered by the plan upon the termination or partial 
termination of the plan (or, in the case of a plan to which section 412 
does not apply, upon the complete discontinuance of contributions under 
the plan). Such provision may be incorporated in the plan at its 
inception or by an amendment made prior to the termination or partial 
termination of the plan for the discontinuance of contributions 
thereunder. In the case of a defined contribution plan under which 
unallocated forfeitures are held in a suspense account in order to 
satisfy the requirements of section 415, this subdivision shall not 
require such plan to provide for allocations from the suspense account 
to the extent that such allocations would result in annual additions to 
participants' accounts in excess of amounts permitted under section 415 
for the year for which such allocations would be made.
    (ii) Any provision for the allocation of unallocated funds which is 
found by the Secretary of Labor or the Pension Benefit Guaranty 
Corporation (whichever is appropriate) to satisfy the requirements of 
section 4044 or section 403(d)(1) of the Employee Retirement Income 
Security Act of 1974 is acceptable if it specifies the method to be used 
and does not conflict with the provisions of section 401(a)(4) of the 
Internal Revenue Code of 1954 and the regulations thereunder. Any 
allocation of funds required by paragraph (1), (2), (3), or (4)(A) of 
section 4044(a) of such Act shall be deemed not to result in 
discrimination prohibited by section 401(a)(4) of the Code (see, 
however, paragraph (e) of this section). Notwithstanding the preceding 
sentence, in the case of a plan which establishes subclasses or 
categories pursuant to section 4044(b)(6) of such Act, the allocation of 
funds by the use of such subclasses or categories shall not be deemed 
not to result in discrimination prohibited by the Code. The allocation 
of unallocated funds may be in cash or in the form of other benefits 
provided under the plan. However, the allocation of the funds 
contributed by the employer among the employees need not necessarily 
benefit all the employees covered by the plan.
    (iii) Paragraphs (a)(2) (i) and (ii) of this section do not require 
the allocation of amounts to the account of any employee if such amounts 
are not required to be used to satisfy the liabilities with respect to 
employees and their beneficiaries under the plan (see section 
401(a)(2)).
    (b) Partial termination--(1) General rule. Whether or not a partial 
termination of a qualified plan occurs (and the time of such event) 
shall be determined by the Commissioner with regard to all the facts and 
circumstances in a particular case. Such facts and circumstances 
include: the exclusion, by reason of a plan amendment or severance by 
the employer, of a group of employees who have previously been covered 
by the plan; and plan amendments which adversely affect the rights of 
employees to vest in benefits under the plan.
    (2) Special rule. If a defined benefit plan ceases or decreases 
future benefit accruals under the plan, a partial termination shall be 
deemed to occur if, as a result of such cessation or decrease, a 
potential reversion to the employer, or employers, maintaining the plan 
(determined as of the date such cessation or decrease is adopted) is 
created or increased. If no such reversion is created or increased, a 
partial termination shall be deemed not to occur by reason of such 
cessation or decrease. However, the Commissioner may determine that a 
partial termination of such a plan occurs pursuant to subparagraph (1) 
of this paragraph for reasons other than such cessation or decrease.
    (3) Effect of partial termination. If a termination of a qualified 
plan occurs, the provisions of section 411(d)(3) apply only to the part 
of the plan that is terminated.
    (c) Termination--(1) Application. This paragraph applies to a plan 
other than a plan described in section 411(e)(1) (relating to 
governmental, certain church plans, etc.).
    (2) Plans subject to termination insurance. For purposes of this 
section, a plan to which title IV of the Employee Retirement Income 
Security Act of

[[Page 622]]

1974 applies is considered terminated on a particular date if, as of 
that date--
    (i) The plan is voluntarily terminated by the plan administrator 
under section 4041 of the Employee Retirement Income Security Act of 
1974, or
    (ii) The Pension Benefit Guaranty Corporation terminates the plan 
under section 4042 of the Employee Retirement Income Security Act of 
1974.

For purposes of this subparagraph, the particular date of termination 
shall be the date of termination determined under section 4048 of such 
Act.
    (3) Other plans. In the case of a plan not described in paragraph 
(c)(2) of this section, a plan is considered terminated on a particular 
date if, as of that date, the plan is voluntarily terminated by the 
employer, or employers, maintaining the plan.
    (d) Complete discontinuance--(1) General rule. For purposes of this 
section, a complete discontiuance of contributions under the plan is 
contrasted with a suspension of contributions under the plan which is 
merely a temporary cessation of contributions by the employer. A 
complete discontinuance of contributions may occur although some amounts 
are contributed by the employer under the plan if such amounts are not 
substantial enough to reflect the intent on the part of the employer to 
continue to maintain the plan. The determination of whether a complete 
discontinuance of contributions under the plan has occurred will be made 
with regard to all the facts and circumstances in the particular case, 
and without regard to the amount of any contributions made under the 
plan by employees. Among the factors to be considered in determining 
whether a suspension constitutes a discontinuance are:
    (i) Whether the employer may merely be calling an actual 
discontinuance of contributions a suspension of such contributions in 
order to avoid the requirement of full vesting as in the case of a 
discontinuance, or for any other reason;
    (ii) Whether contributions are recurring and substantial; and
    (iii) Whether there is any reasonable probability that the lack of 
contributions will continue indefinitely.
    (2) Time of discontinuance. In any case in which a suspension of a 
profit-sharing plan maintained by a single employer is considered a 
discontinuance, the discontinuance becomes effective not later than the 
last day of the taxable year of the employer following the last taxable 
year of such employer for which a substantial contribution was made 
under the profit-sharing plan. In the case of a profit-sharing plan 
maintained by more than one employer, the discontinuance becomes 
effective not later than the last day of the plan year following the 
plan year within which any employer made a substantial contribution 
under the plan.
    (e) Contributions or benefits which remain forfeitable. Under 
section 411 (d) (2) and (3), section 411(a) and this section do not 
apply to plan benefits which may not be provided for designated 
employees in the event of early termination of the plan under provisions 
of the plan adopted pursuant to regulations prescribed by the Secretary 
or his delegate to preclude the discrimination prohibited by section 
401(a)(4). Accordingly, in such a case, plan benefits may be required to 
be reallocated without regard to this section. See Sec. 1.401-4(c).

(Sec. 411 (88 Stat. 901; 26 U.S.C. 411))

[T.D. 7501, 42 FR 42339, Aug. 23, 1977]