Legal Alert: IRS Expands Group Trusts


Since 1956, tax-qualified plans have been permitted to pool assets with other qualified plans by investing in a vehicle known as a "group trust," which would itself be exempt from tax as if it formed a part of each of the investing plans, provided that certain relatively innocuous requirements were met. In the fifty-plus years since the issuance of Revenue Ruling 56-267, the rules governing those group trusts have been changed, both by IRS Revenue Rulings and by changes to the Internal Revenue Code, to expand the list of plans that may pool their funds by investing in group trusts.

For example, IRAs, governmental 457(b) plans and certain other governmental funds have been permitted to invest along with plans qualified under section 401(a) of the Code. The IRS has now issued Revenue Ruling 2011-01 (the "Ruling"), which modifies and replaces the currently-applicable authorities (Revenue Ruling 81-100, as modified by Revenue Ruling 2004-67) and adds to the list of authorized investors: (i) Section 403(b)(7) custodial accounts; (ii) Section 403(b)(9) retirement income accounts; (iii) commingled trusts maintained by the Pension Benefit Guaranty Corporation to hold the assets of certain terminated defined benefit plans; and (iv) temporarily, certain Puerto Rican plans, which are not qualified under the U.S. Internal Revenue Code, but which are qualified under Section 1165 of the Puerto Rico Internal Revenue Code, and which had previously invested in a group trust.

These changes are effective beginning January 10, 2011, and are subject to the following requirements being satisfied by the group trust and, if applicable, by the investing entities (each of which is referred to in the Ruling as a "group trust retiree benefit plan")...

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DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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