"Restoration payments" are payments made by employers who sponsor retirement plans, and by the fiduciaries for those plans, to "restore" investment losses due to alleged fiduciary breaches. The IRS has recognized that restoration payments are permissible in certain circumstances in a number of private letter rulings, most of which are reproduced below. Issues to be considered in the making of restoration payments are:

• Is there an actual or threatened claim against the employer or the plan fiduciaries?
• Who is ultimately responsible for the financial loss and thus responsible for the restoration?
• Is the restoration payment deductible? If so, under what Code section and subject to what, if any, limits?
• Which types of losses may be restored?
• How is the restoration payment allocated? Must the plan document provide for that methodology? Is that allocation subject to the Code section 415 limits?
• Must earnings be credited on the lost principal amount? If so, how are those earnings calculated?

• Revenue Ruling 2002-45

Private Letter Rulings

• PLR 200147056
• PLR 200137065
• PLR 200137064
• PLR 9935073
• PLR 9830022
• PLR 9824041
• PLR 9822043
• PLR 9807028
• PLR 9746039
• PLR 9727026
• PLR 9628031
• PLR 9601038
• PLR 9528034
• PLR 9513030
• PLR 9507030
• PLR 9506048
• PLR 9506030

DOL Prohibited Transaction Exemptions

• Proposed Prohibited Transaction Exemption for Van Ness Plastic Molding Co., Inc. Employees' Money Purchase Pension Plan (6-29-98)
• Final Prohibited Transaction Exemption 98-42 for Van Ness Plastic Molding Co., Inc. Employees' Money Purchase Pension Plan (8-24-98)

Articles

The Do and Don'ts of Restoration Payments by Fred Reish and Bruce Ashton