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paid. An employee (who is not a

employer does not (1) establish or

1. Any person subject to liability for

5-percent owner) who has

maintain a qualified replacement plan

the tax did not know that the failure

compensation in excess of $90,000 is

following the plan termination or (2)

existed and exercised reasonable

not a highly compensated employee if

provides certain pro-rata benefit

diligence to meet the notice

the employer elects the top-paid group

increases in connection with the plan

requirement. A person is considered to

limitation and the employee is not a

termination. See section 4980(d)(1)(A)

have exercised reasonable diligence,

member of the top-paid group.

or (B) for more information.

but did not know the failure existed,

only if:

The “excess contributions” subject to

If you owe the section 4980 tax,

the section 4979 excise tax are equal to

a. The responsible person exercised

enter the date of the reversion on line

the amount by which employer

reasonable diligence in attempting to

34 and the reversion amount and

contributions actually paid over to the

deliver section 204(h), notice to

applicable excise tax rate on line 35. If

trust exceed the employer contributions

you use a tax percentage other than

applicable individuals by the latest date

that could have been made without

50%, explain on line 37 why you qualify

permitted. Generally, the section 204(h)

violating the special nondiscrimination

to use a rate other than 50%.

notice must be provided at least 45

requirements of section 401(k)(3).

days before the effective date the

Part XIV (Section 4980F)

The “excess aggregate

section 204(h) amendments take effect.

contributions” subject to the section

For exceptions to this rule see Treas.

Tax on Failure to Provide

4979 excise tax are equal to the

Reg. 54.4980F-1, Q&A 9.

amount by which the aggregate

Notice of Significant Reduction

b. At the latest date permitted for

matching contributions of the employer

in Future Accruals

delivery of section 204(h) notice, the

and the employee contributions (and

person reasonably believes that section

Section 4980F imposes on an employer

any qualified nonelective contribution or

204(h) notice was actually delivered to

(or, in the case of a multiemployer plan,

elective contribution taken into account

each applicable individual by that date.

the plan) an excise tax of $100 per day

in computing the contribution

per each applicable individual and each

2. Any person subject to liability for

percentage under section 401(m))

employee organization representing

the tax exercised reasonable diligence

actually made on behalf of the highly

participants who are applicable

to meet the notice requirement and

compensated employees for each plan

individuals for each day of the

corrects the failure within 30 days after

year exceed the maximum amount of

noncompliance period for the failure to

the employer (or other person

the contributions permitted in the

give notice of plan amendments that

responsible for the tax) knew, or

contribution percentage computation

provide for a significant reduction in the

under section 401(m)(2)(A).

exercising reasonable diligence would

rate of future benefit accrual or the

have known, that the failure existed.

However, there is no excise tax

elimination or significant reduction of an

liability if the excess contributions or the

If the person subject to liability for

early retirement benefit or

excess aggregate contributions and any

the excise tax exercised reasonable

retirement-type subsidy. This notice is

income earned on the contributions are

diligence to meet the notice

called “section 204(h) notice” because

distributed (or, if forfeitable, forfeited) to

requirement, the total excise tax

the same notice requirement appears at

the participants for whom the excess

section 204(h) of ERISA.

imposed during a taxable year of the

contributions were made within 2

employer will not exceed $500,000.

months after the end of the plan year.

An “applicable individual” is a

Furthermore, in the case of a failure

participant in the plan, or an alternate

due to reasonable cause and not to

Part XIII (Section 4980)

payee of a participant under a qualified

willful neglect, the Secretary of the

domestic relations order, whose rate of

Treasury is authorized to waive the

Tax on Reversion of Qualified

future benefit accrual (or early

excise tax to the extent that the

Plan Assets to an Employer

retirement benefit or retirement-type

payment of the tax would be excessive

subsidy) under the plan may

An employer reversion is the amount of

relative to the failure involved. See Rev.

reasonably be expected to be

cash and the fair market value of

Proc. 2003-4, 2003-1 I.R.B. 123 for

significantly reduced.

property received, directly, or indirectly

procedures to follow in applying for a

by an employer from a qualified plan.

Whether a participant or alternate

waiver of part or all of the excise tax

Reversions do not include any amount

payee is an applicable individual is

due to reasonable cause. You can find

distributed to or on behalf of any

determined on a typical business day

Rev. Proc. 2003-4 at

employee (or beneficiaries).

that is reasonably a proximate to the

irs-irbs/irb03-01.pdf.

If a defined benefit plan is

time the section 204(h) notice is

Line 41. A failure occurs on any day

terminated, and an amount in excess of

provided (or at the latest date for

25% of the maximum amount otherwise

that any applicable individual is not

providing section 204(h) notice, if

available for reversion is transferred

earlier), based on all relevant facts and

provided section 204(h) notice. For

from the terminating defined benefit

circumstances. For more information in

more information in determining

plan to a defined contribution plan, the

determining whether an individual is a

whether an individual is a participant or

amount transferred is not treated as an

participant or alternate payee see

alternate payee, see Treas. Reg.

employer reversion for purposes of

Treasury Regulations 54.4980F-1, Q&A

54.4980F-1, Q&A 10.

section 4980. However the amount the

10.

employer receives is subject to the 20%

Example: There are 1000

The “noncompliance period” is the

excise tax. For additional information,

applicable individuals (AI). The plan

period beginning on the date the failure

see Revenue Ruling 2003-85, 2003 – 32

administrator fails to give section 204(h)

first occurs and ending on the date the

I.R.B 291.

notice to 100 applicable individuals for

notice of the failure is provided or the

60 days, and to 50 of those applicable

Section 4980. Include on lines 36 and

failure is corrected.

individuals for an additional 30 days. In

10a the section 4980 tax on employer

this case there are 7,500 failures ((100

Exceptions. Section 4980F excise

reversions from a qualified plan. The

AI x 60 days) + (50 AI x 30 days) =

tax will not be imposed for a failure

reversion excise tax is either 50% or

during any period in which:

20%. The excise tax rate is 50% if the

7,500).

-8-

Instructions For Form 5330 - Return Of Excise Taxes Related To Employee Benefit Plans Page 8

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