Recovery of the Excess in the Retirement Fund

August 8, 1988 BIR RULING NO. 371-88 28 (b) (7) (A) 00-078 371-88 Gentlemen : This refers to your letter dated May 23, 1988 stating that you have decided to discontinue/terminate the Nicson Enterprises, Inc. Retirement Plan since you are no longer in a position to fund the same; that you have paid all your employees the benefits due them under said plan; and that said employees had been retrenched on account of financial difficulties you have encountered the past years. Based on the foregoing representations, you now request a ruling that, as all charges and liabilities under Article XI of the Plan have been satisfied, whatever has remained of the fund shall be reverted to you. In reply, please be informed that Republic Act No. 4917 [now Sec. 28(b)(7)(A), Tax Code] provides that "at no time shall any part of the corpus or income of the fund be used for, or diverted to, any purpose other than for the exclusive benefit of the said officials and employees." This provision prohibiting diversion of trust fund includes all objects or aims not solely designed for the proper satisfaction of all liabilities to employees covered by the trust. [Sec. 4(e), Revenue Regulations No. 1-68 as amended by Revenue Regulations No. 1-83 implementing Section 28(b)(7)(A), Tax Code] In other words, recovery by the employer of trust funds is permitted after the satisfaction of all liabilities to employees or their beneficiaries. In the instant case, therefore, since all the liabilities of employees and their beneficiaries under the approved retirement plan have been fully satisfied, and excess in the retirement fund may be recovered by the company. However, such excess recovered must be declared by the company for income tax purposes during the year of receipt. Very truly yours, (SGD.) BIENVENIDO A. TAN, JR. Commissioner