The Bush administration wants Congress to let employers sell or otherwise transfer pension plans under certain circumstances.

The U.S. Treasury Department, Labor Department, Commerce Department and Pension Benefit Guaranty Corp. proposed a “legislative framework” Congress could use to authorize transfers of frozen pension plans.

The agencies released the framework as Treasury and the Internal Revenue Service issued guidance, in IRS Revenue Ruling 2008-45, holding that current federal law does not permit plan sponsors to transfer pension plans to parties other than insurers without also transferring “significant business assets, operations or employees.”

Employers that want to eliminate their liability for pension plans insured by the PBGC now do so by making lump-sum payments to plan participants or by arranging with insurers to guarantee participants’ benefit payments.

Bradley Belt, a former head of the PBGC, recently helped start a company, Palisades Capital Advisors L.L.C., New York, a pension risk management advisory firm that wants to help hedge funds and private equity firms acquire pension plans.

Investment bankers at Citigroup Inc., New York, also have talked about arranging pension plan acquisitions.

Section 401(a) of the Internal Revenue Code requires that, to qualify for pension plan tax breaks, an employer-sponsored plan “must be for the exclusive benefit of its employees or their beneficiaries,” IRS officials write in the revenue ruling.

If a sponsor transfers a retirement plan to an unrelated company, the plan then violates the “exclusive benefit” rule “because it is not maintained by an employer to provide retirement benefits for its employees and their beneficiaries,” officials write.

“This conclusion would be the same even if the new controlled group has some employees covered by the plan after the transaction, or some business assets or operations are transferred, where substantially all the business risks and opportunities under the transaction are those associated with the transfer of the sponsorship of the plan,” officials write.

But administration officials say they would like to permit plan transfers “in circumstances where the transaction is in the best interest of plan participants, their beneficiaries, employers and the pension insurance system.”

The administration says frozen plan transfers should meet the following criteria:

–Sponsors should tell participants and regulators about a proposed transfer and give them enough information to evaluate the transfer.

–Only strong, well-regulated entities should be able to buy pension plans.

–The parties should be able to show that a proposed transfer would reduce risk for plan participants and the pension insurance system.

–Limits should prevent undue concentration of pension risk.

–The acquirers and “members of their controlled groups” should assume full responsibility for the transferred liabilities and should comply with reporting and fiduciary requirements.

A unit of MetLife Inc., New York, issued a statement welcoming the revenue ruling and objecting to the idea of letting companies outside the insurance industry create a “stranger-owned pension plan” industry.

“We believe [the revenue ruling] goes a long way in protecting current and future retirees,” says Bill Mullaney, president of the institutional business at the MetLife unit. “Insurance products and the individual guarantees that come with them are paramount in protecting plan participants’ interests, should their employers choose or need to transfer the liabilities of their plan.”

The revenue ruling should have a broad, immediate impact, according to MetLife.

Some insurance industry observers have asked whether the Bush administration may have issued the plan transfer legislative framework simply to describe the legislative obstacles in the way of creating a pension transfer framework.

But Andrew DeSouza, a Treasury Department spokesman, says the federal agencies that created the framework believe the “transfers are good policy and should be able to work” under some circumstances, with appropriate safeguards for employees and employees’ pension benefits.

Some top Democrats quickly criticized the administration’s announcement.

Rep. Earl Pomeroy, D-N.D., a member of the House Ways and Means Committee, put out a statement reporting that he and Rep. Charles Rangel, D-N.Y., chairman of the Ways and Means Committee, have been deeply concerned about the possibility that the government might permit plan transfers.

“Democratic majorities are highly skeptical of pension buyouts,” Pomeroy says in the statement. “I do not anticipate legislation authorizing them–period.”