Square D Company and Subsidiaries - Page 25

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          we conclude that petitioner is entitled to an increase in the               
          account limit attributable to medical, dental and short-term                
          disability CIBU's in the amounts of $7,619,925 (plus $395,683 of            
          related administrative costs) and $5,290,729 (plus $261,232 of              
          related administrative costs) for the VEBA Trust years ended 1986           
          and 1987, respectively.                                                     
               B.  Reserve for Postretirement Medical Benefits                        
               Petitioner argues that the phrase "reserve funded over the             
          working lives of the covered employees" in section 419A(c)(2)               
          describes a method of measuring a liability to provide PRMB's and           
          does not require a separate accumulation of assets.  The issue of           
          whether an actual reserve must be created has been addressed by             
          this Court in General Signal Corp. & Subs. v. Commissioner,                 
          supra, and Parker-Hannifin Corp. v. Commissioner, T.C. Memo.                
          1996-337.  In those cases, we held that the phrase "reserve                 
          funded over the working lives of covered employees" requires an             
          accumulation of assets equal to the deduction taken, and that               
          those assets must be used to pay retiree welfare benefit                    
          expenses.  In General Signal, we stated that                                
               the plain language of section 419A(c)(2) suggests that                 
               Congress intended to allow the accumulation of funds                   
               over the working lives of employees for the purpose of                 
               providing postretirement benefits.  This interpretation                
               is supported by repeated references in the legislative                 
               history to the accumulation of reserves for purposes of                
               funding postretirement benefits and by the reference to                
               revenue rulings which dealt with reserves used to                      
               accumulate funds for postretirement benefits.                          
               Additionally, the legislative history also establishes                 
               that Congress intended "to prevent employers from                      




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