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(B) post-retirement life insurance benefits to
be provided to covered employees.
We first addressed the requirements of section 419A(c)(2) in
Gen. Signal Corp. v. Commissioner, 103 T.C. 216, 239 (1994), affd.
142 F.3d 546 (2d Cir. 1998). In that case, we held that section
419A(c)(2) requires an accumulation of assets equal to the
deduction taken, and that those assets must be used to pay welfare
benefit expenses of retired employees. See also Square D Co. v.
Commissioner, 109 T.C. 200 (1997); Parker-Hannifin Corp. v.
Commissioner, T.C. Memo. 1996-337, affd. in part, revd. in part and
remanded 139 F.3d 1090 (6th Cir. 1998). In Gen. Signal Corp.,
Square D Co., and Parker-Hannifin Corp., we found that no reserves
had been created, obviating the need to consider whether the
contributions were excessive from an actuarial standpoint. In the
case at hand, respondent agrees that a reserve was created; i.e.,
assets in the amount of the deduction taken were accumulated to be
used to pay medical expenses of retired employees.
a. Reserve
Petitioners assert that the term “reserve” in section
419A(c)(2) refers to the employer’s accrued liability to provide
the postretirement benefits. Petitioners conclude, therefore, that
the method used in computing the reserve must compute the accrued
liability.
Respondent asserts that section 419A(c)(2) does not define the
account limit but rather describes contributions to a reserve
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