Client is a C-Corp with an overfunded, single-participant DB plan. Client is considering setting up a new corporation, transferring sponsorship of the DB plan to the new corporation, and selling the corporation (with the overfunded plan)to an unrelated third party for about 70% of the overfunded amount.

Have any of you had experiences with the above-type of transaction? Is 70% a reasonable amount? Also, what if the client simply terminated the DB plan and distributed the entire amount to the employee? Although this would disqualify the plan, wouldn't it avoid the 4980 excise tax?

Any ideas would be appreciated.

Many issues here, most of which I don't know.
How much is in the plan (that is, assets)?
Can the plan be amended to increase the benefit to "use up", at least partially, the excess?
How old is the EE? Does he need to receive income from this benefit? If not, then distributing the benefit, using a direct rollover to his IRA will let it continue to grow tax-deferred. But cannot pay out more than the IRC 415 limit.
Plan may not need to be terminated. If EE severs employment (whatever that means here), then he could be eligible for a distribution. If so, then the plan may have paid all its benefit requirements. That is, the plan will have "matured" not terminated.
The sale of a company with an overfunded DB plan has been done before, but if there is room to use up any of the assets under the 415 limits, then that seems like a better first step.

Is the tax bracket relevant?

The plan has approximately $1 million in assets. The participant is over age 70 1/2, and the present value of his accrued benefit is approximately $300,000. The participant is ready to retire, and it would not help much to amend the benefit formula. The 415 limits will keep his benefit around the $300,000 level. Thus, would it make sense to distribute the entire $1,000,000 to the participant (in violation of the 415 limits) and treat the plan as a disqualified plan?

The participant is in the 39.6% tax bracket.

Prohibited transaction? I believe the DOL has made noises in this area.