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Hoard1

Funding Terminated Plan

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An Employer wishs to terminate it's defined benefit plan that is 75,000 under funded. The Employer would like to deduct the full 75,000 in the year of termination. The plan is funded under the individule aggregate method and the contribution produced under the method is less than the required amount to sufficiently fund the plan for PBGC purposes.

The Employer has changes Actuarial firms in the year of termination. Can the new actuary change the funding method to unit credit and get the full deduction to fund the plan?

Any other thoughts to solve this clients problem.

Thank you.

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A change to unit credit, if allowed, does not necessarily mean they will be able to generate a $75,000 contribution. If there are over 100 participants, the plan is eligible for the Section 404 "super-maximum" contribution equal to the unfunded RPA Current Liability. If the plan is eligible, the super- maximum can be a big help in improving the funded status.

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You have combined two issues.

First, the funding method is an issue under IRC section412. The new actuary can change the funding method under IRS Rev. Proc. 95-51, section 4.04, with the conditions set forth in that section.

Second, the issue of deductibility is under IRC section 404. Different rules govern. The answer may be yes or no, depending on other circumstances.

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