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Terminating DB with Insufficient Assets


Dougsbpc
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Have a covered DB plan that will terminate with insufficient assets. The plan sponsor has two 50% shareholders (both deemed majority owners) who will forgo a portion of their accrued benefits rather than fund the difference to have a standard termination.

Since the two owners are Key and HCEs, does it matter that they do not want to reduce their benefits proportionately? For example, is there any problem with shareholder A absorbing almost all of the shortfall and shareholder B absorbing almost none of the shortfall. Both shareholders are ok with this.

Is a disproportionate reduction possible?

What about a non-covered DB plan with insufficient assets that only has 10 key employee participants. Must there be an ERISA 4044 allocation? I would think any allocation would be fine as any allocation would be nondiscriminatory. Does anyone agree or disagree?

Thanks.

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  • 2 months later...

1. Probably OK. Nothing in the reg that implies both reductions must be equal or proportionate.

2. Although not PBGC-covered, the plan may already have an allocation procedure, to be followed.

I'm a retirement actuary. Nothing about my comments is intended or should be construed as investment, tax, legal or accounting advice. Occasionally, but not all the time, it might be reasonable to interpret my comments as actuarial or consulting advice.

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