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DB Plan terminating with excess assets


Belgarath
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Haven't done any research on this yet - thought someone might know off the top of their heads.

Non-profit organization is terminating DB plan, effective date is 12/31/2015. They have substantial excess assets. Plan currently is written so that excess assets upon termination revert to the employer.

Can an amendment be done post termination date (i.e. currently) to allow reallocation, if they want to, or would that amendment have needed to be done on or before the termination date? P.S. - if they want to transfer to an existing 401(k) plan as a Qualified Replacement Plan - same question. As I said, I haven't done any research yet, but I'll have to do some as soon as I can...

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Hmph! What I've found isn't terribly enlightening. It seems to me that it would be unreasonable to require the amendment to be signed prior to the termination date, as it isn't necessarily known by then whether there will be excess assets or not, and if so, how much? So does it seem reasonable to do an amendment currently, making it effective 12/31/2015 (plan termination date?)

It'll be submitted to the IRS for a d-letter anyway, but it would be nice to know up front if they generally allow this approach or not....

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Seen it. Done it. IMHO, you can amend the plan to increase the allocation of excess to participants at any time prior to actual distribution. Note, this might mean you have to produce two checks to everyone, so there is additional administrative cost.

Be very careful if there are retirees getting an annuity. If the plan purchased a commercial annuity for the retiree, you may be going back to the same insurer and asking if you can give them more money to provide a higher benefit, but it's likely the (monthly) benefit will not increase in the same proportion. Advance discussion of this possibility is important.

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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