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Overfunded Defined Benefit Small Plan Termination


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I understand this can be a complex matter and I will be seeking professional advice from an ERISA attorney, but i'm trying to develop a basic understanding of the relevant issues so that professional fees can be put towards developing and executing a plan instead of educating me.

My father had a business which has not been active since the 1980s.  They established a defined benefit plan in 1984 and it was frozen in 1985.  The plan has 2 participants.  My mother and father.  They both made contributions to the plan.  My father recently passed away(2017).  The plan is overfunded by ~800%.  The plan assets are cash and liquid securities.  The company has no assets other than the overfunded pension.  My father was trustee of the plan.  The stock is 100% owned by my fathers estate which I am representative.   The massively overfunded pension is not the ideal instrument for my mother's retirement. 

Can anyone direct me to online resources that provide a good overview of various termination excise tax mitigation strategies and the related issues.  I want to be informed when I contact the plan administrator and retain an advisor.

 

 

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Did you really mean that it was established in 1984 and frozen 1 year later? And then it was kept frozen for over 30 years?  If so, somebody has some serious explaining to do.

From the sound of things you need a lot more information than can be provided here; there are just too many issues that bear on the discussion.  By far the best person to discuss this with will be the actuary for the plan.  Or the administration firm that has handled the preparation of IRS forms the last few years.

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Exactly!  While you are getting legal advice, be sure to include advice from an actuary experienced with small plans.

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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Just wondering, under the circumstances, why there should be any excise tax mitigation procedures available?  Pay the 50% tax and get on with things!!!!!  The time for action was decades ago.  The only excise tax mitigation strategy I can think of involves allocating a sufficient portion of the excess assets to employees under a successor plan, but in this case, that doesn't sound as though it is available.  No employees to allocate assets to!

How did the defined benefit plan exist for roughly one year and wind up with so shockingly large an excess?

Mike Preston refers to the plan's actuary.  As it has not been terminated and is a defined benefit plan, by law they had to be receiving annual minimum funding valuations from an enrolled actuary.  Have they?  Have they been completing all required federal filings, plan restatements, etc.?  Ugh!

Always check with your actuary first!

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