Funding DB Plan After Plan Termination

[JustMe 4]

We have a defined benefit plan that terminated in 2018 and was underfunded at the time of termination. The plan sponsor wants to fund the shortfall now and then pay out the benefits. Is this permitted since the plan terminated or would the funding need to have occurred in 2018?

[Effen 57]

Are you saying the plan terminated in 2018 but still hasn't distributed assets?  

Yes, you are permitted to fund the plan in connection with a plan termination.  However, due to the delay, the IRS might take the position the plan never actually terminated.  Did you submit for a determination letter?  I would need to research it, but for some reason I was thinking there was a time limit between termination and distribution.  I think one year, but someone else will likely confirm.

 

[Belgarath 477]

You may find this helpful. P.S. - this doesn't get into the detail about reasonable delays due to illiquid assets, or time beyond when d-letter is issued as Effen mentions above, etc.

https://www.irs.gov/retirement-plans/plan-termination-failure-to-timely-distribute-assets

[JustMe 4]

Thank you for these responses. That is correct. The plan has yet to distribute assets, but did not file for a D-letter. Not sure what the hold up was on the distribution of assets. 

[AndyH 38]

On ‎6‎/‎18‎/‎2020 at 11:46 AM, JustMe said:

Thank you for these responses. That is correct. The plan has yet to distribute assets, but did not file for a D-letter. Not sure what the hold up was on the distribution of assets. 

Then you might not have a terminated plan, in which case you cannot distribute assets.   You better find out the facts and make sure the delay is defendable, or else restart the termination and do the necessary interim work.   Also, was/is the plan subject to PBGC?

[JustMe 4]

No, the plan is not subject to PBGC.  Thank you for your advice!