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Partial Lump Sum to avoid reversion on overfunded portion

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Hi,

A owner only DB Plan (owner and wife) is overfunded. He was taking RMD past few years based on Accrued Benefit times 12 (meaning did not elect a particular benefit ie J&S or Years Certain etc.-- this has been discussed on this forum in the past as a method for an RMD for an active participant). He retired now and wants to terminate and rollover into two IRA. The issue of course is that the plan is overfunded.  To avoid any reversion and excise tax he will  keep the plan open and elect a partial lump sum distribution and roll 80% of his benefit into an IRA. The remaining 20% of his Accrued Benefit will remain in the plan. Is this a feasible option? (by opting for  a partial lump sum he is not changing his original election since he never made an election until now, rather he was taking RMDs. In addition, even if this considered a change of benefit election, since he now retired and has a change in status, the change in status should allow for a new benefit election to be made). Thank you for any insights and thoughts on this matter. May we all be safe always. 

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I don't think I have an issue with the form of payment, assuming it is permitted by the plan document, but how does this solve his excess assets problem or allow him to terminate the plan?  

 

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1 hour ago, Effen said:

I don't think I have an issue with the form of payment, assuming it is permitted by the plan document, but how does this solve his excess assets problem or allow him to terminate the plan?  

 

Effen, thank you. You are correct, he will keep the plan open. His main goal is to at least have most of his benefit in an IRA, while buying time to come up with a solution for the excess assets. He will remain in the plan as a participant with a small residual accrued benefit that he will take RMDs from annually. He will elect a Joint & Survivor -non spouse - on his remaining benefit in the plan.

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A qualified replacement plan (QRP) will only work if either participant will be receiving some kind of compensation which requires them to be active again. If they are not working anymore and not receiving any compensation, they are not active employees nor may be able to rollover the excess into the QRP.  I have recently did one of these and the document provider informed me that, a terminated/retired participant in the db plan cannot be a participant in the QRP so the participant came out of retirement started getting salaries.

Also the amount of the excess can be an issue, can it be distributed with 7 years?

I am ok with the partial lump sum as well but that does not solve the over funding issue.

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