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30 minutes ago, Guy on a Limb said:

does the election between 1) excess asset revert & 2) excess assets are to be reallocated impact the ability to transfer an excess to a QRP?

If number one then it must revert, yes?

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The arguement is being made that 4980 says the transfer will reduce the reversion so you must have a reversion to have a transfer.

I think, and designed the plan, to have reallocation.

Then the question is "reallocate under which plan?"  Do all benefits have to be first max'ed (reallocated) under the DB to then transfer whatever is left to the PS Plan?  I don't think so but that is the follow up contention.  I think once liabilities are satisfied it is dealer's choice.

Thanks for your earler reply.

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In order to transfer to a QRP the plan must provide that excess assets will be reverted to the employer upon termination. The employer can then transfer 25% or more of the amount that would have been reverted to a QRP in order to reduce the excise tax to 20%.

If the plan says that excess assets will be reallocated, then the participants in the plan are considered to have an accrued right to the benefit increases that would result from the reallocation. Transferring any excess out of the plan would deprive them of those benefit increases, so you can't do it (5-year amendment rule notwithstanding).

If the plan says reallocate, and you increase all participants to their 415 limits, but there are still excess assets left over, then you revert the excess. I suppose you could do a transfer to a QRP in that case to reduce the excise tax. I am not 100% sure on this scenario so I would be happy to hear from anyone that has direct experience with it.

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  • 2 weeks later...

You both think there must be a reversion for a transfer to occur?  I agree the document language cannot say reallocate, but if it says revert, can't it be amended to transfer all the excess instead?   Just an off-hand reaction, not something I have researched lately.

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The plan must permit a reversion according to its terms. No money has to actually go back to the sponsor though. While you could read IRC 4980 to mean that exactly 25% of the excess (and no more) can be transferred to the QRP, every actuary I know understands it to mean at least 25% of the excess, up to and including 100%.

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