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Excess Assets and Maximum Benefit

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Suppose a small non-covered DB plan terminates with excess assets.

The plan document contains a maximum benefit of $3,500 payable at normal retirement age. No participant is close to their 415 limit. However, one participant has accrued a $3,500 benefit prior to the plan termination date.

The plan has excess assets of $21k. Normally, we would simply allocate the excess to all participants (3 in this case) in a non-discriminatory manner.

I would think (but am not sure) that the one participant at the $3,500 maximum could not be allocated any of the excess. Does anyone agree / disagree?


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I think you could argue that allocation of excess assets is not part of accrued benefit calculation/determination and so not subject to that plan imposed maximum benefit. If you still have ability to amend the plan, you could accommodate that way.

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I think it would definitely part of the accrued benefit.   When you allocate excess assets, you are essentially increasing everyone's accrued benefit, that is why you need to test it for non-discrimination.

Either way, better safe than sorry.  Just amend the plan to state that the accrued benefit can exceed $3,500 if it is the result of the allocation of excess assets at the time of termination.  

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The material provided and the opinions expressed in this post are for general informational purposes only and should not be used or relied upon as the basis for any action or inaction. You should obtain appropriate tax, legal, or other professional advice.

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