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Sounds like since the owner and spouse have died, there is no "beneficiary" for any benefits... no benefits left to be paid to any where... including the estate, correct? Then the excess assets will revert to the Company/Plan Sponsor, who ever that is decided. Maybe the Company will be in the owner's estate... in which case, the owner's estate. Seems like I talked myself in circles.

Hi Bill I agree with you and thank you for comment. Hope all is well. Best,

With the owner and spouse dead, who is running the business, does it even exist? 5500 forms have been filed? Documents updated? etc etc etc Usually plan documents would say if no beneficiary, all goes to the estate but this is a very general approach. By the way, what does the document say about the excess at the time of termination. Also, if the plan is sellable, the level of the overfunding may or may not attract the buyers. Just thinking out loud.

Terminating the Plan, Reverting the assets to the Plan Sponsor (which at this point may be the same thing as the estate I am not a lawyer), and Paying the Excise tax is certainly one way and possibly the easiest way to end this. To reduce the impact, suggest having all fees paid from the trust to reduce the reversion. As for selling the Plan I'm not sure, someone with some direct experience in doing this may be able to chime in. I thought how that worked is you sold the business along with the DB Plan or merged with a company and plan with an underfunded plan. I'm not sure there is any business to sell in this case but maybe I misunderstand the mechanics.

We frequently use life insurance in both Profit Sharing and Defined Benefit Plans (when there is a need for survivor benefits). However, I have also frequently encountered the scenario you are outlining. While the strategy fits all the legal requirements if you are abiding by the PTE and the Rev. Proc. it generally lacks economic sense. First, I am assuming there is a valid business entity, second there will be “recurring and substantial” contributions to the plan; third and last, why? The premium is before tax, but the FLP will have to purchase the policy at its FMV as shERPA stated or be distributed with tax due at the FMV. With high cash value policies, the cash value, more than likely, will equal the FMV. Where is the leverage? Assume in 4 years $20 million has been paid in premiums $2.5 x 2 x 4) and there is $19 million in cash value (my experience has been with some carriers’ high cash value contracts the cash value is generally 95% of the premiums paid. Some questions: Is the exit strategy for the policies documented? Does the FLP have the cash to purchase the policies to avoid the tax? Can the FLP pay the tax? If the participants die within the 4 years while the policies are in the plan the beneficiaries will only receive a portion of the death benefit income tax free (the face amount minus the cash value) as opposed to the enitre face amount. Are they prepared to pay the economic benefit each year (also known as the PS 58 or Table 2001 rate or the carriers one year term rate if it is available and regularly sold to the public)? Is there additional cost of administration (TPA fees)? Is the client's other professional advisors (tax and/or legal) on board with this strategy? What happens after 4 years to the policies, who is paying the premiums? Would it be more efficient to spread the premium payments out, more than 4 years, and have IRA distributions pay the premiums?

Following up on this since it was just discussed from the podium at the "ask the experts" session at ASPPA annual. The conservative answer was to file as a delinquent filer when the audit is available. If you do file on time but incomplete, you still have to answer the questions truthfully, meaning that if you attach an "audit coming soon" page in place of the audit, you also have to answer that the audit was not attached on Sch H. In other words, when you amend to include the audit, you also amend to answer the audit related questions on Sch H. The DOL will mine the filings for data, and one of the things it looks for is large plans that file without an audit, and flag them for manual review and follow up. How are others preparing schedule H if filing without an audit? Do you answer the Sch H questions as if the actual audit was attached, and attach an "audit coming soon" note, or do you actually prepare Sch H saying no audit attached? *edited for clarity

Elective deferrals under a § 457(b) plan with a matching contribution under a § 401(a) plan is a common design (if the governmental employer has sufficient authority under State law). I have never seen it done as money-purchase plan. Governmental Plans Answer Book suggests (at Q 6:26) that stating a plan as a money-purchase plan might impose a tax-law funding requirement to the extent needed for the plan’s benefit to be sufficiently determinable under 26 C.F.R. § 1.401-1(b). But a governmental plan stated as a profit-sharing plan (with no § 401(k) arrangement) has no Internal Revenue Code funding requirement. I’m unaware of a good reason for a governmental employer to self-impose any more funding requirement than State law commands. Under Internal Revenue Code § 401(m)(4)(A)(ii), a matching contribution includes one made to any defined-contribution plan on account of an elective deferral, which under IRC § 401(m)(4)(B) “means any employer contribution described in section 402(g)(3).”