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  1. Here’s the situation, and I apologize for the length and if I am not getting all the terminology correct as I am not a professional. Mother and Father (from now referred to as M & F) are nearing end of divorce that started years ago. For reasons I’d rather not get into on this forum, I’m helping M. F, age 70, is 100 percent owner of company (4 plan participants including himself) with a defined benefit pension plan that is significantly overfunded. He has the vast majority of pension vested benefits. His vested benefits are 10 times that of employee #2 (longtime 30 year employee), employee #3 (family member), employee #4 (new employee). Despite M working for free for years for the company, she was never an official employee that had any interest in the pension plan. The pension overfunding is so large that it almost equals the amount of F’s current vested benefits. To soak up overfunding, F shifted a couple hundred thousand dollars into employee #3’s plan , which didn’t make much of a dent in overfunding, and since he is only 30 years old, maxed him out on his future expected benefits. F is trying to soak up the rest of the overfunding by having the plan buy term life insurance for employees, and pay the yearly premium. The plan has more than enough overfunding to pay the upfront premiums and pay the yearly premiums for the 30 year duration of the policies. As per law, the death benefit on the policy can be 100 times the monthly salary of the plan participant…so figure that as long as F doesn’t live till 100, his designated beneficiaries get a hefty life insurance payout. If he lives till 100, all the premiums went down the toilet, but hey he won anyways, he lived till 100! As part of divorce settlement, F has agreed to give M half of his vested benefits of pension plan in a QDRO. However there is significant value in the overfunding that F is extracting via life insurance purchases for his choice of beneficiary, and possibly other ways to monetize overfunding in future (such as selling the company or a part of it, and the overfunding)… at bare minimum, overfunding reverts to company at 10 cents on the dollar after excise/income tax. F refuses to make M or her choice of heirs a ½ beneficiary of this life insurance he is purchasing, and refuses to compensate M not even 1 dollar for the value of the overfunding. M is upset because it was through F’s own foolishness that he built up overfunding with their money and effort over the years and now he is getting value out of it and he is refusing to give her anything. Questions are as follows 1) Is there a way to transfer any portion of this Overfunding into M’s QDRO, whether through cash or pension assets? If so what are the legal ways to do it? 2) Can a judge order the pension plan trustee to transfer Overfunding cash or assets into a Wife’s QDRO? 3) Does anyone know of any instances in which Overfunding has been valued in a courtroom setting, and more specifically in marital law? For instance, at the very minimum that overfunding is worth 10 cents on the dollar if all the money reverts to the company and excise/income tax is paid…but F is purchasing life insurance with the overfunding to avoid the excise tax., and there is an expected value to that death benefit his choice of beneficiary is receiving. There also other creative options for monetizing overfunding. .Does anyone have any experience with convincing a judge or negotiating a settlement based on pegging a value to an employee’s interest in his pension plan’s overfunding? 4) Any other suggestions that would help M get value from pension overfunding that F is getting benefits from and may monetize in the future, but refuses to share with M? I have talked to a lawyer in pension funding, who has helped me get this far, but as you can see this is a very niche issue and any fresh perspectives or experience would be much appreciated. Thank you! -Rich
  2. Moderator - My multi-part story/question got deleted from the forum, I guess because I posted it in 3 different forums as it has multiple topics to it....I will keep this question limited to the QDRO issue, so hopefully you can keep this post active in this forum Situation - Pending Divorce, and QDRO has not been filed yet. Husband owns 100 percent of company with 4 employees in pension plan. Husband (age 70) owns about 90 percent of pension plan's total vested benefits. Employee #2 has about 10% of vested benefits. Employee 3&4's shares are nominal. A dollar amount about equal to Husband vested benefits is owned by the pension plan that is not applied towards anyone's share, which is the "overfunding" (this number is substantial, in the 7 figures). Question - Does anyone know if any portion of this "overfunding", whether in cash or pension plan assets can be transferred to the wife via her QDRO? Can it be done either voluntarily by the Pension Plan trustee or by court order? Any help or thoughts are much appreciated -Rich
  3. Question - when is the best time to terminate DBP now, 2019, 2020, etc? Client 52 year old, wholesale business owner where he is the sole employee. The business is setup as a sole proprietorship and he has a DBP, Solo401(k) and PSP. Client wants to retire at age 55 - July 2020. DBP is already overfunded by 2.5%, as of today 2/26//2018, for the Lump Sum @ Ret calculated for age 55. Client has not made any contributions to the DBP for 2016 and 2017 due to the anticipated overfunding. Thus is he receiving no tax benefit having the DBP other than time passing. The assets of the DBP are presently in money market account earning 1% in Vanguard Federal Money Market Fund (VMFXX) since why risk with equities when any gains results in overfunding tax. Business owner anticipates 2018 Business profit at least $130K 2019 Business profit projected at $50K 2020 Client would sell some of their premium web domain names and therefore would have a business profit Client has never reported a business loss, but could report 2 years before finally closing business. So that would be 2022 to terminate DBP, then roll over to a IRA and by then there would be no overfunding issue. Think keeping the DBP going until 2022 would allow deferring income earned in 2018 & 2019 for $61,000 each year (DBP $0, 401(k) $18,500, catch-up $6,000, PSP $36,500), 2020, 2021, 2022 the business is not expected to make much of a business profit. I feel this is the best approach but interested an anyone’s feedback. There would be no more contributions to the DBP and the business would have no income in 2021 and 2022. If we terminate the DBP now excess assets revert to the employer, they are subject to two taxes: 1. Business income tax because the excess assets have not been previously subject to taxation. 2. A non-deductible excise tax of 50% of the amount of the excess assets. The way to potentially avoid paying the excise tax is to transfer the excess assets into PSP. The excess assets will be used to make the employer allocations. Since they had been deducted, would not be able to deduct these amounts again on client’s tax returns. Client will start paying expenses for the DBP maintenance and accountant fees that would draw down some of the excessive funding. If we did terminate the DBP now the excess assets would be used for (401(k) $18,500, catch-up $6,000, PSP $36,500). The issue here client knows business income will be over $130K for 2018 and could push some business income from 2018 into 2019 so business income of $55K is possible. But there would not be enough time or business income to use up the transferred excess assets and client wants to retires from the business. Client does not see selling the business is possible and will just close down. Some of the other strategies for mitigating overfunding DBP are not applicable to client’s situation Increasing plan benefits since client is at the maximum permissible (415) benefit level Bring new participants into the plan. Client is 1 person business, single, no kids Thank you for your time reading my post and your feedback is welcomed.
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