Closing DB Plan; Prohibited Transaction?

[Guest halka]

Company is terminating an overfunded DB plan. Plan assets will be used to purchase paid-up annuities for all participants, balance of assets revert to Company. Query: Do all the Prohibited Transaction rules apply to commissions paid on the annuity purchase ?? --- I'm thinking 'the Company is actually paying since the commission merely reduces the reversion amount.' Thanks for any assistance.

[Guest merlin]

I'm not clear on your question. You start by asking about prohibited transactions but you end up referring to a reduction in the reversion amount. Are you concerned that the IRS might come back asking for a larger excise tax? In my experience they have always accepted the 5330 as filed.

Maybe more importantly, a pure reversion is probably the least cost effective way of dealing with excess assets. Are they aware that there are alternatives ?

[Guest ak]

Try looking at ERISA Sec. 408(B)(9) which provides for an exemption from the prohibited transaction rules for a plan termination distribution of assets that follow the ERISA asset allocation provisions.

[Guest halka]

Thanks for the responses....Guess I need be more specific....

If the annuity is purchased from an affiliate of the Plan fiduciary, do all the requirements of PTE 84-24 apply? Can the problem be avoided simply by the Company paying commission expenses directly to affiliated broker?

Thanks, again.