Termination Year Funding

[Guest FredR]

A plan terminates mid-year and all assets are distributed before December 31. The plan has been valued at end of year. What assets and benefits are used to calculate the minimum funding requirement? They are both $0 as of December 31. It does not appear that a change to Beginning of Year Valuation is available under the Rev Proc as the plan is slightly underfunded with repect to the PVAB's at that time.

Any help is appreciated.

[Guest DFerrare]

Was the plan fully funded at termination? Rev. Proc. 2000-40 grants special approval for fully funded terminating plans. Section 4.02.

[Guest FredR]

No the plan was not fully funded as of the date of termination.

[Blinky the 3-eyed Fish]

If your valuation date is at the end of the plan year, wouldn't your plan year end as of the date of distribution? That being said, I would argue that you would perform the valuation with assets of zero and whatever liabilities you may have net of the distributions received, if any.

This situation is best avoided by switching the valuation date to the beginning of the year in the year prior to termination, assuming you know about the termination at that time and it doesn't cause any unwanted funding problems.

[david rigby]

I read the sequence of events a bit differently. See above "...the plan was not fully funded as of the date of termination."

How can the plan then terminate? Probably because the plan sponsor made it sufficient. Therefore, the contribution in the year of termination looks like the UC normal cost.

[Guest FredR]

This is not a plan subject to PBGC insurance. Even if it was, the owner can waive benefits to make the plan sufficient and as long as funding standard account does not have a deficit (not taking into account any waiver) everyone is happy. I find it extremely rare that assets = liabilities exactly. I am just confused as to the valuation date and assets and liablities used in this situation. Usually I seem to have a termination in one year and distribution in another. There doesn't seem to be any discontinuity in using end of year valuation under that circumstance.

[Guest merlin]

Try this:

1.Change the val'n date to the first day of the year as suggested by Blinky (Why do you think Rev. Proc. 2000-40 precludes you from making this change?).Since the plan termination date is after the val'n date you may or may not choose to recognize the termination amendments in the valuation.

2. The plan's funding standard account runs through the date of plan termination,per Rev. Rul. 79-237.The ruling also describes how to prorate charges to the fsa.

3.The maximum contribution is still subject to the usual 404 rules.

With any luck the spread between the 412 minimum and the 404 maximum will encompass the amount of the asset shortfall.

[Blinky the 3-eyed Fish]

Merlin, I suggested changing the val date in the year prior to termination for future cases (this example is too late). Rev. Proc. 2000-40 Section 6.01(5) does not allow a change in the funding method in the year of termination unless as allowed in section 4.02. FredR has already said the plan is not fully funded and would therefore not qualify for this exception.

[Guest merlin]

Blinky,obviously I missed it. Thanks for the correction.