underfunded one-man db plans

[Guest jig]

A one-man db plan due to huge losses has become greatly underfunded. Is there any exception to the minimum funding requirements? Does the participant have to terminate (and if so, could they waive the underfunding liability)? Could they simply reduce their own benefit?

[mwyatt]

A few things: if the plan terminates, the participant (with spouse's consent) could execute a Substantial Owner Waiver (although it is phrased differently than an actual "waiver" - see past discussions on this matter, with clarifications due to Mbozek and Mike Preston) to receive what is in the plan. However, on an ongoing basis, you really can't reduce the accrued benefit to get around funding requirements (of course you could always reduce/freeze benefits to reduce future accruals, but this may not be of use if you're already past your valuation date).

A few more details might be in order here (age v. NRA, level of funding, etc.) as you could look to your assumptions to reduce costs. We've increased the Expected Retirement Age assumption in some cases - this will lengthen time period of funding which would tend to decrease the developed cost under the Plan. And I might add, after someone has lost a pantload of money, I would venture that assuming someone will work longer than they originally intended would be a reasonable assumption...

[Guest jig]

Thanks mwyatt. It seems from what you say and from the previous threads that I can terminate and waive the portion of the benefit which is underfunded as long as I use the correct terminology ("waiver of portion of the allocation of distributable assets" instead of "waiver of benefits") in my determination letter request.

[Blinky the 3-eyed Fish]

Jig, you are misinterpreting what mwyatt is saying. He is referencing waiving benefits to facilitate the termination of the plan, but as pointed out, waiving benefits is not valid to reduce the funding requirement. Post the specifics of your situation and perhaps I or someone else can provide a solution. Waiving benefits is NOT that solution to reducing the funding.

The first thing to know is what the valuation date is and for what plan year. That will immediately determine if an amendment under 412©(8) is available.

Mwyatt, sorry for the she. Your handle reminds me of someone I know, so I put it without thinking, but changed it now.

[mwyatt]

I second Blinky. The "waiver" is only after the plan has terminated and shouldn't be confused with the funding deficiency in the FSA. You can't terminate with a deficiency. More facts on your situation would be helpful as there may be some ways (or maybe not) that you can deal with your problem.

Ah, for the good old days when our problems 4 years ago were trying to figure out strategies for coping with reversions being penalized with an effective 90% tax rate. Only silver lining in the market slide is overfunding certainly isn't the issue that it once was.

Aside: guess I'll have to change my screen name, he not a she Blink (either that or I'll need to find a good jpg from the Simpsons like yourself ).