Rev. Rul. 2003-85

[Guest MLT323]

I have a question as concerns the issue cited in Rev. Rul. 2003-85 and that which would apply to an overfunded defined benefit plan making a transfer of its excess assets to a qualified replacement defined contribution plan. Excess assets are $250,000, maximum deductible contribution to the profit sharing plan would be limited to 25% of participating compensation for plan year ending in 2003 (i.e. $37,744). There were two participants in the terminated defined benefit plan and the same two individuals are participants in the replacement plan. There is no amendment adopted 60 days prior to the plan termination termination date.

How is the issue cited in Rev. Rul. 2003-85 able to transfer more than 25% of the excess assets to the replacement plan? The issue states that Plan B (the replacement plan) provides for the receipt and immediate allocation of excess assets in the form of a direct transfer from the terminating Plan A. Does this mean that it is allowable for the transfer to exceed 25% of surplus assets if no part of the transfer is forced to be held in suspense in order to comply with Sec. 401(a)(4) and 415? Or does it mean that at least 25% of excess assets must be transferred to the replacement plan?

In other words, is it possible that the terminated Plan is allowed to transfer the entire surplus assets to the replacement plan, therein holding what is necessary and required in suspense for up to 7 years until said amount can be allocated under Sec. 401(a)(4) and 415?