Waiver of Benefits Sample Form Needed

[nancy]

I'm looking for a sample waiver of benefits form for a substantial owner at plan termination. Does anyone have one they are willing to share? Thanks in advance.

[Blinky the 3-eyed Fish]

Email me and I will send it back to you.

[GBurns]

I am curious as to why the form is needed. What problem will it solve?

One thought that came to mind was that the Plan for some reason lacked sufficient funds to fully distribute balances to plan participants and so this person wants to give up their benefits so that others can get. But that seems to raise questions of gifting or assigment of income, both of which might cause the amount waived to be taxable to those who subsequently receive it, assuming that a participant can really waive. I also wondered if waiving would not be an impermissable distribution.

[Blinky the 3-eyed Fish]

The waiver being referred to is by a majority owner of the entity sponsoring the plan and is needed because the plan lacks sufficient assets to pay all benefits. In small plans this is a routine occurrence and the means to continue with a standard termination for PBGC covered plans. It raises none of the questions you list. However, the IRS doesn't officially recognize the waiver, but rather lets it slide.

[Mike Preston]

I recommend that the phrase "waiver of benefit" be stricken. It isn't a waiver. It is an agreement to not hold the PBGC responsible for payment of benefits that it might otherwise be required to pay. The PBGC allows a participant to release it from liability only if that participant is a majority owner. Here is what I negotiated with the PBGC many years ago. It has been published in various books of forms over the years. I see no reason why it needs to be changed. Note that it doesn't mention the IRS because the IRS wouldn't recognize it, anyway. From the IRS' perspective, they have always agreed that 411(d)(3) allows the plan to pay benefits only to the extent funded, provided that the allocation of monies is non-discriminatoty under RR 80-229.

Waiver of Pension Benefit Guaranty Corporation Liability

I, , being a majority owner of , A {State} {Corporation, Partnership or Sole-Proprietorship} and a participant in the Plan hereby agree to accept a benefit that is lower than my accrued benefit under the terms of the Plan if, upon termination of the Plan and allocation of assets, pursuant to Plan Section , assets are insufficient to cover all such benefits.

I understand that my signature on this form will release the Pension Benefit Guaranty Corporation from any and all liability to myself or my beneficiaries with respect to benefits under the above mentioned plan.

Date: Signed:

{type the participant's name}

As the spouse of the majority owner mentioned above, I also agree to release the Pension Benefit Guaranty Corporation from any liability to myself or my beneficiaries with respect to benefits under the above mentioned plan. I understand that by signing this form I may be giving up valuable benefits under the Plan.

Date: Signed:

{type the spouse's name}

Witness or Notary

[Blinky the 3-eyed Fish]

Generally, the benefits being "waived" are in excess of the PBGC guarantees, so I don't think it's correct to state that the form is being used to not hold the PBGC responsible for benefits they might be required to pay.

It's semantics in what it's called, but effectively it is a waiver of benefits.

[Mike Preston]

I disagree with both portions of your statement. The amount that can be "walked away from" is 100% of the benefit, not merely the amount that is not guaranteed under the PBGC's insurance scheme. Further, all it does it eliminate the PBGC's liability. The plan's liabilities and the IRS' view of them is not modified. Critically, the IRS demands that the full benefit be considered when calculating any minimum funding requirements. Of course, those stop once the year during which the plan is terminated is complete. Then, the plan's provisions for allocation of assets on plan termination apply. There, you get into 80-229 and the basic requirement that the allocation be non-discriminitory. That's the easy part.

[Blinky the 3-eyed Fish]

Mike, I didn't say that a majority owner couldn't "walk away from" anything less than 100% of the his benefit. What I tried to express was that most often where there is a majority owner, it is in a smaller plan. Those plans tend to have benefit formulas that produce benefits in excess of PBGC guarantees. When the owner ends up waiving, or whatever you want to call it, a portion of those benefits, the unwaived portion, still is often in excess of PBGC guarantees. Thus, the PBGC would not be required to pay these benefits under any circumstances. The waiver is simply to facilitate a standard termination.

[Mike Preston]

I'm reading your words differently than what you are intending, I guess. When you say that "Thus, the PBGC would not be required to pay these benefits under any circumstances." I'm reading it as you saying: "Because the amount being left on the table is typically from an allocation category that the PBGC wouldn't pay anyway, the PBGC really doesn't give a hoot."

The form, from the PBGC's perspective, is specifically authorizing a reduction of benefits payable not only to the level that the PBGC would pay, but to an amount that is less than that.

I see a huge difference between my characterization and yours, so I'm belaboring it a bit. Sorry.