PBGC standard termination with asset shortfall

[Guest Judy S]

I have a small employer with 3 equal owners and 5 total participants, including the 3 owners. Business is not good, but is not so bad that a distress termination is necessary, and the employer wants to terminate his DB plan but does not have sufficient assets and cannot make the plan whole. Since there are no 50% owners, none of the owners can elect to reduce their benefits, correct? Given that, is there anything that can be done without having to fully fund? One solution I thought of is for the employer to borrow the money to fund the plan, pay out full benefits to everyone, and then the owners can use part of their distribution to pay back the loan. Anything else? I would really appreciate any suggestions anyone has.

[Guest pensionadmin]

Have the plan benefits been frozen yet? If not, that may be the first step since that will minimize the funding required. Then the plan may benefit from better investment returns and be able to terminate in a standard termination later?

[Mike Preston]

Go to a lawyer and see if there are any options that exist among the owners such that one or more is a majority owner as that term is defined under the PBGC's rules. If so, even though they don't own, directly, 50% of the stock, they still may be able to fit within the confines of a standard termination.

[Blinky the 3-eyed Fish]

And that lawyer might tell you that options to purchase stock can count for ownership purposes even if not utilized.

[Guest Judy S]

The benefits were frozen-always our first step. I have spoken to the owner I deal with and I think they are strictly 1/3 each. In fact, one of the owners is quite ill and I asked what would happen to his stock if he died-it would go to his spouse who would then sell it to the other 2. That may indicate some kind of option-I will ask him for more details. Thanks.