Minimum deduction for terminating plan

[flosfur]

S404(a)(1)(D)(iv) allows a minimum deduction of "... the amount required to make the plan sufficient for benefits liabilities (within the meaning of 4041(d) ....)."

Thus one can deduct an amount equal to the total Plan PVABs (taking into account S417's minimum PVABs) less Plan Assets.

Questions:

1. Must the deduction exactly equal that amount or can it be less, eg. employer does not want to contribute the full amount of the shortfall (owners will take a hit).

E.g. Plan's funding cost is zero in the year of termination and the assets are $150k less than the PVABs. The employer wants to contribute $100k. Is $100k deductible or must the employer contribute $150k to take a deduction.

2. Is this deduction still available, if a plan is covered by the PBGC and the owners signed waivers to make the plan sufficient for PBGC's standard termination purposes?

Is there anything else one should be aware of?

[Guest dsyrett]

1. I would think less would be fine.

2. I would think yes.

[Blinky the 3-eyed Fish]

I agree with the above. 404(a)(1)(D)(iv) is definitely not an all or nothing deduction, but rather a replacement of the UCL deduction for PBGC covered plans in the year of termination that is calculating the maximum allowable deduction. Also, the PBGC waiver has no effect on funding - EVER.

[david rigby]

Just be careful how you calculate the PVAB.

[flosfur]

...... but rather a replacement of the UCL deduction for PBGC covered plans in the year of termination that is calculating the maximum allowable deduction.  ......

I don't think this is available just to the PBGC covered plans. Is it?

[AndyH]

No, it is not limited to PBGC covered plans.

[Blinky the 3-eyed Fish]

I think it is available to only PBGC covered plans. Andy, what is your reason for saying it's definitely available to all plans?

Here is a prior discussion.

http://benefitslink.com/boards/index.php?s...5&st=15&hl=pbgc

[MGB]

It is available to all plans. The intent of Congress was to only make it applicable to PBGC-covered plans, but screwed up in drafting and later decided to leave it as is, with a correction to the heading of the section to remove the reference to PBGC.

[Blinky the 3-eyed Fish]

(iv) Special Rule For Terminating Plans.--

In the case of a plan which, subject to section 4041 of the Employee Retirement Income Security Act of 1974, terminates during the plan year, clause (i) shall be applied by substituting for unfunded current liability the amount required to make the plan sufficient for benefit liabilities (within the meaning of section 4041(d) of such Act).

Here is the cite. MGB, can you explain then the first reference to 4041 in the cite? What is the meaning of this? Specifically, what was the change in the heading that Congress made? Was it more than Pax's version as referenced in the link in my prior post where it used to say "professional service employers"?

[MGB]

Sorry, I was not remembering things correctly from when it was changed (I never work with small plans, so it never comes up).

[AndyH]

Blinky, my information came from MGB's earlier comments, so if he is changing his position then that changes mine.

I have not had a termination (with this issue applicable) since EGTRRA so I have not independently researched or applied this.