Waiving Benefits by Shareholders

[Guest Rob Kobrine]

I have a contact that has a client that would like to maintain their DB Plan, but have Shareholders waive benefits to reduce current & future costs of the Plan.

1. Can this be done without terminating the Plan? My understanding is benefits are only waived upon terminating the Plan.

2. If it IS possible to waive benefits and continue the Plan, can you take into account the current waiver of benefits (6/6/2005) on the 12/31/2004 contribution calculation? The argument being that unlike amendments of future benefits, the benefits are actually being removed and don't actually exist for 12/31/2004.

It seems a tremendous stretch, but I promised I'd ask around.

[Larry M]

Rob,

Instead of the waiver, why not limit future benefit accruals for the shareholders to their existing levels?

...or are their benefits already at a level which is "too high" for the plan?

[FAPInJax]

Generally speaking, accrued benefits can not be waived. They may be frozen and the plan may continue funding but they may not be reduced.

The exception is upon plan termination where there are circumstances where the owners are allowed to waive benefits to make the plan whole with respect to the employees.

[Guest Rob Kobrine]

Larry,

I think they were desperate for the double whammy of significantly reducing future contributions AND somehow drastically reducing the 2004 contribution.

[AndyH]

Such a client should not have a DB plan or should be much more educated before establishing such a plan.

[david rigby]

Hold on. In my profession, it is well-established that all clients should have a DB plan.

[AndyH]

I was wondering what reactions that comment might bring.

I think that DB plans should be established at birth, along with whole life insurance policies.

[Guest Ned Ryerson]

Amen to that! But don't forget the disability insurance, with the optional death and dismemberment policy!

[GBurns]

Would the coverage be for the DB Plan, the Plan Sponsor, or for the participants?

[AndyH]

What would be your recommendation? Should we start saving for college? Or maybe we should avoid that discussion.

[GBurns]

Depends on who Ned (or you) thinks needs the protection.

The PS who might get attacked or dismembered by the IRS etc or for the Plan in case of death (by lack of funding)?

An early start for savings for anything is always a good idea.