Subsidized benefits and plan termination

[Guest Mike Spickard]

I know, I know. This topic has been discussed before. But I came away from a client meeting scratching my head this afternoon. We are setting up a new 401(k) plan for a client with a DB plan that they are on the cusp of terminating. They are using a sophisticated, worldwide actuarial firm and high-brow law firm. The actuary is advising them that those not eligible for the early retirement benefits as of the Plan termination date will only be eligible for the unreduced benefit at age 65 and any subsidized factors will not apply since they did not qualify for them on the date of plan termination. The Plan does not have a lump sum option and they do not intend to add one

Rev Rul 85-6 seems to preclude this, and our firm has terminated several plans over the last several years, and always preserved the subsidized benefits in the annuity form of benefit. In fact, I believe Form 5310 asks the Plan sponsor if "the benefits upon termination include any subsidized benefits..."

Has something changed recently that would permit a Plan sponsor to not allow a "grow in" to the subsidized benefits? If yes, and it is now permitted to do this, I have a couple of "terminations in waiting" that will proceed quickly.

I did not want to object too strenuously to the Plan sponsor, given that the worldwide actuarial firms have access to vast research resources that we do not have.

Any opinions would be appreciated.

[ishi]

Mike, any answer to you question?