Deferred Sales Charges in Terminating Plan

[Guest tbreedlove]

Plan terminates and there are deferred sales charges applied to participant accounts. Is there any way the employer can make the particpants whole without the money being counted as a "contribution" subject to allocation formula which would not be allocated to each participant in the same amount as the deferred sales charge.

[rcline46]

Give them a bonus check. No other way works well.

[JanetM]

To make them whole with bonus, don't forget to gross it up for taxes.

[Guest mjb]

The allocations for NHCEs (<100k) under the plan can be based on the amount of the deferred sales charge because there are no restictions on allocations among NHCEs- IRS rules only prevent discriminaton in favor of HCEs. Q is whether employer can make a deductible contribution after plan has been terminated if there are not sufficient funds in suspense account.

[rcline46]

And of course it must be amended to a crosstested plan, everyone in their own rate group so the formula requirements are met, again if you can amend after the plan is terminated. And I don't think you can make such an amendment to a terminated plan.

[Kirk Maldonado]

mjb:

I have a vague recollection that the IRS has indicated that unless there is a legitimate claim of a breach of fiduciary duty, this payment wouldn't be a "make-whole" contribution, raising a whole host of questions, including the ones you raised.