Waiver of Benefits under a DB Plan

[Guest EMM118]

A DBPP covers two employees. As the corporation that maintains the DBPP is owned by an irrevocable trust, both individuals (husband and wife) are considered to be NHCEs. The irrevocable trust is controlled by an independent trustee. They are the only two employees of the corporation that maintains the DBPP. These two individuals own another entity that does have common law employees that do not benefit under the DBPP.

The Company is interested in terminating the DBPP and the DBPP is currently underfunded. Is it possible for the two participants to waive the portions of their benefits that are unfunded?

I understand if these individuals were HCEs they could waive a portion of their benefits. Please do not comment on the 414 irrevocable trust issue. I am aware of the concerns with respect to that issue.

Thanks. Ed

[Guest Pensions in Paradise]

Clever idea. But I'll bet $1 that these two individuals ARE HCEs under the attribution rules.

[Blinky the 3-eyed Fish]

PIP, you violated his last request. I want to violate it too but I won't.

If they are truly NHCE's and not owners, then I imagine this plan is covered by the PBGC unless they are a professional service corp. If they are covered, then no waiver possible unless this could be a distress termination.

[Guest EMM118]

PIP, you violated his last request. I want to violate it too but I won't.

If they are truly NHCE's and not owners, then I imagine this plan is covered by the PBGC unless they are a professional service corp. If they are covered, then no waiver possible unless this could be a distress termination.

Blinky. Thanks for the reply. I'm an attorney originally from Chicago where things are done a little differently than in Southern California. We don't use these irrevocable trusts in the Windy City, but I need to deal with them in San Diego. Great fun!!! Thanks again. Ed

[SoCalActuary]

As the corporation that maintains the DBPP is owned by an irrevocable trust, both individuals (husband and wife) are considered to be NHCEs. The irrevocable trust is controlled by an independent trustee.

The irrevocable trust has made a commitment to pay the benefits by sponsoring the plan and employing these people. Does it have any other assets to make the plan whole? If so, the PBGC will have a claim against its assets to the extent of the PBGC benefit levels.

But you have to be prepared to answer the PBGC's investigation of ownership, beneficial interests in the trust, authority of the grantor of the trust, etc. I add my $1 to the bet. And, don't forget to allow at least $5,000 of fees to handle the distress termination.

My last distress termination resulted in the PBGC auditing all personal assets of the stockholder, to see if they could take liens against the owner's real estate holdings, other stocks, personal investments, etc. While rules change, I believe the PBGC still has this authority.

[SoCalActuary]

One more point: Who are the beneficial owners of the income from the trust?

If the two people have more than a 5% interest in the income from the trust, then they are key's and HCE's as well as subject to 70 1/2 requirements.

You should get the attorney or the trustee of the irrevocable trust to confirm that these two have less than a 5% interest in the income. Otherwise, you should treat them as owners.

[Guest Pensions in Paradise]

Just taking a wild guess here. The beneficiary of the trust is a Nigerian corporation. The Nigerian corporation is owned 100% by a Swiss partnership. And the Swiss partnership is owned 100% by the husband/wife. Or something along those lines.

[SteveH]

It's really a shame when things get so complicated.