Terminated DB plan gets more money

[Guest DIY]

We terminated a 2-person DB plan and filed a Form 5310 with the IRS in September. (The plan is not subject to Title IV.) On the termination date, the plan was not overfunded. However, distributions won't be made until the IRS issues the determination letter. What happens if, by that time, the plan has become overfunded? Can we avoid a reversion (and excise tax) by distributing increased benefits to participants? The plan provides that, in the event of termination, excess funds can be allocated pro-rata among participants.

[Effen]

If the Plan says you re-allocate, then you re-allocate. Why are you questioning it? The only exception would be if everyone in the plan was at the 415 limit, but I doubt that is the case.

[david rigby]

The plan provides that, in the event of termination, excess funds can be allocated pro-rata among participants.

You probably already have language in the plan that uses "shall". If it currently states

"shall revert to the employer", then you can amend it to "shall be allocated to participants". Probably best to do so before you receive the IRS letter.

[Guest DIY]

Thanks for the comments. The plan does say that excess funds SHALL be reallocated. My reason for questioning it was that the plan document uses phrases like "as of the date this Plan terminated" and "as of the date of termination." I wanted to make sure that the plan could continue re-allocating after the termination date.

[david rigby]

In this case, it appears that the plan intends any and all "excess amounts" to be allocated to participants. That means all dollars, no matter what day it occurs.

Caution, many plans that have this or similar language will specify which participants. Be sure to follow the plan specifications.