Overfunded DB Plan

[12AX7]

I was asked to look at a DB plan that is overfunded by approximately $1 million. Two participants are in the plan. One is 73, the other is 80. Both are beyond NRA and their accrued benefits are at 415. It was suggested that life insurance be purchased to reduce the excess assets. Has anyone ever seen this in a plan? Are there any other suggestions to avoid the costly reversion? Thanks.

[david rigby]

Others can contribute thoughts about insurance.

Some of the most common ways to use up excess:

- double-check to see that you have determined the 415 limit correctly, especially for those over SSRA;

- cover someone else.

BTW, have payments commenced?

If all else fails, I'm willing to be covererd.

[12AX7]

RMDs have already commenced. The 415 limit is very close to my calculation. No one else can be covered. I'm cautious about the purchase of the life insurance contract since they would intend to make lump sum distributions (direct rollovers), including the life contract to the participant soon after the excess assets were absorbed into the contract.

[JanetM]

Can you retiree medical? Use excess assets to fund that.

[AndyH]

Insurance in a plan is great. Just ask Ned.

Consider terminating and transferring all or part of the surplus to a qualified replacement (DC) plan? How much could you allocate (what is their pay level now and in the future) before they evolve?

[JanetM]

AndyH, please don't get Ned started.

[SoCalActuary]

You might also consider merging the overfunded plan with another entity. Several firms are active in marrying the overfunded plan to an existing underfunded plan. They would have to explain the economics and tax issues, but I have seen this work very well.

But my preferred answer is that the two partners probably have relatives, heirs, etc. Hire them to take over the firm after a period of time, and the new employees will have the pension plan already funded for them. This has worked very well also.

[AndyH]

Good idea.