Benefits Subject to taxes

[Gary]

A husband and wife have a DB plan that covers only the two of them.

The IRS disqualifies plan for not covering employees.

The IRS states that according to 402(b)(4) present value of accrued benefits are now taxable on personal tax return for the two HCEs.

Say PVAB = 500,000 and plan deductions total $200,000 over the years and current value of assets is $250,000.

Is there anything that would limit the amount subject to taxes to be no more than the value of say the greater of plan deductions or actual value of plan assets?

It seems a bit quirky to b e taxed for amounts in excess of what was contributed into the plan, plus investment earnings.

Thanks.