DB plan terminating with excess assets

[Belgarath]

Question - if they set up a profit sharing plan, then terminate it after two years (which is what it will take them to use up the excess assets) is this likely to create a problem? I know with a PS plan you have the "substantial and recurring" contribution issue. While I wouldn't expect a challenge from the IRS on a subsequent termination, I just wondered if anyone had thoughts on this. Would it be better to simple set up a money purchase plan instead?

I appreciate any thoughts on this. Thanks.

[Guest asb]

Question - if they set up a profit sharing plan, then terminate it after two years (which is what it will take them to use up the excess assets) is this likely to create a problem? I know with a PS plan you have the "substantial and recurring" contribution issue. While I wouldn't expect a challenge from the IRS on a subsequent termination, I just wondered if anyone had thoughts on this. Would it be better to simple set up a money purchase plan instead?

I appreciate any thoughts on this. Thanks.

Hi. Your post is timely because I am facing a similar problem. I have a client with a one man plan who stuggled to earn 4% over the ten years of his plan. The year he reached NRA he made 100%, so now has considerable assets. He continues to work and will do so for a number of years.

I am not sure exactly what you are trying to do, but I was thinking of setting up a 401k plan and having the db plan make an in service distribution and directly transfer it to the 401k. In future years my client will continue to earn benefits in the DB and soak up the excess assets (since no contribution is possible due to Full Funding). He will make contributions to the 401k during that time.

Is this what you are considering and does anyone have comments on this approach?

Any guidance would be greatfully received.

Alan

[Belgarath]

No, this isn't at all what I'm talking about. I'm talking about establishing a "qualified replacement plan" under IRC 4980. After looking into this a bit more, I don't really think there's a problem with the 2 years on the PS plan.

Off the cuff, I don't think what you are proposing will work. The fact that you roll assets to a DC plan doesn't mean that you are now increasing allowable funding in the DB plan just because the assets are lower. Some of the DB folks here will probably give you specifics on 415, 404, etc., but I don't have time to look into all that right now.