Reallocating excess assets in DB plan on termination

[Dennis Povloski]

We are terminating a small plan with excess assets that can be re-allocated to participants (no one is at the 415 limit).

Normally, we would re-allocate in proportion to the lump sums, but in this case, the boss wants me do a rate group test because we want to focus the excess on one partner in particular (the idea being that I can allocate the excess in any non-discriminatory manner and allocating in a way that passes an (a)4 test would suffice).

I've never done this before, and of course the boss is on vacation this week. Has anyone ever done this? My first instinct is that I would test it like a contribution on an allocation basis, but I wanted to get some thoughts to see if there were any quirks before spending a lot of time on it.

Thanks!

Dennis

[John Feldt ERPA CPC QPA]

You must follow the method determined by the excess asset allocation terms described in the plan document or subsequent amendments. If the plan term date has already gone by, then I don't think you can change that language without rescinding the prior termination date.

If you are trying to figure how to word the amendment, then refer to the DB answer book, chapter 25, Plan Termination, Surplus Assets:

"How is it determined whether the allocation of excess assets is made in a nondiscriminatory manner?"

and

"How do code provisions and the plan design affect plan terminations?"

...When there are surplus assets on plan termination, reallocation of the surplus can become a creative exercise. There are an infinite number of allocation methods; most of the considerations, for example, deciding who the plan sponsor wants to benefit, that are made in initial plan design must be followed on the reallocation of the surplus assets. The nondiscrimination regulations affect the design considerably...

[Dennis Povloski]

Thanks for the info. That helps a great deal!