Plan Retroactively Disqualified and IRC Code Section 402(B)(4)

[Guest San Diego Benefits Guy]

First, I want to state that I "inherited" this plan!!! This is also my first plan disqualification.

A client maintained a DBPP that the IRS has determined failed to meet the requirements of Code Section 401(a)(26) and 410(b). The client only contributed $210,000 to the DBPP for the two years in question. However, the PVAB for the husband and wife for the two years in question is close to $425,000.

This is the case as the client accrued large benefits due to high compensation during the two years in question. However, after the second year in question and prior to the funding deadline for the second year in question, the client realized that they could not make commensurate contributions, so the actuary used assumptions to limit projected benefits and limit current funding levels to address this issue.

Any thoughts on how to deal with this?

Say the company contributed $200,000 to the DBPP.

PVABs for husband and wife are $400,000

Trust earned $50,000.

Is this what happens:

$200,000 treated as a compensation expenses rather than a DBPP contribution.

Husband and wife have additional income of another $400,000

Trust has income of $50,000

Under this senario, husband and wife get double-taxed on the first $200,000 of their PVAB and an additional $200,000 as the PVAB is $200,000 more than amount contributed to DBPP.

Is this correct?

Thanks in advance for your thoughts.

Ed

[Guest mjb]

Q1 Are the benefits of H & W vested under the plan.

Q 2 what is the vested accrued benefit under 402(b)(4)(A) if the ans to Q 1 is yes. Employhees's invesmtnet in contract refers to after tax contributions to the plan.

[Guest San Diego Benefits Guy]

Q1 Are the benefits of H & W vested under the plan.

Q 2 what is the vested accrued benefit under 402(b)(4)(A) if the ans to Q 1 is yes. Employhees's invesmtnet in contract refers to after tax contributions to the plan.

The DBPP was established as an owner-only plan and benefits are always 100% vested.

[Guest mjb]

Under 402(b)((4)(A) the amount taxed is the vested accrued benefit each for H and W. Employer loses deduction to plan under 404(a) to extent s/l for back taxes has not expired and takes deduction for contributions made to the extent employees include the contributons as taxable under under IRC 83.

Q3 What yr was plan established & year DQed?