Plan Disqualification for violating 410b

[Gary]

A one participant plan was created for an owner.

The owner did not include employees of another company he owned (i.e. within same controlled group).

The IRS disqualified the plan after a few years of operation.

The plan has 200k in assets, the PVAB for the owner is 400k and the vested AB is $25,000 per year. He is 100% vested in his AB.

402b4 provides in part that if a trust is not exempt due to a 410b violation then an HCE shall include in gross income for the taxable year with or within which the taxable year of the trust ends "an amount equal to the vested accrued benefit of such employee as of the close of such taxable year of the trust."

The question is how should the term "an amount equal to the vested accrued benefit" be defined?

Is it the vested accrued benefit (i.e. the annuity of 25k) or is it the PVAB of 400k?

It says in 402b4 "vested accrued benefit", but it seems it would make sense to be the PVAB.

And if they mean PVAB one would think it would say that and provide assumptions to use.

Or perhaps it depends on how the assets are distributed. That is, as an annual benefit where the taxable trust stays in place or a lump sum if the total pension is distributed.

Of course a distribution of 400k when there are only 200k in plan is harsh.

Curious to get any thoughts.