General Tested DB/DC

[Blinky the 3-eyed Fish]

DB plan is aggregated with a DC plan for general testing. Both plans terminate 12/31/07 because the firm is dissolving on that date. The company will remain in tact largely as a shell for the time being to collect receivables and pay invoices. There will be some residual employees to perform these tasks.

The DB only benefits the HCE principals of the business. Upon distribution soon in 2008 the value of the assets will exceed PVAB's under the plan formula. If the excess is allocated to the principals, the value of the benefit due to that excess will not cause the plan to fail general testing if the excess is tested as a 2007 accrual.

So here's my question. Do you think the excess allocation is a 2007 accrual even though it technically doesn't happen until 2008? The doc has the standard Rev. Rul. 80-229 language for excess assets. I am having trouble thinking it's a 2008 accrual since both plans terminated 12/31/2007.

[AndyH]

What's the "standard Rev. Rul. 80-229 language for excess assets" for those of us with short memories and little time?

[Blinky the 3-eyed Fish]

Mirrors the jist of that promulgation saying excess assets will be allocated in a nondiscriminatory manner, blah blah....

[Mike Preston]

Submit plan termination, include the accrual in the 2007 figures you submit as applicable to 2007. Be happy.

[Guest amadeus]

Can you take the position that the plan termination isn't complete until the assets are distributed? If so, then I think that will alleviate your problem with a 2008 accrual. The former employees are tested separately from the actives, and the rules for testing former employees are a little fuzzier than the rules for the actives, but I'm not sure that matters imuch in this case.

Maybe test both groups on accrued-to-date using the average compensation on which the termination benefits are based? i don't know what comp to use to test the excess allocation on the annual basis.

[AndyH]

"Do you think the excess allocation is a 2007 accrual even though it technically doesn't happen until 2008?"

It sounds like "it" (the accrual) "happened" in 2007, not 2008.

If you amended the plan in 2008 to create a new benefit structure to absorb the excess assets, then I think an argument can be made that it is a 2008 accrual, but if you relied upon document language in effect 12/31/2007 or an amendment that was effective in connection with the termination or retroactiver to 12/31/07 then it seems to me that the accrual was in effect in 2007, and 2008 activity is merely paperwork and allocation of post termination investment earnings.

All depends on how you define the word "it"

William Jefferson Clinton

[Mike Preston]

What AndyH said.