Excess Assets upon Termination

[Blinky the 3-eyed Fish]

DB and DC plan are both terminated 12/31/2007. DB plan may have some excess assets. PS plan will have an employer contribution for 2007. If the excess is transferred to the PS plan (a qualified replacement plan), there is the requirement from 4980 below that the DB plan allocate the excess assets in the plan year the transfer occurs. (Obviously, there is can't be a suspense account with the PS plan terminated, so that option is out.)

© Allocation Requirements. --

(i) In General. -- In the case of any defined contribution plan, the portion of the amount transferred to the replacement plan under subparagraph (B)(i) is --

(I) allocated under the plan to the accounts of participants in the plan year in which the transfer occurs, or

So does anyone see a problem with using the excess to reduce the 2007 contribution deposit assuming the excess is transferred to the PS plan within 30 days of the due date of the tax return so it counts as a 2007 annual addition?

[Belgarath]

I think there might be a problem. I'm not sure the 404(a)(6) period applies here.

The Code says:

4980(d)(2)©(i) IN GENERAL. --In the case of any defined contribution plan, the portion of the amount transferred to the replacement plan under subparagraph (B)(i) is --

4980(d)(2)©(i)(I) allocated under the plan to the accounts of participants in the plan year in which the transfer occurs, or

4980(d)(2)©(i)(II) credited to a suspense account and allocated from such account to accounts of participants no less rapidly than ratably over the 7-plan-year period beginning with the year of the transfer.

I'm focusing for the moment on the phrase in ©(i)(I), ""in the plan year in which the transfer occurs" and in

©(i)(II) "beginning with the year of the transfer."

If the funds aren't transferrred until 2008, then I'm not sure this would pass muster. I've never seen this done, not seen this question, so I don't know what the IRS stance is, if any.

[Blinky the 3-eyed Fish]

I mentioned the 404(a)(6) timeframe because allocations of excess assets in the DC are annual additions and you can't have annual additions past the year of termination. That's all.

As to your other points, forget about the suspense account. I am not concerned with a 7-year window, when there is only an immediate window.

I didn't quite understand why you don't think it will pass muster.

[Belgarath]

'Cause the year of the transfer is 2008. Arguably, the language requires you to allocate it IN the year of transfer, and therefore you can't allocate it in a prior year.

Mind you, I'm not adamant about this by any means, just offering my "leaning" based upon the literal language.

[AndyH]

Belgarath's point works for me.

[Blinky the 3-eyed Fish]

Well I could counter argue that it is being allocated in the plan year of transfer and that you certainly can't allocate it "in" a year prior to the transfer. It's just being allocated for the prior year. I could too argue that the language "in the plan year in which the transfer occurs" is the first option because the second option is to set up a suspense account if all the money is not allocated in the plan year of transfer, and that the language "in the plan year in which the transfer occurs" is merely a mechanism to distinguish it from the suspense account option.

Of course I don't really know or I wouldn't have posed the question.

[david rigby]

Can you "unterminate" the DC plan, make the transfer, and then create a new termination date in 2008?