Allocation of Excess Assets Upon Plan Termination

[Andy the Actuary]

A DB plan's safe-harbor benefit formula is years of service times the sum of 1% of average compensation plus .65% of average compensation in excess of maximum covered compensation. The Plan is terminating and has excess assets at the time of distribution. All benefits will be distributed in a lump sum.

Q: If excess assets are allocated prorata based upon lump sums, does such allocation violate the permitted disparity rules under 401(l)/? If so, then is an appropriate allocation based upon a proration using the lump sum value of the non-integrated portion (i.e., the lump sum value of years of service times 1% times average compensation)?

[rcline46]

1. YES and definitely YES.

2. Yes, or pay, or YOS, or ....