Allocation of Assets between 2 owners

[JAY21]

2 owner only plan with AFTAP greater than 90% is terminating and would like to "equalize" distributions amongst the 2 owners. Their respective 415 limits would appear to be sufficient to allow this.

Plan Doc: Just states that if insufficient assets then benefits cannot discriminate under IRC 401(a)(4), also has the top 25 HCE restriction language.

Treas Reg. 1.401(a)(4)-5(b)(2) states only the plan cannot discriminate in favor of HCEs upon plan term.

Rev. Ruling 80-229 has allocation of assets approach (using ERISA 4044 allocation priority) but seems to be primarily concerned with discrmination between HCEs and NHCEs (we have no NHCEs).

Any opinions on whether a 2 owner only plan (never has had any NHCEs) can "equalize" distributions if they are within 415 limits ? Does the one with the higher PVAB have an impermissible forfeiture if she takes less than a pro-rata funded share of her benefit ? Grey area ? not Grey area ? Thoughts.....

[Andy the Actuary]

Would suggest file for a d-letter stating how assets would be allocated. Then, election packages should make sure each spouse agrees to participant's elections under Notary witness. Old people do get divorced*

*The 97 year old husband and his 93 year old wife appeared before the judge petitioning for a divorce, that they hadn't been able to stand being in the same room with each other for almost 65 years. When the judge inquired why they waited so long to get divorced, they replied, "We wanted to wait until the children were dead."

[tymesup]

50% owners ought to be able to forego benefits. 49% owners could be problematic.

[ScottR]

2 owner only plan with AFTAP greater than 90% is terminating and would like to "equalize" distributions amongst the 2 owners. Their respective 415 limits would appear to be sufficient to allow this.

Plan Doc: Just states that if insufficient assets then benefits cannot discriminate under IRC 401(a)(4), also has the top 25 HCE restriction language.

Treas Reg. 1.401(a)(4)-5(b)(2) states only the plan cannot discriminate in favor of HCEs upon plan term.

Rev. Ruling 80-229 has allocation of assets approach (using ERISA 4044 allocation priority) but seems to be primarily concerned with discrmination between HCEs and NHCEs (we have no NHCEs).

Any opinions on whether a 2 owner only plan (never has had any NHCEs) can "equalize" distributions if they are within 415 limits ? Does the one with the higher PVAB have an impermissible forfeiture if she takes less than a pro-rata funded share of her benefit ? Grey area ? not Grey area ? Thoughts.....

I think you can allocate the assets any way you want, as long as one owner isn't getting more than his PVAB while the other is getting less. IOW, if they're both getting <= 100% of PVAB, do whatever you want. If they're both getting >= 100%, do whatever you want. But you can't give one 110% of PVAB and the other 90%, for example. Looking at it another way, you can't allocate surplus assets to one participant, when there are no surplus assets.

I don't think the 50% Majority Owner waiver rule applies, since the plan isn't covered by PBGC.

..SR