AFTAP - One Person Plan

[Andy the Actuary]

Withdrawn

[SoCalActuary]

Andy, your scenario describes one form of chaos or entropy - if nothing is done, things stop working according to plan.

If the plan sponsor can't afford the plan, then freeze the benefits. That stops the TNC. This eliminates some of the chaos you describe.

If the participant dies, then the death benefit is paid, and the trust ceases to exist. Further, the plan sponsor presumably also wraps up their business affairs, and the plan is terminated because there are no beneficiaries of the plan. The chaos gets resolved. If you listen to Holland's comments, the 430 and 436 issues stop because you take action to get an FDL.

Your situation reminds me of the foolish young person I know who starts an installment purchase charged to their credit card each month, like those Time-Life book offers. When the credit card gets maxed out because they could not afford the payments, the books stop coming.

[SoCalActuary]

For your question, which sounds hypothetical as opposed to an immediate client problem, I say that the death benefit for your one-person plan is the full amount of assets, paid after submitting the plan to the IRS for plan termination.

Meanwhile, you also have a funding problem.

Further, your severely underfunded plan needs to have a freeze on benefit accruals, not just for 436. The client should not be making promises of benefits that they cannot deliver.