Minimum Contribution in Year of Termination

[Guest pm01]

I have a one person DB plan that terminated during 2008. As of 1/1/2008, there was a minimum required contribution, which was not made prior to termination. The plan was underfunded and the participant waived benefits at termination.

Is there any way that the valuation date can be switched to the end of the year to allow for the waiver to be taken into consideration for the 2008 valuation? Would we need to apply for an approval for a change in funding method? Is it likely that this would be approved? The plan has always used a 1/1 valuation date. Can we automatically switch to any day of the plan year in 2008, or does it require approval?

Assuming we have to stay with the 1/1/2008 valuation date, can we use a 100% turnover assumption? Any other ideas?

[Andy the Actuary]

I have a one person DB plan that terminated during 2008. As of 1/1/2008, there was a minimum required contribution, which was not made prior to termination. The plan was underfunded and the participant waived benefits at termination.

Is there any way that the valuation date can be switched to the end of the year to allow for the waiver to be taken into consideration for the 2008 valuation? Would we need to apply for an approval for a change in funding method? Is it likely that this would be approved? The plan has always used a 1/1 valuation date. Can we automatically switch to any day of the plan year in 2008, or does it require approval?

Assuming we have to stay with the 1/1/2008 valuation date, can we use a 100% turnover assumption? Any other ideas?

What kind of contribution are you looking at if you employ WRERA 92% of FT and use asset smoothing, which may bring you to 110% of market value of assets. Presumably, you cannot use FSCOB? What would be the problem with making the contribution (if necessary a loan to the corporation), and taking the additional contribution as a distribution in cash, which would wash? These alternatives are not risky whereas getting creative may be.

[Guest pm01]

What about the tax on the cash distribution?

[Effen]

Is there any way that the valuation date can be switched to the end of the year to allow for the waiver to be taken into consideration

Unless something else has changed, you can't recognize a waiver of benefits to determine your required contribution no matter what. The wiaver concept is only useful to allow a plan to terminate. Waiving benefits to avoid a required contribution has never been permitted as far as I know.

[Andy the Actuary]

What about the tax on the cash distribution?

This would be roughly offset by the tax deduction on the contribution. Is this a corporation or sole proprietor?

[Guest pm01]

This is a Sole Proprietor. I don't know if the sponsor had any or enough income to offset for the plan year. Assets were distributed in 2008, if they make a contribution now, doesn't that invalidate the termination and take us into doing a 2009 valuation?

[Andy the Actuary]

This is a Sole Proprietor. I don't know if the sponsor had any or enough income to offset for the plan year. Assets were distributed in 2008, if they make a contribution now, doesn't that invalidate the termination and take us into doing a 2009 valuation?

Seems as if there is still time to make contributions for the 2008 Plan Year.

I have a sole-proprietor attorney client who himself conducted extensive research regarding the later deductibility of a required contribution when there is no offseting income (nor is there expected to ever be any). His conclusion was that he could claim the deduction against his minimum required and ultimate distributions.

[Guest pm01]

The deductibility is not a big deal in this case because the contribution is small. I'm more concerned about the client making a contribution after the end of the plan year when all assets were supposedly distributed prior to the end of the plan year (12/31/2008). Can the asset that is created by the contribution after the end of the plan year go to paying plan expenses? This would allow the final 5500 to show zero assets at the end of the plan year.

[Andy the Actuary]

The deductibility is not a big deal in this case because the contribution is small. I'm more concerned about the client making a contribution after the end of the plan year when all assets were supposedly distributed prior to the end of the plan year (12/31/2008). Can the asset that is created by the contribution after the end of the plan year go to paying plan expenses? This would allow the final 5500 to show zero assets at the end of the plan year.

As long as they are customary actuarial, legal, and accounting expenses arising from the administration and termination of the Plan. As an example, fees to study whether or not the Plan should be terminated should not be paid from the plan. While this does not pertain to this plan, expenses to prepare FASB disclosures are a prime example of expenses that should not be paid by the plan. There are reams of paper on this subject, though most by the DOL.

[flosfur]

.......... Presumably, you cannot use FSCOB? ...............

What's FSCOB?

[david rigby]

Funding Standard CarryOver Balance

If all assets were distributed under a termination, does not that define the end of the final plan year? and the plan no longer exists?