Restriction on lump sums

[Medusa]

We have a husband and wife DB plan (not PBGC covered). The husband just died. Currently plan assets are about $330,000, and the following benefit liabilities exist:

Death Benefit payable to wife: $425,000 (of which about 1/3 represents the required survivor benefit)

Retirement benefit payable to wife: $125,000

The last AFTAP put us at about 73%.

The business can't continue without the husband. Obviously we do not have enough assets to pay both the death benefit and the retirement benefit. Everyone would like to get rid of this plan as soon as possible.

Any thoughts as to whether there is any way under the sun to accomplish??

All suggestions appreciated!

[Andy the Actuary]

It would appear reasonable the IRS position on demanding 80% AFTAP at plan termination would not be enforced when only participant is owner or also, if owner and others and others get their full 100% vested benefits. My understanding is the IRS was concerned about pro-rating non-owner employee benefits. No doubt there will be disagreement on this supposition.

Otherwise, could fund to 80%, roll benefit to IRA, and take distribution to cover the 7% (assuming the 10% premature distribution penalty does not apply).