Merging Two DB Plans

[mming]

Two DB plans are sponsored by different businesses owned by the same family. All participants of both plans are family members and they insist that there are no controlled group or attribution issues. If one plan is an overfunded 1-man plan, can it be merged with the other plan (which is not overfunded) in order to eliminate a potential employer reversion, i.e., use the excess assets from the 1-man plan to help fund the other plan? All help is greatly appreciated.

[SoCalActuary]

Two DB plans are sponsored by different businesses owned by the same family. All participants of both plans are family members and they insist that there are no controlled group or attribution issues. If one plan is an overfunded 1-man plan, can it be merged with the other plan (which is not overfunded) in order to eliminate a potential employer reversion, i.e., use the excess assets from the 1-man plan to help fund the other plan? All help is greatly appreciated.

Follow the merger rules in IRC 414. If the participants will not have lower benefits after the merger, then your plans should be able to merge. Further, you will be dealing with merging the two funding standard accounts, and reconciling the two different plan documents. This includes definitions of NRA, actuarial equivalence, look-back & stability periods, etc.

[Andy the Actuary]

Unsure what is meant that "there are no controlled group" issues. Hopefully, it is a controlled goup, because if not, then you will be creating a multiple employer plan and assets would need to be segregated.

For example,

Company 1 Company 2

F1 100% 50%

F2 10

F3 10

F4 10

F5 10

F6 10

Assuming family aggregation does not apply, this does not look like a controlled group.

[mming]

Thank you both for your responses. I should've given more detail - no controlled group exists currently, prior to the proposed merger. I was given add'l info this morning - the family actually has 3 DB plans with only family members employed.

Joe owns 100% of co. A which sponsors plan A - Joe, his daughter and her husband are the only employees and they all participate.

Joe also owns 60% of co. B which sponsors plan B - this is the overfunded 1-man plan previously mentioned and he is the sole employee. The other 40% is owned by his sister who will now be selling her interest to him - this is what prompted the discussion about what, if anything, would change regarding the plans and should they be merged.

Joe's daughter owns 100% of co. C which sponsors plan C. She participates in the plan along with her husband, her adult daughter and Joe.

Previous discussions indicate that there was no sec. 1563 attribution. The 3 cos. have no dealings whatsoever with each other or with mutual clients, so no ASG exists.

All participants have accrued benefits at the 415 limit in each respective plan - some capped by the $ limit, others by the high-3 limit. This may be another issue as I was under the impression that after adding up the benefits an individual has in all of the plans they participate in, the total cannot exceed the 415 limit - am I mistaken or is this only the case in controlled group and ASG situations? Whether this is right or wrong, I'm thinking that merging plans A and B would cause Joe to have two max. benefits in the remaining plan A - not legal. However, terminating plan B would cause a reversion - is there a solution?

Thanks again for helping me navigate through this mess.

[John Feldt ERPA CPC QPA]

Joe owns 100% of A - Joe is in Plan A

Joe owns 60% of B - Joe is in Plan B

Has Joe accrued a separate 415 limit in both A and B?

[mming]

Joe owns 100% of A - Joe is in Plan A

Joe owns 60% of B - Joe is in Plan B

Has Joe accrued a separate 415 limit in both A and B?

Yes - is this permissible? He will soon own 100% of B.

[John Feldt ERPA CPC QPA]

If A owned 60% of company B, then I think 415 is aggregated.

But since you show that Joe is the owner, not the company, then it is a brother-sister controlled group (not a parent-subsidiary controlled group), so I think that works. I think there's another thread in here that mentions that. Belgarath has it here:

http://benefitslink.com/boards/index.php?s...st&p=157643

I am not sure what happens if he becomes a 100% owner of both.

[Andy the Actuary]

My recollection is the controlled group threshold is 50% rather than 80% as it pertains to IRC Sec 415.

[John Feldt ERPA CPC QPA]

That's what I used to think, but that's only true when it is a parent-subsidiary controlled group - see the link above.

[Andy the Actuary]

That's what I used to think, but that's only true when it is a parent-subsidiary controlled group - see the link above.

Thank you. The position cited in the ERISA Outline Book is consistent with your assertion.