Solo DB Plan w/ Dead Participant

[MSN]

We have a DB plan benefiting only an owner-employee. This person died with a large contribution obligation. Must an executor make the contribution or would they have some alternatives after the death?

[AndyH]

When did he die, was he the sole owner, what is the valuation date, what is the death benefit?

[SoCalActuary]

We have a DB plan benefiting only an owner-employee. This person died with a large contribution obligation. Must an executor make the contribution or would they have some alternatives after the death?

Terminate the plan, pay the death benefits to the extent funded, liquidate the business, and report an uncollectable excise tax on the failure to fund.

[MSN]

Thanks for the responses.

Andy-

Died in 4/16/2009, was the sole owner, val date is 1/1. Would the death benefit not be dependent on the funding? Current assets around $40K with roughly $150K due as min contribution. Forgive my ignorance on the topic...I'm a DC guy.

SoCalActuary-

Does any of this change your recommendation? How is an uncollectible excise tax reported? I've never had to do this before.

[SoCalActuary]

Thanks for the responses.

Andy-

Died in 4/16/2009, was the sole owner, val date is 1/1. Would the death benefit not be dependent on the funding? Current assets around $40K with roughly $150K due as min contribution. Forgive my ignorance on the topic...I'm a DC guy.

SoCalActuary-

Does any of this change your recommendation? How is an uncollectible excise tax reported? I've never had to do this before.

I took some shortcuts to give you a solution. Your actuary should fill in the details. You have a plan with required contributions which I presume are for 2008, and which are not paid. The successor to the business can choose to put in whatever funds are available to meet the 2008 minimum funding, but should not put in more than the client is eligible to pay out for the beneficiary (a separate calculation.) If they don't put any funds in, then the plan did not meet minimum funding standards, and is subject to excise tax as reported on 5330. But that does not mean that the client (successor to the sole proprietor's interests) will choose to make the funding, maybe because they don't have the money.

[AndyH]

I agree with SoCal but to answer your question there are various tools available to mnimize short term funding requirements through the use of different valuation dates, asset methods, interest rates, and lookback selections. Since you are a DC guy you won't understand these but there are more options available than there were a few months ago since the IRS has recently strongly hinted that imminent regs will permit flexible choices through at least 2009.

If the 2008 Schedule SB has not been signed it might be possible to reduce 2008.

[SoCalActuary]

I agree with SoCal

Wow! must not be baseball or politics!