Dumb Question

[bzorc]

I don't work on DB plans enough to know this question, so here goes: In the past (like in the 80's, you now see how old I am), Key Employees used to waive their benefits on a plan termination so that no future funding had to take place, as long as assets were sufficient to pay any Non-Key's that were in the plan. Today, I have been told by an actuary that these benefit waivers are no longer accepted by the IRS. Is this true? If so, where can I find a cite for my records.

Thanks for bearing with me on this question.

[Andy the Actuary]

This may be a matter of semantics. If you ask the question, "Can an HCE Key employee blah blah blah?" you may receive a "no" answer. If, on the other hand, you indicate that benefits will be paid to HCE Key employees to the extent funded, you should get a pass. Think about the logistics where you have a one-person underfunded plan and the owner/employee has become permanently and totally disabled and has no income to fund the plan. The plan would have to keep going indefinitely possibly with funding deficiencies until and if assets became sufficient.

As far as sources, ask the actuary to provide you with written correspondence from the IRS that supports his/her position. If this happened to him, he should have documentation and you can determine if the facts and circumstances (and handling) were the same as in your situtation.

[Belgarath]

They can't "waive" a benefit. What they do now, which is currently allowed, is "forego receipt" of the benefit. A common sense solution to a stupid requirement.

Semantics indeed.

[Effen]

so that no future funding had to take place

Just as a point of clarification, I don't think the IRS has ever accepted any waiver type solutions in order to avoid a funding requirement. The only time a waiver solution is used is when the plan has been terminated, but doesn't have sufficient assets to pay all of the benefits.

You can't use a waiver to avoid a minimum funding requirement.

[Belgarath]

Agree. I was assuming termination was taking place.