Are Surplus Assets Ever an Accrued Benefit?

[Blackbirch]

A terminated DB plan is winding up and making it's final distributions, and the sponsor expects there to be a chunk of cash remaining once all expenses and benefits have been paid.

Currently, the plan provides that any remaining assets will be paid to a group of current and former participants that we don't have the records/information to identify based on an allocation formula that we don't have the records/information to apply. The population/formula is fixed and knowable in theory, we're just lacking the necessary records. We're looking for a way out.

Obviously, amending the plan to provide for a reversion to the employer isn't an option. If we went that route, the provision wouldn't be effective until 2015.

Alternatively, I'm wondering if we can amend the existing provision to instead provide the surplus assets to a knowable group of participants based on a knowable allocation formula. By changing this provision, anybody in the original group could likely go form getting something to getting nothing. When it comes to qualified plans, that sort of thing gives me the willies.

If this were an ongoing plan that was silent on the disposition of surplus assets upon plan termination, the default operation would allocate any surplus assets to participants. If that ongoing plan were amended to provide for reversion to the employer, I can't imagine any issue (aside from the five-year delay). Even though the participants have lost something in the abstract, you wouldn't say there was a cutback or that accrued benefits were affected in anyway. Until the checks are cut, does that approach ever change?

• Does the position change if an event occurs that allows us to identify, concretely, the participants that would be entitled to receive surplus assets?
  
• Does the position change once the plan actually terminates?
  
• Does the position change once the final benefit distribution is made, and the amount of surplus assets are known?
  

At the end of the day, we're just looking for a method to allocate the surplus that we can actually administer. The easiest solution would be to amend the plan to provide an alternate allocation section to replace the existing one. However in doing so, I want to make sure we're not negatively affecting any current or former participants impermissibly.

Any thoughts?

[david rigby]

When it comes to qualified plans, that sort of thing gives me the willies.

It's good to see correct technical terms in use.

IMHO, yes you do have a problem. Not that you have to divulge the details here, but saying "we don't have the data" is much easier than actually searching for the data. Has that avenue been explored?

While your proposal may be a reasonable suggestion around a problem, it's probably important to address the problem first, and document how you've attacked that problem. On the other hand, if you've addressed it, with no success, could you accomplish your goal thru an IRS DL?

Just thoughts.

[Mike Preston]

Fees.