small PBGC Plan under(over) Funded

[Guest jmrodrig]

Calendar year defined benefit plan has been around for several years. It has 2 deferred Vested participants and two active participants (the active participants are married/owners and the owner has began receiving benefits in an annuity on 7/1/2009 and continues to be employed).

Two deferred vested participants are their children.

No compensation has been taken for the past 5 years. Plan has been overfunded since 2005.

We informed client in 2005 that the plan was overfunded and that the accrual of benefits would decrease the overfunding IF THEY TOOK COMPENSATION. Benefit formula is already 100% of avg. comp. We have informed them of these facts every year since 2005.

Finally in 2008 (the market downturn), the plan became more managable and was no longer overfunded as of 12/31/2008. We informed the client that although the assets dropped significantly, the plan was able to terminate now.

The client finally discusses termination with us in early 2010. Problem is the plan had a return for 2009 of over 100%. Statements show no contributions to the trust but do show a transaction to buy and sell securities that led to increasing assets to double what they were as of 12/31/2008.

BOY valuation shows a min. required contribution of 112,000. (using 1/1/2009 or 12/31/2008 assets). But now the plan is overfunded again!

We have contemplated changing the Valuation to EOY (with IRS approval). But, is there anything in the regs. that states a min. required contribution can be left unpaid if it would only overfund the plan even more?

Any one have any other creative solutions at this point. Yes the client failed to follow our recommendations for the past 5 years, but we are where we are and are looking for solutions going forward.

Owner who is currently receiving benefits is also receiving social security and has discussed with his accountant about the negative of claiming compensation while receiving social security and retirement benefits.

Is the reversion tax of 50% the only option? Or 20% if they start up a Defined Contribution Plan?

[SoCalActuary]

I would suggest that your window to terminate has closed again. Keep the plan going, as it is an annuity of fees to you.

[JAY21]

I believe the final 430 regs allow you to change the valuation date to an EOY date for 2008-2010 without formal IRS approval. That would presumably wipe out the contribution.