Frozen DB Plan (over-funded)

[Guest naveen]

Defined Benefit Plan was frozen effctive 01/01/2006. Conditions of the freeze included no fresh participation after plan freez date.

Doctor wants to terminate the plan that is now over-funded. According to the plan document, excess is to be distributed among all participants.

Do we have to consider a bunch of employees that would be participants had the plan not been frozen? If so, at what rate will they accrue benefits? Under what code section?

[david rigby]

First concern is whether the plan still passes 410b and/or 410a26.

[Effen]

Generally, the allocation of the excess assets is treated as a benefit accrual (or increase) that needs to comply with the applicable non-discrimination rules.

Therefore, you don't necessarily need to include everyone, but you need to include enough to pass 410(b) & 401(a)(4).

[Guest naveen]

Thank you. Understood.

So can the excess amounts be distributed to all participants in proportion to their compensation or is there any other prescribed method?

[Effen]

You can use compensation, or compensation times service, or service, or age, or job class, or whatever, as long as the allocation complies with the applicable non-discrimination rules AND is provided by the plan document. Since you are excluding some employees, whatever you choose may need to be general tested.

[Blinky the 3-eyed Fish]

I still think you need to focus on 401(a)(26). A "bunch of employees" that would have been plan participants makes me wonder if it stopped passing along the frozen trail.