pbgc coverage

[Gary]

A new plan is implemented 1/1/2010.

Say it bases benefits of 0.5% per year based on years of participation.

This would mean that no one has an accrued benefit at 1/1/2010.

The PBGC determines participant count as of 1/1/10 for a new plan and only participants with benefit liabilities are counted.

So it appears to me that the pbgc could take the position that the plan has no non owner participants benefitting and is thus not covered by the pbgc. Of course the plan on that basis would be covered in year 2.

Does the above seem accurate?

This has implications:

if the plan is not covered in 2010 would it follow that the company's profit sharing plan is subject to the 6% limit instead of 25% limit? Even though the plan will be covered by year 2.

Of course we can have (and may take this approach) a non owner participant have their pension be based on years of service and have an accd ben at 1/1/10 and thus be counted.

By the way the PBGC already said plan was not covered due to no non owner participants, though I am not sure where they came up with that as they don't even know the plan formula, etc. Employer of course wants coverage as they want to contribute above 6% to PS plan and make large (over 25% payroll) contribution to db plan.

Curious to hear views.

thanks

[My 2 cents]

The PBGC actually said that people who are participants are not treated as covered just because they have no accrued benefits? Is this some sort of small professional corporation? I was under the impression that the basic premium (based on nothing more or less than the number of participants) would be due, whether it were the plan's first year or not, but my experience is pretty much limited to normal corporate plans subject to normal PBGC coverage.

As a side question - how can you possibly justify a contribution in excess of 25% of pay to a defined benefit plan with only a nominal benefit (1/2% is so small as to not ever generate significant normal costs) and no past service benefits?

[ScottR]

A new plan is implemented 1/1/2010.

Say it bases benefits of 0.5% per year based on years of participation.

This would mean that no one has an accrued benefit at 1/1/2010.

The PBGC determines participant count as of 1/1/10 for a new plan and only participants with benefit liabilities are counted.

So it appears to me that the pbgc could take the position that the plan has no non owner participants benefitting and is thus not covered by the pbgc. Of course the plan on that basis would be covered in year 2.

Since the plan will become covered by the PBGC sometime during 2010 (ie. when non-owners accrue benefits), I think you should

file a premium form for 2010. The participant count would be as of 1/1/09, and would include only people with accrued benefits, which I gather is just the owner. So I would file a form with a participant count of 1. If no one had an AB at B.O.Y., I would file the form with a participant count of zero, and no premium due. I've done that frequently, especially with new CB plans.

.. Scott

[My 2 cents]

Presuming that the plan is a covered plan, the PBGC instructions are clear - if the plan is a new plan, you base the per participant premium on the participant count as of the first day of the premium payment year. Participant counts for the basic premium do not tie in to whether a benefit has accrued yet. Example - plan allows people to participant 60 days after employment (monthly entry dates) but one needs 1,000 hours of service in a plan year to accrue a benefit. Someone hired 10/1/09 would absolutely be counted in determining the basic premium for the calendar 2010 plan year notwithstanding the fact that there would not have been anything accrued by 12/31/09.

New plan effective 1/1/2010, 50 people participate on the effective date with accruals commencing then. 50 X $35 = basic premium, obviously no variable rate premium required.