Plan termination and reallocation of benefits

[abanky]

I have a plan with only hces (majority owners)... the plan is underfunded.... can Hce A waive part of his benefit, Hce B waive part of his benefit, and Hce receive an increase in his benefit? They want this to happen so each will have the same pvab at the time of distribution. My initial thought is no.

[Andy the Actuary]

How about amending plan to give each member a different benefit formula which yields the same present value. Then, each can take take his benefit to the extent funded which should get you where you want to be. There is no discrimination if all are HCEs and key issue would be that there never were any NHCEs.

[JAY21]

I think Rev. Ruling 80-229 deals with this issue and I thought it merely required that the plan not be discriminatory in its final allocation of final assets. Don't know how that dovetails with any 411(d)(6) issue but you might check it out.

[abanky]

Thanks very much,

Andrew

[AndyH]

AtA and/or Jay,

How can these people waive if they are not majority owners and the plan is subject to PBGC? Or does the PBGC coverage even matter - how can they waive period of not majority owners?

Or if the plan is amended, the benefits can't be amended downward. Right?

Could someone clarify? I don't do much in the way of terminations.

P.S. Andrew (3 of us in this thread!), you confused me with the question. Are you discussing a situation with only 2 majority owners? Or 2 of those plus somebody else. And is it covered by PBGC?

[ScottR]

I don't see how you can allocate surplus assets to one participant if there aren't any surplus assets. Certainly, one HCE could get full PVAB while others take the hit for the funding shortfall. But I don't think you can go the next step... i.e. giving one person MORE than his pvab while shorting others.

I like Andy's idea of amending the plan to increase pvab's for all participants, so that no one gets more than pvab.

.. Scott

[abanky]

AtA and/or Jay,

How can these people waive if they are not majority owners and the plan is subject to PBGC? Or does the PBGC coverage even matter - how can they waive period of not majority owners?

Or if the plan is amended, the benefits can't be amended downward. Right?

Could someone clarify? I don't do much in the way of terminations.

P.S. Andrew (3 of us in this thread!), you confused me with the question. Are you discussing a situation with only 2 majority owners? Or 2 of those plus somebody else. And is it covered by PBGC?

HI Andy,

All three are majority owners. Family business.

[JAY21]

If I'm understanding the strategy correctly to bump up PVABs so everyone's allocation is at least $1 less than their PVAB, I think I like that approach. Then I think the 80-229 ruling should support an allocation amongst owners that is not the same % for each since it is not discriminatory and it's not PBGC covered so we don't have majority owner rules to worry about.

[AndyH]

Are we sure it is not PBGC covered? Andrew?

[abanky]

not pbgc covered.

[Andy the Actuary]

I'm confused by all of the Andrews. Henceforth, could we please refer to AndyH as "Ace," Abanky as "Deuce", and Andy the Actuary as "Joker?"

[abanky]

I like it.

Andrew "Deuce"

[AndyH]

Well, I used to be a good tennis player so I'll take it.

[SoCalActuary]

"He played the King... but feared someone else had the Ace."

So which of you is King Andrew?

[Andy the Actuary]

"Joker" Andrew is only King if royalty is age-determined.