Plan termination

[Belgarath]

Defined benefit plan, first plan year was 2009. S-corporation, a single 100% owner, not "professional" and at the time of plan installation, they had one employee who accrued a benefit, so the administrator listed them as PBGC covered and paid PBGC premiums. Apparently, did the same for 2010 and I don't know about 2011. The employee terminated as zero per cent vested in 2009, and under the terms of the plan, his benefit was immediately deemed distributed/forfeited.

Fast forward to 2011. Ignoring other aspects such as permanency and whether PBGC premiums were paid in error, he wants to terminate the plan. Is it subject to PBGC? I don't see how, but I've also never happened to see this, and wondered if anyone had an opinion? I'd say no - I can't see any reason why you can't flop back out of Title IV if you satisfy the exception.

[DMcGovern]

You can email the PBGC standard termination area at standard@pbgc.gov for their answer to this situation. They have always been very helpful - and they have a form to complete for requesting a return of premiums

[Calavera]

In your email you indicate the last day of coverage as xx/xx/xxxx, describe the situation with all relevant dates saying that there were two participants, and now plan covers only the owner, so plan is no longer eligible for coverage.

You should receive the email from PBGC that a coverage determination case will be opened, and the assigned Employee Benefits Law Specialist will make a determination within 3-4 weeks. When they notify you that plan is no longer covered, you file your final PBGC form indicating that this is the last filing. Then you terminate a DB plan as a non-covered by PBGC.

I am no sure about the possibility of retro coverage removal, so my suggestion would be to set 12/31/2011 as the last date of coverage, and file the 2011 PBGC filing as the final filing.

[david rigby]

I'm not sure either, but recall a similar prior discussion somewhere on these Message Boards. Try the Search feature.

[Belgarath]

Thanks all. I e-mailed the PBGC, so we'll see what they say.

[Lou S.]

Not to throw a monkey wrench into this for you but be careful the IRS doesn't determine a partial termination occured in 2009 due to the 50% drop in participation which might lead to restored benfits at 100% and once again being PBGC. I know on 5310 IRS submissions we've done of late they question every drop of more than 20% based soley on the drop in participant count no matter how small the plan.

[david rigby]

... partial termination ...

The IRS will presume the termination is involuntary, possibly leading to a partial termination, but the sponsor has the ability to refute that presumption.

[Lou S.]

... partial termination ...

The IRS will presume the termination is involuntary, possibly leading to a partial termination, but the sponsor has the ability to refute that presumption.

Good point. This is true assuming the sponsor has good records that the employee did in fact leave voluntarily.

However if they have been showing he employee on PBGC premiums and paying them 2 years after the employee left, then my presumtion is the client doesn't have very good records. Though I fully admit this could be a faulty assumption on my part.

[Belgarath]

Apparently the employer didn't pay premiums on an ongoing basis for the employee, but did for himself. As you can see, I don't have all the details. Although I presume the PPT angle was considered in 2009, and it was apparently determined not to be, it is a good point - 'cause maybe it wasn't considered...

[Belgarath]

And here'sthe PBGC response, just fyi

Based on the information you have provided, the Plan is no longer covered by PBGC, and no standard termination needs to be filed with PBGC. However, in order that the plan administrator not receive notices of premium delinquency and to avoid possible penalties for not submitting premium filings, please provide the following information so we can provide a formal, written coverage determination:

-name of the plan and plan administrator

-plan sponsor’s name, address, telephone number and Employer Identification Number (used on annual premium filing forms)

-the plan’s three digit plan number

-plan sponsor’s organizational structure (i.e. sole proprietorship, partnership or corporation)

-name(s) of the owner(s) within the past 5 years and percentage ownership

-dates of termination, dates of payment (or forfeiture) and amounts paid to former plan participants (please provide names) within past 6 years

-date of plan termination, if the Plan has or will be terminated

In addition, please describe any family relationships that exist between or among participants in the plan and owner(s) of the sponsor business, as well as those participants’ dates of birth