PBGC Coverage

[John Feldt ERPA CPC QPA]

Mom and Dad own 100% of a corporation and they employ their adult daughter (age 43). The type of business is NOT one of those professional businesses that are automatically exempt from PBGC coverage. No other employees.

A DB plan is set up to cover all three employees.

The plan is subject to PBGC. Agree?

Assuming nothing changes other than the daughter later becomes a 100% owner and Mom and Dad retire from working, 404(a)(7) applies and PBGC coverage ends, right?

[rcline46]

So far, correct. Why not have the daughter buy an option to become an owner? Then no PBGC coverage.

[John Feldt ERPA CPC QPA]

Well, it's that pesky 404(a)(7) thing, that's the deal here.

[Hojo]

Isn't the daughter already an owner based on deemed family ownership?

[SoCalActuary]

Isn't the daughter already an owner based on deemed family ownership?

Yes and no. Yes for discrimination purposes. No for PBGC rules.

[rcline46]

Now, if you want PBGC coverage to get the big deductions - so the premium is 3 X 3 X 25 or $225 and no big deal. So do you want in or out? At least in this case you get a choice!

[Mike Preston]

I thought the position of the PBGC was that once a plan is covered, it can only become not covered if the plan sponsor makes a request to be not covered and the PBGC grants it. This is similar to the over-25 rule, but not exactly the same.

Whether the IRS would be happy with this position given the change to 404a7 remains to be seen.