Terminate a CB Plan and Set Up Another One Right Away

[emmetttrudy]

We have a client who has got it in their head (from who, I have no idea) that they would like to terminate their Cash Balance Plan, pay everyone out, and start a new one right away.

Without going into all the details, there are obviously many reasons they should not do this. One reason I am unsure of though is how quickly could they could establish a new Plan? Are there rules about waiting a period of time before setting up a new plan?

[Effen]

I don't think there are any restrictions related to starting a new plan, however I would want to know what they are trying to accomplish. What "problem" are they trying to solve by doing this?

Have you given them your fee quote to terminate the plan and establish a new one? That usually goes a long way to cooling things down. Then again, if they proceed - work is work.

[emmetttrudy]

They have one HCE who is currently restricted from taking a lump sum. Someone put it in their head that they can terminate the Plan, pay everyone out, and start a new one. It's a terrible idea, I have a list of all the reasons why it's bad including the cost.

[Andy the Actuary]

If they terminate, they would fund to 100%. It would likely be less costly than all the expenses to fund to 110% and then they build a cushion against future contributions.

Presumably, the existing plan has been around awhile so there's no permanency issue?

[AndyH]

If they terminate, they would fund to 100%. It would likely be less costly than all the expenses to fund to 110% and then they build a cushion against future contributions.

Agree - especially using MAP-21 "current liability" - it could be cheaper to fund to 110% rather than to fund the termination liability, especially if the termination payouts won't occur until 2013.

Also, I'll be you there is some "gotcha" here with the flipping of plans to avoid the restrictions, but I don't know what it is either off hand. Seems that this is the kind of thing that made the IRS target early Normal Retirement Ages. Maybe they could argue that this payee's age is effectively "the plan's" NRA and attack it on that basis, or attack it as effectively a prohibited in-service distribution.