Terminated Plan Underfunded and one former owner is terminated

[emmetttrudy]

Plan Sponsor is considering terminating their Plan. Their used to be three owners. One terminated 9/30/2011 and they have not been able to pay him out the lump sum due to the 110% restriction on HCEs. They are considering terminating the Plan. Normally how it would work in an underfunded status I believe is they either fund the shortfall or they pay out all the NHCEs and then the owners split pro-rata what’s left in the Plan (essentially taking a haircut on their benefits). Does the fact that one of the former owners is no longer an active employee change that? Would the former owner still share in the shortfall, along with the two owners who are left? Or would he be lumped in with the other employees who get paid out first. FYI, this is not a PBGC Plan.

[Mike Preston]

Check the definition of Former HCE in 414(q). I think you'll find that you end up treating him just like the other two owners. To do otherwise could lead to massive abuse.