Restricted Distributions to HCEs

[JAY21]

Is there any flexibility in the restricted distributions to HCEs in a plan that would be LESS than 110% funded after a proposed distribution to an HCE if there are no NHCEs in the plan and never has and never will be. For example if you had a permissively aggregated DB-DC combo plan arrangement and only HCEs are in the DB plan (pass 401(a)(26) due to high volume of HCEs) does the DB plan still need to be 110% funded after a proposed distribution to an HCE in order to be able to do the HCE distribution ? Does the 1.401(a)(4)-5(b) restrictions ALWAYS still apply in this situation ? Any way for all the HCE or Employer to elect not to impose them since there are no NHCEs to discriminate against ? Thanks for any thoughts and opinions.

[SoCalActuary]

Bonding is the solution.

[Andy the Actuary]

You will note in 1.401(a)(4)-5(b)(1) that the 110% rule does not apply "if the Commissioner determines that such provisions are not necessary to prevent the prohibited discrimination that may occur in the even of an early termination of the plan."

Presumably, this means you could amend the Plan to stipulate that the provision only applies in the event the Plan at any time covers an NHCE. You could then submit the Plan for a D-Letter. An attorney could tell you whether a favorable D-Letter would mean you're home free.

[JAY21]

Can you even find a company to do the bonding these days on this type of distribution ?

[Mike Preston]

Escrow is relatively easy.