Overfunded, Termination and a wacky idea . . .

[Guest jvgatty]

Hi all,

I have a CB plan that wants to terminate. If they were to terminate today, there would be $53,000 in excess assets (approximately) above accrued benefits.

The FA suggested that we use the excess assets to pay plan expenses which were previously paid by and deducted by the plan sponsor.

I was certain that there were problems with this, but I am not finding anything that suggests this is a problem.

Am I off base here? Is this a legitimate way to absorb the excess assets or are there problems with this plan?

Thanks in advance for any and all insight.

[david rigby]

Any room to increase the benefit to absorb the excess?

w/r/t expenses, you may be able to use excess for paying current year expenses, but it might be problematic to go back to prior years. But ask the plan's attorney.

If all else fails, I'm willing to be a plan participant to help you use up the excess.

[Belgarath]

Hmmm - assuming the plan states that administrative expenses are an obligation of the plan unless paid by the plan sponsor, (or something to that effect) I agree that current allowable administrative expenses should be fine - taking into account the settlor/non-settlor expenses as permitted under current guidance.

I'd be pretty leery about the reimbursement of the employer for prior expenses. Might these prior expenses then be considered a loan from the Plan Sponsor to the plan, and therefore a PT? I also agree with David that the Attorney should make this call.

Can they establish a PS plan to use up the excess assets in subsequent years?

[Andy the Actuary]

Tis presentation may be useful: http://www.asppa.org/Main-Menu/confswebcasts/webcasts/archived/101812/docs/webcast-outline.aspx

[John Feldt ERPA CPC QPA]

Will any participants elect an annuity form of payment? If the plan has to purchase any annuities, it seems likely that will use up some excess.

[Effen]

Quick - someone help out John. I think Ned Ryerson has taken over his handle.

[jpod]

I will assume that the plan document permits the plan to pay plan expenses. However, it would probably be a prohibited transaction to reimburse the employer for expenses incurred long ago, at least in the view of the DOL. You can reach this conclusion by looking at the preamble to the current version of the Class Exemption permitting short term loans by a party in interest to a plan. May also be an exclusive benefit problem under Section 401(a)(2).