Participant Waivers of Unfunded Benefits

[Guest Ed F]

We have a client--owner of a small (20- employee) business--who wants to terminate the company's DB plan. The plan has a substantial liability on a termination basis, but most of the liability relates to benefits owed to the owner. He'd rather waiver a large portion of his accrual than find the cash to completely fund the existing accruals on a termination basis.

I seem to recall that the PBBG has no problem with waivers under certain circumstances (are there limits?), but what's the IRS's view? Is the waiver an impermissible forfeiture? Does the waiver have to be reflected in the plan document, or does the document have to at least permit waivers?

[This message has been edited by Ed F (edited 01-25-2000).]

[QDROphile]

Take a look at PLR 9146004. It is old and it is only a PLR, but I haven't found a more recent statment to the contrary.

[Guest PAUL DUGAN]

Over the last 25 years I have terminated dozens of underfunded DB plans with the majority stockholder waiving benefits, the latest approval letter is dated Nov 1999. For PBGC purposes only over 50% stockholder can waive benefits. The IRS will not allow you to call it a waiver they call it reallocation of assets. Title I & II of ERISA only call for vesting on plan termination to the extent funded.

[David]

My recent experience has been that the IRS does not want to see a owner/stockholder's waiver of accrued benefit as this has 411(d) implications, but they are ok with a waiver of the owner/stockholder's portion of distributable assets to the extent required to make full payments to the other participants. You still end up where you want to be.

[Dawn Hafner]

HELP! -

Does anyone know how this same type of situation might be applied to a Money Purchase Plan? I have a MPP terminating, business closed in 2000, and the owner now does not want to make his money purchase contribution for 2000 for himself. Can this accrued benefit be waived? If so, under what authority?

I read this PLR (actually 9146005). It appears that the IRS does not even allow this type of waiver in DBs either, which suprises me because I know of DBs that have received favorable D letters on termination that have used this approach. Any insights on if the IRS position has changed since this PLR? Even if it is OK with PBGC, it doesn't do us much good if it is a plan qualification issue.

Thanks.

[Guest]

My understanding is that you can NOT use a waiver in order to satisfy a required contribution. DB waivers only work when there are no deficiencies in the funding standard account and the assets just aren't sufficient. I don't think the waiver will work to eliminate your MP requirement.

How 'bout having them take a loan to make the contribution then pay the loan back after they receive the distribution. I'm sure there could be some taxes that would need to be paid, but it's just a thought.