Final Contribution to a Cash Balance Plan

[ac]

The Plan Sponsor has decided to terminate their Cash Balance Plan in 2014. 2013 was a great year for the Plan Sponsor and they want to make the largest contribution possible for 2013 prior to the termination in 2014.

Facts:

6 participant plan (all family members)

Maximum tax-deductible contribution for 2013 is $2,000,000.

Minimum required contribution is $250,000.

Plan is covered by the PBGC.

Total lump sum distributions at 8/31/2014 = $3,100,000

Sum of maximum 415 lump sum distributions is $4,200,000.

Projected assets as of 8/31/2014 is $2,700,000.

They will need to deposit $400,000 to fully fund distributions as required by the PBGC.

Can anyone think of a reason they cannot deposit $1,300,000 for 2013????

The assets will increase to $4,000,000, creating assets in excess of the benefit liabilities. The excess assets will be allocated to each individual according to that individual's liability and the ratio to the total liability. No one will receive a distribution in excess of the IRC 415 maximum lump sum.

Thanks for your opinion.

[Effen]

Seems ok to me, assuming they are all family member and HCEs. Generally the allocation of excess assets is considered to be a plan amendment that must satisfy the non discrimination rules. However, if they are all HCE's, then you don't need to worry about it.

As long as the contribution is deductible, and the distributions are less than the 415 limit, I think you are ok.

[AndyH]

Agree.

[david rigby]

Just don't assume that "family member" = HCE.

[ac]

There are two non-shareholders and they are adult children of the shareholders. All employees are HCEs. The adult children participating brings in the PBGC coverage.