Overfunded DB seeks creative solution

[Flyboyjohn]

Other than qualified replacement plan to reduce reversion penalty are there other creative techniques to reduce/eliminate reversion for a terminating 1 man plan?

I've heard mention of a technique to purchase and distribute a J&S annuity which soaks up more assets than a lump sum cash distribution?

Thanks

[david rigby]

Increase benefit, up to 415 limit?

Cover someone else (perhaps spouse)?

I forget: is there any reason why you can't have a one-person qualifed replacement plan?

[My 2 cents]

Other than qualified replacement plan to reduce reversion penalty are there other creative techniques to reduce/eliminate reversion for a terminating 1 man plan?

I've heard mention of a technique to purchase and distribute a J&S annuity which soaks up more assets than a lump sum cash distribution?

Thanks

I don't see how overspending to buy an annuity is an improvement over taking the reversion and getting to keep what is left after taxes.

Of course, if a J&S annuity is more in line with financial plans or needs, it makes sense to do that.

It isn't as though one can spend extra on an annuity and then turn around later and cash the annuity out for more than the lump sum would have been.

[Andy the Actuary]

Never seen it done and not sure how it would fit within " prudent man" rules. Take excess and invest in some highly speculative security that if it hits, it hits big. You will pay some hallacious tax if it hits. However, let's suppose regular income taxes plus excise taxes are 90%. Then, 10% of some very large reversion could well exceed the original reversion.

So, suppose reversion is $1 million. You net $100,000. So, if speculative investment of $1 million grows to $10 million, the net reversion is 10% of $10 million = $1,000,000 = 100% of initial reversion!

And the IRS thanks you. Now if the speculative investment tanks, watch out.

[CharlesLeggette]

A couple of questions and observations

1. If married, and a legitimate action, pay spouse a salary/NSC income and begin accruing benefit under a Cash Balance Plan formula.make the nBr 100% of pay.See comments below re old DB benefit.

2. If he/she has continuing income, freeze the DB benefit and add a 100% of pay cash balance benefit for both and ride the 415 B and 401a17 limits until the plan is on a even keel.See below.

3. MUST DO: Amend the Plan immediately to provide in-service distributions and immediately roll the PV of the Accr benefit to an IRA. This will discontinue any asset race competing with the liability race.Each year in which a participant or spouse receives a Cash Balance Credit to their hypothetical account, have them take an in-service distribution. Usually it will take 3 to 7 years to chew it up...then go home.

[david rigby]

BTW, it may be useful to re-read IRC 4980 to make sure no special conditions apply (eg, bankruptcy).
If the one-man company can establish a DC plan to receive the excess, that may eliminate the excise tax entirely.
See also Rev. Ruling 2003-85. http://www.irs.gov/pub/irs-irbs/irb03-32.pdf