Mish Mash

[Andy the Actuary]

A professional with 4 employees wants to terminate the calendar year DB plan as of 12/31/2014. The professional's benefit say for the sake of argument yields a lump sum of $1.5 million after taking 415 into consideration. Plan assets would fall about $150,000 short. The professional wants to distribute benefits in the first 6 months of 2015 and while IRS D-Letter approval will be sought, the professional does not want to wait for approval to make distributions. On the other hand, the professional would want within reason to maximize the distribution.

I'm considering the following. Of course, distribute the employees their full benefits. Distribute the remaining assets (except say for $1 to keep the trust open) to the professional and the professional and spouse would execute a benefits waiver. We do not want to fund the plan 100% at this point to avoid the unanticipated possibility that the IRS may disagree with the lump sum calculation.

Once IRS approval is received, calculate the total lump sum at the new distribution date as the lesser of the lump sum at original distribution and lump sum at new distribution date using the then present age and interest rates. In this way, we ensure that the professional does not derive any unforeseen benefit from the delay. Note: the benefits waiver is still in effect. Have the professional fund the difference between the "lesser" just determined and the amount of original distribution, and then distribute this amount to the professional.

Since the waiver is in effect, the professional can contribute any amount up to 415 so the fact that the Plan does not provide for this mish mash should make no difference.

Any comments?