EOY val after plan termination

[Draper55]

two person db plan(h&w) that is underfunded..plan is invested in cash so funding is deteriorating. Suppose the plan is terminated 4/30/2015. There is no accrual for

2015 so the 2015 min is just a prorata amortization of the unfunded(using ppa mechanics of course), 1/3 if i understand it correct. Val date could logically be 4/30, date of asset distribution or 12/31. No more auto switch to term date so I think it is the later of the date of asset distribution and 12/31? If the val date is the date of distribution is the unfunded determined on that date prior to distribution?

If this is this case then client should distribute assets asap so that the prorata amortization is minimized due to deteriorating funding? If the assets have not been distributed by eoy, then the final minimum due is the prorata charge based on the eoy asset and liability amounts. Sound correct? Thanks for any thoughts..

[Effen]

I think you would use the plan termination date - not the distribution date or the end of the year.

[dan.jock]

Can I reopen this topic with regards to the MRC?  Owner-only plan with EOY val.  Plan terminates and distributes late in 2016.  With automatic approval, I'm persuaded to do a BOY val.  MRC turns out to be more than they contributed (and could really afford anyway)  If a resolution is in place for the majority owner to take a reduction in benefits at termination, can I assume that to be the benefit for purposes of the TNC?  Same issue if the val date is any other date, but 1/1 feels nice and neat.  It all seems like formality since it is a 1-person plan but I'm wondering what the academically correct course of action should be.  An excise tax on a missed MRC for a benefit accrual that never took place doesn't seem to be what the IRS should be after in this case.

[Effen]

Ahhh, what "automatic approval"?  Sounds like you have some problems.

In this situation we would have done an EOY val on the date of termination and prorated the SC and Amort, if any.  They need to make their final MRC and plan termination is not an excuse, although it does stop the 10% excise tax.  In essence, if they can't afford to deposit he entire MRC, they need to pay a 10% excise tax on the piece they didn't contribute.  Not perfect, but at least the termination stops the annual penalty.

No, you can't ever recognize a reduction in benefits for MRC.  It is only used at the time of distribution of assets upon termination.

[dan.jock]

An early slide in a Jan 2016 ACOPA ppt (comes up as a Google result for 'EOY valuations') said final 430 regs provided that only in the case of a plan termination, a sponsor may change from an EOY val date to any other date.  Honestly, since you asked, I cannot verify that in the final regs. 

 

[Effen]

Hmmm, I found the presentation you referenced.  Let me do a little digging.

Either way, it still sounds like you have a problem, but the magnitude may change depending upon BOY or EOY valuation.

 

[Doghouse]

https://www.asppa.org/News/Article/ArticleID/5583/The-Wait-Is-Over-—-Final-Section-430-Regulations-Issued-at-Last-Part-1

I think this article makes the same reference.

[dan.jock]

Thx Effen, I agree there is a problem.  I was writing here in hopes of a creative solution.  What irks me is that it is an owners-only plan.  Minimum funding is in place to protect the rank in file (and the PBGC) from an underfunded benefit promise.  Seems like the spirit of the law should make an exception here but I cannot figure out how the letter of the law supports the exception.