Excess Assets and Possible Discrimination

[Dougsbpc]

A few months ago we took over a traditional DB plan that had been in place about 11 years. The plan will terminate by year end.

The plan sponsor sold most of the business and let go 4 of 5 employees in July 2014. All of those employees were long term and were paid substantial benefits from the plan back in December. Now it is just the business owner and one of the lower paid employees as participants. The owner has PVAB of $1,500,000, the employee about $10,000. The plan has assets of about $1,700,000 and they are planning on funding $300,000. Apparently, this was all planned out with the accountant a while ago. The owner has about $700,000 of room until he hits his 415 limit.

This seems like a potential discrimination issue to me but maybe not.

I believe they could allocate excess to remaining participants at plan termination up to the 415 limit. Also, I think it is acceptable to run a 401(a)4 test on the allocation using a current year basis rather than accrued-to-date. If the test can be done on a current year basis, I cannot see how the 4 that were terminated and paid out just a little over 4 months ago would factor into this.

Does anyone disagree?

Thanks.

[Effen]

You may want to take a look at 1.401(a)(4)-5 regarding the timing of an amendment.

Also, those employees who terminated last year have likely not had a break in service yet, and certainly not a 5-year break, so there is another argument that they should be included.