Majority Owner - DB Plan Term

[AdKu]

One of my clients is in the process of terminating their DB plan in standard termination using Alternative treatment of majority owner's benefit.

Can the father who has large sum of benefit in the plan forgo receipt his benefit to the extent necessary to enable the plan to satisfy all other plan benefits?

Long ago the father inherited his business to his son.

However, the son (who is 100% owner) has very little benefit in the plan.

I read some of the discussion about Majority Owners and attribution rules (IRC 1563) on this forum particularly Mike Preston excellent explanations.

I also researched some DB Plan Termination notes including 2015 ASPPA conference - Workshop 20: Plan Termination, Course 55441 – EP CPE Winter FY14 Plan Terminations, 29 CFR 4041.21 - Requirements for a standard termination, 26 U. Code sec. 1563 - Definitions and special rules, etc....

[Griswold]

For purposes of determining a majority owner, the constructive ownership rules of 414(b) and © apply. PBGC Reg. 4041.2.

Those can be some tricky rules. Probably time to call a lawyer.

[My 2 cents]

Assuming that the original post meant that the father, who had been a 100% owner, had gifted or sold the ownership to the son ("inheritance" requiring, or at least very strongly implying, that someone had died), do the constructive ownership rules assign ownership to parents of the owner?

Just wondering if the father waiving benefits owed by the plan sponsored by the son, relieving the company from having to make the plan sufficient, could be considered a taxable event with respect to the son, the father, or the company?

[Mike Preston]

So much to say, so little time. Please excuse the brevity.

Gris, this is an interesting issue. The reg you cited deals more directly with whether the controlled group rules apply. That is, it seems focused on multiple entities. I have never seen that provision extended to create a majority owner of a single entity through 1563 attribution from son to father. In the case at hand I would recommend asking the PBGC. They are usually prompt.

My 2 cents: You worry (wonder?) too much. There is at least one case on record where a majority owner waived their benefit so as to create a reversion where the IRS took the position you posit. But I've never seen it applied in the case of an insufficient plan.

[AdKu]

Thank you all!

[Griswold]

Mike --

You're right. When someone says "the constructive ownership rules" I generally assume that they're talking about IRC 318--which is where you figure out familial relationships for ownership purposes. But those rules only apply to 414(m)--affiliated service groups--and that code section is (conspicuously) absent from the PBGC regulation.

Like I said--those rules can be tricky!