DIsqualified Plan - Minimum Funding?

[Lou S.]

We have a potential referral and interesting situation.

IRS is proposing disqualifying a plan back to it's inception saying it was never qualified.

In cases such as this, do the minimum funding standards still apply?

It would seem odd that they would apply since the disqualification would negate any deductions but I can't seem to find anything quite on point.

Assume the Plan is not subject to PBGC coverage and the client does not want to enter a closing agreement to "fix" the disqualification.

[Lenny Brown]

Because the minimum funding standards are codified in both ERISA and the Internal Revenue Code, I would argue that a defined benefit plan that is disqualified still needs to comply with the minimum funding requirements.

[Lou S.]

Unfortunately I tend to agree with you.

I'm just wondering if anyone has any experiences with a similar situation or something definite one way or the other. I've done a few searches but can't find anything on point.

[My 2 cents]

I am still trying to figure out why the sponsor has no interest in trying to resolve this in a way that would not lead to disqualification.  Isn't disqualification just about the worst possible outcome?  I thought closing agreements would not involve penalties greater than those that would apply under a disqualification.

[Lou S.]

I'm not sure. I'm just exploring the minimum funding issue right now. Someone else in the office is dealing with the potential client.

[david rigby]

Yeah, I agree with My2Cents. 

But check the document.  Many documents include a provision that requires the plan to be qualified, for it to exist.

[Lou S.]

Thanks Rigby, that thought occurred to me as well.