Frozen DB

[thepensionmaven]

An accountant has asked that we review a DB that has been in existence since the late '80s and "hard" frozen since the mid-90s.

Plan subject to PBGC.  PBGC filings as well as 5500s with Schedule B/SB filed each year.

The owner died, leaving his wife and two adult sons to run the company, who want "absolutely nothing to do with this plan". Apparently, this is a "C" corp with the spouse as the 100% owner, the sons as officers.

Granted, the plan should have been formally terminated at that time, I do not know why it wasn't.

The way we understand the situation, client told the TPA just "to keep the plan going", not to terminate, and the client would not make any contribution if it could be avoided.

Plan has been kept going by the owner and two adult sons waiving their benefits such that the normal cost each year would be "0".

Accountant asked we look into terminating the plan after all this time.

Any thoughts??

[figure 8]

If the plan has been hard frozen since the 1990s, that would be the reason for the 0 normal cost each year.

If the plan is 100% funded, I see no reason why they couldn't do a standard PBGC termination. Was there something in particular concerning you about this case? Being frozen for 20+ years would be odd if this is a small well-funded plan (and think of the years of wasted premiums and actuarial fees that could have easily been avoided with a termination), but the length of time frozen shouldn't have any impact on termination.

[Luke Bailey]

If underfunded, problems, if overfunded face 4980 excise tax, if assets = liabilities, perfection.

[Larry Starr]

There clearly is a firm involved in servicing this frozen plan since 5500s and Schedule B's have been filed every year and as well as PBGC filings (according to the original posting).

The immediate question that comes to mind is why isn't the accountant (or client) asking this question of the existing servicing firm.  They know where the skeletons are (usually) if there are any. In most cases, we find it is less expensive for the existing firm to terminate the plan than for us to get involved de novo with this action since we know nothing about its history nor the plan provisions nor the existing frozen benefits.

Next question: are you a full service firm with an actuarial operation (the fact that you ask the question you do causes me to ask this question since I would expect an actuarial firm to already know what they would be dealing with)? If you are not, it might be risky to take this on (and again, I would want to know why the existing servicer is not being asked to terminate).

Hope this helps.