Ovefunded Plan and no participants

[SSRRS]

 

One  Participant, owner only plan.

The owner was taking annual distributions and passed away.

He had elected a Joint and Survivor benefit and his spouse passed away years ago, and therefore there is no beneficiary to continue taking his annual distributions.

The Plan is heavily overfunded. What happens to the plan now. 1. Does the overfunding revert to the estate and the estate will owe the excise tax for he overfunding? 2. Can the estate sell the plan to an underfunded plan (as is done at times to avoid an excise tax on the overfunding)? Thank you very much.

 

[Lou S.]

Quote

1. Does the overfunding revert to the estate and the estate will owe the excise tax for he overfunding?

Terminating the Plan, Reverting the assets to the Plan Sponsor (which at this point may be the same thing as the estate I am not a lawyer), and Paying the Excise tax is certainly one way and possibly the easiest way to end this.

To reduce the impact, suggest having all fees paid from the trust to reduce the reversion.

As for selling the Plan I'm not sure, someone with some direct experience in doing this may be able to chime in. I thought how that worked is you sold the business along with the DB Plan or merged with a company and plan with an underfunded plan. I'm not sure there is any business to sell in this case but maybe I misunderstand the mechanics.

 

[Jakyasar]

With the owner and spouse dead, who is running the business, does it even exist? 5500 forms have been filed? Documents updated? etc etc etc

Usually plan documents would say if no beneficiary, all goes to the estate but this is a very general approach.

By the way, what does the document say about the excess at the time of termination.

Also, if the plan is sellable, the level of the overfunding may or may not attract the buyers.

Just thinking out loud.

[chc93]

Sounds like since the owner and spouse have died, there is no "beneficiary" for any benefits... no benefits left to be paid to any where... including the estate, correct?  Then the excess assets will revert to the Company/Plan Sponsor, who ever that is decided.  Maybe the Company will be in the owner's estate... in which case, the owner's estate.  Seems like I talked myself in circles.

[SSRRS]

4 minutes ago, chc93 said:

Sounds like since the owner and spouse have died, there is no "beneficiary" for any benefits... no benefits left to be paid to any where... including the estate, correct?  Then the excess assets will revert to the Company/Plan Sponsor, who ever that is decided.  Maybe the Company will be in the owner's estate... in which case, the owner's estate.  Seems like I talked myself in circles.

chc93, thank you very much. You indeed clarified things and this is sort of what I was pondering and  just about to ask about. As you stated perfectly, there is no beneficiary at all anymore, since the participant and his survivor both have passed away.  Therefore all the plan assets are now the excess assets (as opposed to the usual overfunding in which the excess assets are the assets that are above the participant's  PVAB). -- Based upon your insights would the following be correct?

1. If the company is in the owners estate, will the estate then be the one to pay the 50% excise tax on the entire plan assets?  2. If the company was dissolved (before the owner passed away) , would the assets revert to the estate in place of reverting to the company (since there is no company for the assets to revert to)?  Thank you very much.

[chc93]

9 hours ago, SSRRS said:

chc93, thank you very much. You indeed clarified things and this is sort of what I was pondering and  just about to ask about. As you stated perfectly, there is no beneficiary at all anymore, since the participant and his survivor both have passed away.  Therefore all the plan assets are now the excess assets (as opposed to the usual overfunding in which the excess assets are the assets that are above the participant's  PVAB). -- Based upon your insights would the following be correct?

1. If the company is in the owners estate, will the estate then be the one to pay the 50% excise tax on the entire plan assets?  2. If the company was dissolved (before the owner passed away) , would the assets revert to the estate in place of reverting to the company (since there is no company for the assets to revert to)?  Thank you very much.

Hi SSRRS... unfortunately, I'm not even a novice (let alone expert) in issues of estates and companies of owners that pass away.  But, I'll offer my 2 cents.  I don't have a clue for item 1.  For item 2, if the company was dissolved before the owner passed away, the plan had to have been terminated, since a plan cannot exist without a sponsor.  And if so, I think the excess assets would go to the owner up to 415 limits at plan termination.  Then, any excess would go to the company who pays the 50% excise tax, assuming the company lasts long enough after plan termination and before dissolving.  Complicated, at least...

[SSRRS]

10 hours ago, chc93 said:

  For item 2, if the company was dissolved before the owner passed away, the plan had to have been terminated, since a plan cannot exist without a sponsor.  And if so, I think the excess assets would go to the owner up to 415 limits at plan termination.  Then, any excess would go to the company who pays the 50% excise tax, assuming the company lasts long enough after plan termination and before dissolving.  Complicated, at least...

Thank you very much