Volume Submitter Plan Termination

[Ananda]

A client is the adopting employer of a cash balance volume submitter plan and wants to terminate the plan. The plan document allows the employer sponsor to terminate the plan.  The issue is that the plan is vastly over-funded and the plan sponsor wants to amend the plan to add 30 new employees by lowering the plan participation requirement from 1 year to 0 years and then make the maximum 415 distribution to each of these participants prior to termination to avoid most of the excise tax. First, I have concerns that this is not a permissible amendment by the employer for a Volume Submitter plan pursuant to Rev Proc 2017-41. If its not a permissible amendment then it seem the plan losses the protection of the Volume Submitter opinion letter but what is the consequences of this if the plan is terminating anyway. Is there a problem with adding 30 new participants to distribute plan assets prior to termination to avoid the excise tax?   

[Bird]

Maybe I'm missing something - what is the significance of paying them before the termination as opposed to upon termination?  What is the distributable event that allows them to be paid prior to plan termination?  

[Ananda]

Yes, you are correct. The distribution will be paid upon termination. The volume submitter plan document allows the plan to be terminated by the employer. So I would make our standard termination amendment to this volume submitter plan stating that all individuals who are employees at year will be eligible to participate in the plan and receive the maximum accrued benefit permissible under 415 which will be paid upon termination.

[Mike Preston]

2 hours ago, Ananda said:

Yes, you are correct. The distribution will be paid upon termination. The volume submitter plan document allows the plan to be terminated by the employer. So I would make our standard termination amendment to this volume submitter plan stating that all individuals who are employees at year will be eligible to participate in the plan and receive the maximum accrued benefit permissible under 415 which will be paid upon termination.

Check the document. You may not need to specify the allocation in the terminating amendment. Our document allows for the discretionary allocation of excess assets  on plan termination. If yours does too there's nothing left to do, document wise.

[Luke Bailey]

In any event, you can always go for a determination letter. IRS still provides those on plan termination. And the costs of the DL can be paid by the plan, further reducing the reversion.

[BG5150]

On 11/12/2021 at 7:33 PM, Luke Bailey said:

in any event, you can always go for a determination letter. IRS still provides those on plan termination. And the costs of the DL can be paid by the plan, further reducing the reversion.

But how long will that take?

[Luke Bailey]

2 hours ago, BG5150 said:

But how long will that take?

Not sure. Probably less about six months.

[BG5150]

1 hour ago, Luke Bailey said:

Not sure. Probably less about six months.

So not in time to get it closed out this year...

[Luke Bailey]

8 hours ago, BG5150 said:

So not in time to get it closed out this year...

Part of the price of certainty, BG5150.