Terminating floor offset DB plan with excess assets - PBGC termination

[Jakyasar]

Not my plan but having a discussion about it.

Offset DB plan terminated. Due to offset, out of 20 participants, only 2 owners have benefits. all others' benefits are offset by DC plan.

Document states, excess is allocated to the plan participants.

Questions raised and discussed (asking them as they are):

• Assuming the excess to be allocated to the participants, do all need to get an allocation?
• If yes, can there be any offset?
• Do both owners need to get an allocation or is it possible to give only one owner the additional allocation? Neither owner is at 415 limit.
• Can a qualified replacement plan (QRP) be set up now, plan provisions be amended for reversion to employer and excess transferred to it? Provisions have been around for more than 5 years.

Any other suggestions?

[Lou S.]

What does the Plan document say?

Does the proposed reallocation comply with the PBGC rules?

Does the proposed reallocation pass IRS nondiscrimination testing?

Is the Plan being submitted for IRS letter of determination with a request to rule on the reallocation method? 

[Jakyasar]

Plan document says allocate to the participants

Does the proposed reallocation comply with the PBGC rules? - Not sure what you are referring to?

Does the proposed reallocation pass IRS nondiscrimination testing? - No method has been determined on but possibly 1% standard formula.

No submission for DL for termination that I am told.

Thanks

[Lou S.]

I take it the Plan is not covered by the PBGC then?

If you follow the document and pass IRS non-discrimination you should be fine.

If you are offsetting, I think you would want to allocate the excess assets based on the benefit prior to offset and then apply any offset.

As for reversion and QRP, does the current plan say allocate to participants or revert to employer and if revert to employer has that always been in place or in place for at least 5 years?

As for favoring one HCE over the other, if the plan document allows or you can amend to something like that without a 411(d) cutback I don't see an issue.

[Jakyasar]

It is covered by PBGC and this is why I was curious on reallocation compliance you were referring to. can you elaborate please?

Thank you for your other comments.

[Lou S.]

5 minutes ago, Jakyasar said:

It is covered by PBGC and this is why I was curious on reallocation compliance you were referring to. can you elaborate please?

Thank you for your other comments.

I think I mixed up allocation rules for underfunded plans. I don't believe the PBGC has rules on allocating excess assets.

Though the PBGC does ask for a lot of data in Plan terminations so whatever method they do chose be ready to defend it on audit.

 

[Jakyasar]

Thank you for all your comments.

[Calavera]

On 6/20/2025 at 5:07 PM, Lou S. said:

If you are offsetting, I think you would want to allocate the excess assets based on the benefit prior to offset and then apply any offset.

I like this approach

On 6/20/2025 at 3:36 PM, Jakyasar said:

Neither owner is at 415 limit.

You can amend the lump sum interest rates bringing payout up to 415 limit.

[Jakyasar]

I am not sure amending the interest after plan terminated would work. also, there is the question of how it would affect the offset calculations.

[Calavera]

I assume it is a standard DB plan and not a cash balance plan, so I don't think amending the interest rate would affect the offset calculations at all. But if plan already terminated or deep in the process, I agree it may be not wise to amend. 

Method suggested by Lou S. looks very reasonable and defendable in case of any audits.