110% rule revisited

[Jakyasar]

DB plan covers husband and wife only. Biz is owned by husband but he retires/terminates and wife continues to to run the biz.

Does 110% rule apply to pay out the husband?

thanks

[truphao]

110% issue is within the 401(a)(4) regs, so one would think it would not be applicable to H&W situation.  But, I think the IRS insisted that the language be included in the pre-approved plan documents, so I believe all "known" PD vendors have that language in their PD.  So, it becomes an operational issue.  Proceed at your own risk.

[Jakyasar]

Language in the BPD states "any HCE". I am checking with the vendor and see if any other sections would address this. I agree that if a rank&file HCE would be subject to but husband and wife? Thank you for your input.

[CuseFan]

What if it were two unrelated 50/50 partners? Would it be fair or permissible to allow one owner to cash out 100% and leave the other owner under funded?

Why not terminate and have wife establish new DBP if desired?

Or, if not too far short of 110%, pre-fund to increase the assets and get there.

[david rigby]

How old are the participants?  Is the benefit equal to the 415 limit?  

[Connor]

Had a situation just like this not too long ago and our actuary insisted that the 110% rule still applies.

[Calavera]

I vote that 110% rule still applies.

[Jakyasar]

To all: After researching and checking with the doc vendor as well, I concur that 110% applies to all situations involving HCEs, I simply could not find a way out.

Thank you all for your comments and have a great weekend.

[Calavera]

Just a reminder that 110% is calculated after the payment and the target liability could be used for the ratio. So, when majority of benefits belong to the retiree, it's usually not too hard to overfund the remaining target liability by 10%.