Professional entity, PBGC coverage

[Jakyasar]

Hi

Law firm.

CB plan, effective 2024. For 2024 had 15 active participants with 0% vesting - vesting effective with inception of the plan.

During 2025 exceeded 25 active participants (26 in total), again all with 0% vested balances.

During 2026 dropped to 20 active participants. No partial termination issues. It will never exceed 20 again.

So, during 2025, plan is covered by PBGC and will be so for 2026 and all future years, at least according to PBGC rules that I am aware of.

Any way out of this, is there anything I can do? Am I missing an option here? Really sucks that for 1 year only they are paying the price for it.

Thanks

[truphao]

I had an almost exactly the same situation.  Plan failed 401(a)(26) in 2025 and we had to add 2 people, which increased the cout to 26. In 2026 the Plan is being terminated, it does not get sillier than that.  Spoke informally to PBGC and also vetted the situation with 2 ERISA attorneys.  The answer was a consistent "No" from everyone.

[Jakyasar]

Thank you for sharing your information. When you say "no", do you mean it must be covered? I just cannot find any way out of it by law.

[truphao]

yes, must be covered, I could not find any way out of the coverage either - that what I meant by "no".

[Jakyasar]

Thank you, really sucks that the rules are so stringent and have no flexibility.

[Peter Gulia]

Without remarking on a particular situation, and imagining only a future plan design:

Could a professional-service employer divide its workers and potentially eligible participants into two plans—one for self-employed individuals, and another for employees?

For a small-enough professional-service employer might that result in one or both of those plans being excepted from PBGC coverage under ERISA § 4021(b)(13)?

Beyond anything about PBGC premiums, an employer might have other reasons for separating pension plans. For example, at least for individual-account retirement plans, some law firms prefer to separate plans between a non-ERISA plan for partners and an ERISA-governed plan for employees.

But are there restrictions against, or disadvantages to, separating defined-benefit pension plans?

If plans of one employer are separate, must or may they be tested together for however minimum-participation, coverage, nondiscrimination, and top-heavy rules might apply?

I have no supposition; I ask out of ignorance.

[Bill Presson]

1 hour ago, Peter Gulia said:

Without remarking on a particular situation, and imagining only a future plan design:

Could a professional-service employer divide its workers and potentially eligible participants into two plans—one for self-employed individuals, and another for employees?

For a small-enough professional-service employer might that result in one or both of those plans being excepted from PBGC coverage under ERISA § 4021(b)(13)?

Beyond anything about PBGC premiums, an employer might have other reasons for separating pension plans. For example, at least for individual-account retirement plans, some law firms prefer to separate plans between a non-ERISA plan for partners and an ERISA-governed plan for employees.

But are there restrictions against, or disadvantages to, separating defined-benefit pension plans?

If plans of one employer are separate, must or may they be tested together for however minimum-participation, coverage, nondiscrimination, and top-heavy rules might apply?

I have no supposition; I ask out of ignorance.

Peter, you would probably run afoul of the 401(a)(26) minimum participation rules.

[Jakyasar]

A follow up situation, in theory.

If 26 active participants were achieved during 2025 but 3 of them terminated during 2025 (entered 7/1/2025 but terminated 8/1/2025) with no vested balance (or vested balance), would this plan still be covered as 26 actives were achieved during 2025 and once the plan hit 26 actives, no going back?

[truphao]

take a look at the instructions....if I remember correctly it goes along the lines of "at least one day during the Plan Year"....