Underfunded Frozen PBGC Plan

This type of plan does not need to cover 401(a) (26). If running a 12/31/21 valuation and the lookback is month  prior to plan year beginning (ie month prior to 1/1/21 is 12/31/20) for 417 e rates. Since the factor in determining if the plan is underfunded is "Plan does not have sufficient assets to pay all benefits".

In Realty, the benefits would not be paid out until at least 1/1/2022. Therefore, can the 12/31/21 417(e) rates (month prior to 1/1/22) be used to determine if the plans benefits (PVAB) exceed the the assets? Thank you for any insight son this.

Sorry, but I have no idea what you are asking.  Are you asking about the exemption from 401(a)(26)?  If so, I don't think there is any hard and fast rule, but I would look at it on a termination basis.  

Hi

Termination or not, isn't a "top heavy and underfunded and PBGC covered plan" exempt from 401a26 testing?

50 minutes ago, Jakyasar said:

Hi

Termination or not, isn't a "top heavy and underfunded and PBGC covered plan" exempt from 401a26 testing?

I was thinking they might be asking what "underfunded" means in that context.

Thank you so much Effen, and Jakyasar. Yes, correct, we were questioning on how the determination that this plan is underfunded is done. If the valuation date is 12/31/2021 (yr end val) since the plan as of the val date has not been terminated, and a "termination" would be done during the following year, during 2022, therefore, can the 417(e) rates used to determine the pvab be the rates as of 12/31/2021? Since this plan uses month prior for 417(e) rates? (if distribution made during 2022 then month prior to year 2022 is 12/31/2021). ---Thank you very much again.

Personally, I would say, "don't over think it".  No one is really watching this, so if the plan has sufficient assets to terminate, recommend to the sponsor that they terminate.  If they don't move to terminate, keep telling them they are out of compliance every year and that they should either terminate or restart accruals.   

I see this topic talked about a lot on message boards, but have never seen the IRS raise the issue in practice.  Not saying they don't, not saying it isn't a legitimate concern, just don't overthink it and try to get the sponsor to move at a reasonable pace to terminate the plan once it is overfunded on a termination basis.    

7 minutes ago, Effen said:

Personally, I would say, "don't over think it".  No one is really watching this, so if the plan has sufficient assets to terminate, recommend to the sponsor that they terminate.  If they don't move to terminate, keep telling them they are out of compliance every year they should either terminate, or restart accruals. Plans can have excess one year, then be short again the next.  

I see this topic talked about a lot on message boards, but have never seen the IRS raise the issue in practice.  Not saying they don't, not saying it isn't a legitimate concern, just don't overthink it and move at a reasonable pace to terminate it.  

Thank you! Your usual brilliancy us much appreciated.  We would need to see if currently they have sufficient assets. However, it sounds that at least the Valuation is protected. Since as of the Val Date, if we use the PVAB calc above the plan is UNDERfunded by  300k. The Valuation of the prior plan year as well showed that the plan was underfunded. 

Assuming this is a PBGC covered plan and if the plan is underfunded, you can have a substantial owner waive their benefit (not for valuation purposes, only for payout purposes) or you can do a 4044 allocation, just in theory, thinking out loud without knowing any specifics.

Also, by terminating the plan early in the year, you may have a pro-rated amortization schedule that may reduce the required contribution level substantially.

The longer you wait, the more compliance issues the plan may encounter.

All facts & circumstances.

1 hour ago, Jakyasar said:

Assuming this is a PBGC covered plan and if the plan is underfunded, you can have a substantial owner waive their benefit (not for valuation purposes, only for payout purposes) or you can do a 4044 allocation, just in theory, thinking out loud without knowing any specifics.

Also, by terminating the plan early in the year, you may have a pro-rated amortization schedule that may reduce the required contribution level substantially.

The longer you wait, the more compliance issues the plan may encounter.

All facts & circumstances.

Thank you Jakyasar. I just want to clarify. The issue here is not the min req. contribution, as there is no min req contribution.. As the plan is only underfunded based on the PVAB in relation to the assets. However, the funding rates are higher than the 417(e) rates, that are used for the PVAB. Therefore, the liabilities for funding are much lower than the PVAB and therefore there is no min req. contribution. The issue here is that the plan is not covering 40% of all eligible employees - 401(a) (26). However, since this is a Frozen, underfunded PBGC Plan, the plan is exempt from 401(a) (26). Thank you.

Don't know whether this changes the analysis or not, but I think the OP meant to say "not TopHeavy".

15 hours ago, Mike Preston said:

Don't know whether this changes the analysis or not, but I think the OP meant to say "not TopHeavy".

Thank you Mike. Also to clarify that the main focus is that even though the val report shows that we are not covering 401(a)(26) for the plan year, and less than 40% are covered, however, the backing for this is that the plan is an underfunded and frozen PBGC Plan.

Uh, and not top heavy?