Plan termination and Prepaid

Hi

A DB Plan on 01/01/2022 had a prepaid (FASB) of $567,000. The plan terminated in November 2022 and the assets were rolled over into IRAs in November 22. At 12 31 22 (and forward) what happens to the prepaid? Thank you very much.

for FYE everything gets zeroed out.   In other words, if there is no plan there is no assets/liability on the books.  You can get there with a settlement accounting (the clean by-the-book approach) or you just solve for whatever is missing to get you to zero (my preferred approach since zero is a zero).  Whatever is missing will be the additional expense (P&L charge) for the period.

On 1/30/2023 at 9:43 PM, truphao said:

for FYE everything gets zeroed out.   In other words, if there is no plan there is no assets/liability on the books.  You can get there with a settlement accounting (the clean by-the-book approach) or you just solve for whatever is missing to get you to zero (my preferred approach since zero is a zero).  Whatever is missing will be the additional expense (P&L charge) for the period.

Truphao, thank you very much. Your knowledge is much appreciated. Can this potentially have a tax impact, since an expense of 567,000 will have to be used to wipe out the prepaid of 567,000? I'm just trying to get a better understanding. Thanks!

I cannot answer that question for a couple of reasons.  Firstly, the information provided is not sufficient even if I were a CPA.  And secondly, I am not a CPA but just an actuary

Thank you.

@SSRRSWas this a qualified plan covered under PBGC? If so, the plan can't just roll over amounts to an IRA, unless the participant elects to roll over to the IRA. 

5 hours ago, TheBoxMan said:

@SSRRSWas this a qualified plan covered under PBGC? If so, the plan can't just roll over amounts to an IRA, unless the participant elects to roll over to the IRA. 

It was an owner only plan. The owner and his wife both elected a lump sum rollover and the spousal waiver consents were executed.

Why was an owner only plan doing FASB accounting?  Just seems really odd.  Typically you only do FASB for companies that do GAP accounting.

The FASB accounting entries generally impact the value of the company.  FASB expense is only an accounting expense and not real cash.  The tax impact is generally based on cash contributions which are determined independently from the FASB expenses.

Generally agree, but I have seen situations where the pension accounting were impacting taxation as well (insurance companies and some other odd-ball situations).   We need more details.

On 2/2/2023 at 9:12 AM, Effen said:

Why was an owner only plan doing FASB accounting?  Just seems really odd.  Typically you only do FASB for companies that do GAP accounting.

The FASB accounting entries generally impact the value of the company.  FASB expense is only an accounting expense and not real cash.  The tax impact is generally based on cash contributions which are determined independently from the FASB expenses.

Thank you Effen. The accountant is complaining that now with the prepaid off the books, the value etc is lower. This effects if they need a bond etc as thier value is lower.