Cash Balance - plan termination - insufficient assets

Hi

I am only asking this for entertainment and second guessing myself in case something I missed/forgot.

Non PBGC covered CB plan. Terminated and ready to distribute assets

6 rank&file - very small lump sums (total 30k out of 2M)

1 former owner (terminated 2021) - nowhere near 415 (120k)

2 non-owner HCEs - nowhere near 415 (700k)

1 spouse of an owner - nowhere near 415 (150k)

2 owners - not at 415 limits (1.1M but only 1M remaining - split 50/50)

Plan is underfunded by 100k. One of the owners insist that the allocations have to be made prorata as if a terminating PS plan

Plan document states "Assets will be allocated in a manner which does not discriminate in favor of Highly Compensated Employees"

Checked with document provider and they agree that this is a language corresponding to 4044 or RR 80-229.

Other than paying first 3 on the above list and then allocating the rest between the 2 owner and spouse, how else would you allocate theoretically?

Thank you for your comments

It's not PBGC, follow the terms of the document so if the Document says to follow a 4044 allocation even if not PBGC then follow the terms of the Plan. On the other hand if the Plan says for non-PBGC prorate in proportion to the PVAB (in this case the hypothetical account balance) I don't see why you couldn't do that assuming it's non discriminatory.

Not sure I am in agreement about simple proration, got to check this further

I agree with Lou S.  For a non-PBGC plan, the benefits at plan termination are payable to the extent funded.  If the plan document does not require an allocation similar to 4044, then any non-discriminatory allocation should suffice -- could be pro-rata for all, or 100% for all NHCEs and pro-rata for remaining HCEs, or 100% for all non-owners and pro-rata for all owners, etc.   

Cathy/Lou

A hypothetical question, thinking too far out on this (in my case the sponsor decided to take the hit and provide everyone else their full benefit in order to avoid any issues with the participants)

Sponsor knows the plan is underfunded by 100k and deliberately chooses not to fund it.

Would it still be a reasonable thing to do simply prorating the distribution i.e. why should the rank&file (including non-owner HCE)_ should have their portions lowered because the sponsor deliberately not funds the plan? This assumes that they have the money (if they were broke, I can live with it)

This might be a far fetched thought but curious what others think.

Thanks

It's not PBGC. Assuming they have met minimum funding, you would seem to be introducing conditions not in the Code, Regs or Plan Document.

I'm not saying your position is the wrong one, particularly when the benefits were probably skewed towards the HCEs in the first place, but the Sponsor needs to make the decision they feel is best for them assuming it falls within allowable guidance. Some sponsors will agree with you not to short the employees, others want every last dollar they can get for the owners. You are in a grey area for sure, just make sure you present the options that a legal within the framework of the Code/Regs/Plan Doc and leave the decision to the Sponsor.

I will say there are also scenarios where straight proration might be shown to be discriminatory, I think integrated plans may fall into this situation, but I haven't looked that closely.

I think I've seen separate pre-approved documents do it differently (PBGC method for a non-PBGC plan, majority owner forgoes receipt - or a pro rata for all method)