Allocation of Excess Assets, only HCEs in Plan

Have a Cash Balance Plan terminating, projected to have small amount of excess assets at time of distribution (no 415 issues, etc.).  The plan document just specifies that excess assets will be distributed "in a nondiscriminatory manner".

In this situation, the Plan only covers the 100% Owner and his son, so both are HCEs and Key Employees.  Typically have either allocated on the basis for a regular DB Plan based on present value of 1% of Average Salary times years of participation (maximum 5); in Cash Balance scenario have done same manner where say take 1% of compensation in last 5 years (so hypothetical additional Cash Balance) and allocated on that basis.

However, the language "in a nondiscriminatory manner" where only dealing with HCEs looks like we could do anything we wanted and comply, so say ALL excess assets could go the Owner, or ALL to the son, or however the client wanted to apportion. Any thoughts?

I agree.  If all HCEs, they can do whatever they want, assuming no 415 issues. 

This also assumes that the plan has never benefit any NHCEs and there are no NHCEs who are being excluded from the plan.  

Any allocation okay. I generally do a Memorandum to formalize the allocation.

Agree.  However, there might be another possible action that comes first: increase the benefit formula, even if only slightly.  It may get you to the same place, but it has the potential to eliminate any excess allocation, especially if you get the excess down to some small amount that will be absorbed by the final expenses.  

Thanks for your replies.  Owner would like to grab all of the excess assets (the son will get this eventually when he passes).  There were never any NHCEs in the Plan, but is covered by PBGC so will be doing the notification.  Will have written memorandum prepared on excess assets stating allocation basis.

On 8/28/2025 at 11:03 AM, tymesup said:

Any allocation okay. I generally do a Memorandum to formalize the allocation.

document, document, document.