4980 excess asset Issue

I continue to struggle with the excess assets issue in a terminating pension plan. The rules under 4980 seem to permit the maximum 415 lump sum to be exceeded. 

I will explain with a simple real life example. I have an attorney client with a terminating pension plan covering only himself. His 415 maximum lump sum is $1,050,000 and the assets are $1,200,000. So surplus assets above the 415 maximum lump sum of $150,000 and we just paid out his lump sum this year to satisfy 401(a)(9).

4980 says that I can transfer 100% of this surplus to the QRP plan ( a profit sharing plan) and allocate it out to his account at the rate of $55,000 per year (very high salary) for 3 years to use up the surplus.

Isn't this paying a lump sum that exceeds 415?

Subsection 415(e), which "co-ordinated" the maximum when the EE is covered by both DB and DC plans, was repealed several years ago.   (Taxpayer Relief Act of 1997?)

S4980 is very generous to pension plans, and I'm certainly happy about that, it just surprises me. 

You make a good point about the 415(e) repeal and perhaps that's how I should look at it. 4980 treats the surplus as a sum of up to 7 years of annual additions, which goes to your point.

Corbel Docs uses the following table in their DC plans for excess asset transfers:

Yrs since transfer    Percentage of suspense account

             0                           14.28%

             1                           16.67%

            2                            20.00%    

           3                             25.00%

Etc. I can't duplicate these percentage using the reg requirement of ratably over 7 years. I contacted tech support at Corbel and no-one could explain it. Any thoughts you young guys? 

Quote

I contacted tech support at Corbel and no-one could explain it.

Really?

One-seventh, one-sixth, one-fifth, one-fourth, etc.

Same answer as david rigby, but to my mind more understandable: 100/7 = 14.286 (year 1); 100 - 14.286 = 85.714, and 85.714 * 16.67 = 14.288 (year 2); 100 - (14.286 + 14.288) = 71.426, and 71.426 * .2 = 14.286 (year 3).... 14.286 * 1.0 = 14.286 (year 7).

They could have just said, 1/7th per year, of course.

3 hours ago, Luke Bailey said:

They could have just said, 1/7th per year, of course.

If they had, it would have been incorrect.  They could have just said, 1/7th the first year, 1/6th the second year, 1/5th the third year.... 1/2 the sixth year and 100% (1/1) the seventh year.

I meant 1/7th of the original amount each year, Mike. ( 1/7 )* 7 = 1.

3 hours ago, Luke Bailey said:

I meant 1/7th of the original amount each year, Mike. ( 1/7 )* 7 = 1.

But it won't be level dollar. 

18 hours ago, Mike Preston said:

But it won't be level dollar. 

Good point, Mike. I was just saying that the plan language could interpret "ratably" in 4980(d)(2)(C)(II) as 1/7th of the original suspense account each year, as adjusted for earnings. But then you have to do the math, whereas 1/7th, 1/6th, etc. already does the math for you. For that reason it's better, even though it apparently was not transparent to VeryOldMan. Probably saying 1/7th, 1/6th, etc., rather than the percentages they equate to, would have made it transparent.

28 minutes ago, Luke Bailey said:

... even though it apparently was not transparent to VeryOldMan.  

I'm much more concerned that it might not be transparent to Corbel.   <wink>

On 6/11/2019 at 9:35 AM, VeryOldMan said:

I can't duplicate these percentage using the reg requirement of ratably over 7 years. I contacted tech support at Corbel and no-one could explain it. 

16 minutes ago, david rigby said:

I'm much more concerned that it might not be transparent to Corbel.   <wink>

No wink necessary.  Just plain old smdh.