Message Boards Digest

February 27, 2018

Here are the most recently added topics on the BenefitsLink Message Boards:

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Saiai created a topic in Plan Terminations

Underfunded Abandoned Pension Plan

We have a client that sold substantially all of its assets (everything but the pension plan) in an asset sale to an unrelated buyer. Company is no longer an ongoing concern but the prior owners are trying to wrap up the pension plan and terminate it. The plan is underfunded and there were zero proceeds from the sale to fund the pension (the owners also got nothing from the sale, the sale proceeds were only sufficient to pay off bank loans). The PBGC is involved and we are trying to get direction as to whether they will take over the plan and wrap it up but they have been "examining the case" for months with not direction. In the meantime, the company continues to file Form 5500s and obtain plan audits....further eroding the plan assets and excise taxes are accruing due to funding shortfalls, etc. Any recommendations on how to terminate this plan and wrap it up?
Number of replies posted  2 replies      Number of times viewed  47 views      Add Reply

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PFranckowiak created a topic in 401(k) Plans

Failed Coverage Test

On 12/17/2017, the company purchased another store. They merged the prior ER plan into their plan. The 13 employees were given service credit for vesting and eligibility and entered the plan 12/17/17. They were not given credit for service for contributions. The match has a 1000 hour requirement. Coverage fails by 3 participants. Options are: [1] If I exclude the 13 from coverage test, it still fails. [2] Amend the plan to include 3 more participants who have the most hours of service. These three have zero deferrals, so the match would be zero. [3] Or could amend the plan to include the 13 new participants' hours with the previous employer, all of have deferrals. Do I have a problem doing this if the match is discretionary and they gave us a dollar amount to allocate? Match has not yet been deposited. Average Benefits Test has been excluded as an option. Am I missing anything?
Number of replies posted  10 replies      Number of times viewed  72 views      Add Reply
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gasvp230 created a topic in Defined Benefit Plans, Including Cash Balance

When is the best time to terminate DBP

Question -- when is the best time to terminate DBP now, 2019, 2020, etc?

Client 52 year old, wholesale business owner where he is the sole employee. The business is setup as a sole proprietorship and he has a DBP, Solo401(k) and PSP. Client wants to retire at age 55 -- July 2020.

DBP is already overfunded by 2.5%, as of today 2/26//2018, for the Lump Sum @ Ret calculated for age 55.

Client has not made any contributions to the DBP for 2016 and 2017 due to the anticipated overfunding. Thus is he receiving no tax benefit having the DBP other than time passing.

The assets of the DBP are presently in money market account earning 1% in Vanguard Federal Money Market Fund (VMFXX) since why risk with equities when any gains results in overfunding tax.

Business owner anticipates 2018 business profit of at least $130K, 2019 business profit of $50k, and in 2020 the Client would sell some of their premium web domain names and therefore would have a business profit.

Client has never reported a business loss, but could report 2 years before finally closing business.

So that would be 2022 to terminate DBP, then roll over to a IRA and by then there would be no overfunding issue.

Think keeping the DBP going until 2022 would allow deferring income earned in 2018 & 2019 for $61,000 each year (DBP $0, 401(k) $18,500, catch-up $6,000, PSP $36,500), 2020, 2021, 2022 the business is not expected to make much of a business profit.

I feel this is the best approach but interested an anyone's feedback. There would be no more contributions to the DBP and the business would have no income in 2021 and 2022.

If we terminate the DBP now excess assets revert to the employer, they are subject to two taxes: [1] Business income tax because the excess assets have not been previously subject to taxation. [2] A non-deductible excise tax of 50% of the amount of the excess assets.

The way to potentially avoid paying the excise tax is to transfer the excess assets into PSP. The excess assets will be used to make the employer allocations. Since they had been deducted, would not be able to deduct these amounts again on client's tax returns.

Client will start paying expenses for the DBP maintenance and accountant fees that would draw down some of the excessive funding.

If we did terminate the DBP now the excess assets would be used for (401(k) $18,500, catch-up $6,000, PSP $36,500). The issue here client knows business income will be over $130K for 2018 and could push some business income from 2018 into 2019 so business income of $55K is possible. But there would not be enough ntime or business income to use up the transferred excess assets and client wants to retires from the business. Client does not see selling the business is possible and will just close down.

Some of the other strategies for mitigating overfunding DBP are not applicable to client's situation

  1. Increasing plan benefits since client is at the maximum permissible (415) benefit level
  2. Bring new participants into the plan. Client is 1 person business, single, no kids
Number of replies posted  2 replies      Number of times viewed  52 views      Add Reply
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TaxLawyer1978 created a topic in 409A Issues

Bonus Payment -- Can Board Have Option to Allow Payment Even If Participant Not Entitled to It?

Can a bonus plan can provide for both (a) payment of X amount if person employed on Y date, and otherwise if you're not employed on Y date, you don't get paid regardless of the reason for the earlier termination of employment (e.g. no payment even if termination prior to Y date was because of death, disability, etc.) AND (b) Board "may elect, in its sole discretion" (presumably as of date Y) to pay one or more participants who are not employees on Y date such that the participant, even though not employed on date Y, still gets the payment. I believe the answer is NO. But confirming. This is something that the client has drafted and sent for review.
Number of replies posted  4 replies      Number of times viewed  25 views      Add Reply, Inc.
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