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  #1  
Old 10-11-2013, 03:36 PM
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Default Plan Termination - Unpaid Contributions?

Say a plan with 5 participants (including a 100% owner) terminates, but there are outstanding unpaid contributions. Excise tax has been paid to date.

Say the owner is going to waive a portion of his present value to make the plan 100% funded on a termination basis.

Does the owner have to contribute those unpaid contributions at some point? Or in other words, is it possible to terminate a plan with a funding deficiency? Regardless, I assume excise tax responsibility would continue until assets are completely distributed...
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Old 10-15-2013, 12:28 PM
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Anyone come across this situation before?
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Old 10-15-2013, 03:55 PM
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The PBGC regulations say you absolutely can terminate that plan -- 29 CFR 4041.21(b)(2).

The IRS says you cannot "waive" the benefits. The IRS takes the position that the waiver violates 411(d)(6); 411(a); and 401(a)(13). The IRS reconciles this position with the PBGC regulation by stating that a waiver is actually just a voluntary agreement to stand at the end of the asset allocation line. If all other benefits are paid and there are assets left over, these majority owners still need to get their benefits.

Under that rationale, I'd assume contributions will still be required and excise taxes will apply if you don't actually terminate the plan. But if you terminate the plan, any IRS contribution liability or future excise taxes are gone.
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Old 10-15-2013, 04:20 PM
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Thanks for the cite. It looks like that cite refers to the owner not receiving his "full" benefit, in order to make the plan sufficient. I know that's okay to do - and no, it's technically not the owner waiving a portion of the accrued benefit - but the end result is the same (I do know the IRS is picky about the way you word it).

But the thing I'm wondering about is the unpaid minimum contribution issue. Unless I'm missing something (which is certainly possible), the issue I'm looking for doesn't seem to be addressed in the cite. If the SB shows, say, $50,000 in unpaid minimum required contributions from a prior year - can the plan terminate without ever putting that $50k (with interest) into the plan? And what are the excise tax implications?
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Old 10-15-2013, 04:26 PM
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Common sense would seem to say - the plan has terminated and everyone has received their benefit - there are no more unpaid contributions as a result. Excise tax would cease as well. The ceasing of the unpaid contributions would happen as of... the termination date (?) I guess.

But I know common sense doesn't always win.
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Old 10-15-2013, 07:26 PM
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There's nothing (anymore) that'll explicitly says the 412 funding obligations end upon plan termination. However, Rev. Proc. 2000-17 will probably get you to where you need to be.
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Old 10-16-2013, 06:30 PM
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Thanks - that does appear to be helpful.
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Old 10-16-2013, 06:36 PM
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Although it's interesting that condition 1 is that the plan is a PBGC plan.

I would think the same waiver would make sense if the plan is not a PBGC plan, but perhaps there is no specific guidance on that.
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Old 10-17-2013, 12:54 PM
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I suppose the IRS assumes that the PBGC reviews the Form 500 sufficiently for a standard termination. Without the PBGC's review, I doubt the IRS would formally publish a Revenue Procedure that the 4971(b) 100% excise tax is automatically zero.
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