When terminating a DB plan we have been terminating the plan and freezing benefits. The idea being that if the plan termination somehow did not happen, benefits would not continue to accrue. Although we have not found anything on this, we heard that excess assets cannot be allocated to participants once benefits have been frozen. Is this the case?

I doubt there is any prohibition, although there are some i's to dot and t's to cross. I've seen several plan terminations where the sponsor wanted to allocate excess to participants, primarily because the excess was not large. In this case, the plan was amended, after the freeze date but before actual distributions, to change the default from "sponsor" to "participants".

Thanks David

What if the excess were large?

As a simple, extreme, fictitious example, suppose you had a 1 participant DB that had existed for 10 years. Assume the participant is not close to his 415 limit. The plan is terminated and benefits frozen 3/1/2008. Assets = $800,000, benefits = $780,000.

With PPA funding, the maximum contribution for 2008 could be $350,000 (I don't believe this is pro-rated like before). Could they contribute $350,000 and potentially allocate excess of $370,000 assuming he is not close to his 415 limit?

I doubt the size of the excess is relevant. In the cases I've seen, the (relatively) small excess is what made it easy for the sponsor to decide to amend the plan.

For a one-participant plan (assuming the participant is also the owner), what reason would there be (other than 415) to give the excess to the participant, rather than the sponsor? Participant gets it eligible for rollover, but sponsor pays (at least) excise tax on it.

For the year of termination, if the sponsor has cash available for a contribution, then careful management of the freeze date and termination date should make it a simple contribution.