What are the penalties (DOL & PBGC) if a plan sponsor pays out lump sums while the funded percentage is less than 60%?

Disqualification should be a sufficient deterrent.

Death by making you read final regulations.

Disqualification is by the IRS, not the DOL or PBGC. I have a plan that is covered under Titles I and IV of ERISA, but is not qualified under 401(a). The employer is probably going to pay out regardless of the percentage. This leads me to wonder what the DOL & PBGC will do.

I should qualify the question by saying that the owners want to pay out the employees, which is about all the trust will cover, and not themselves.

Is this a plan termination?

That's where it's headed. There are 3 owners each owning 1/3 of the stock, so none can waive their benefits in a Title IV termination. If they pay out the employees they can remove themselves from PBGC coverage, which would make it possible for them to then waive their benefits under a Title I termination.

Is a waiver by 1/3 owners invalid under Title IV if the PBGC does not object during their termination application review process? I had occasion, a number of years ago, to be involved in a PBGC plan termination filing where each of 7 equal partners waived benefits, and we never heard from the IRS about the inappropriate waivers (included with the filing). Do you suspect that the PBGC police are on my tail as we speak?

GMP, they can't pay out the employees without it being a plan termination (unless all are at normal retirement age). You can't have the termination without the waiver. So your idea to pay the employees out to avoid PBGC coverage won't work.

You know that options to buy shares consitutes ownership? Have they thought of going that angle so that all of them are now majority owners? Call it a scheme or not, but it's far better than simply paying out anyone irresponsibly.

If they don't want to go the options route, at least try to get the PBGC to buy off on a waiver by a 1/3 owner before doing anything. They should disclose it openly though since the PBGC submission doesn't ask for specific information on waivers.

Is this a valid waiver?

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I don't think so. It appears that the extension was completed inappropriately.

The 3 owners sold the assets of the corporation, but kept the stock. After the sale all employees were terminated.