PC sponsors a DB plan which has been overfunded for years. He reached age 70 1/2 and was advised to take out as much as he possibly could in order to bring the overfunding down.

Principal recently died after having taken a few distributions from the plan.

The plan is overfunded on the GATT rates. What lump sum do we quote for the value of his portion of the pension plan as of his date of death for the estate tax return?? His share of the assets (it's only him and his wife in the plan) on the plan rates or the GATT rates?

What happens to the overfunded piece- is it just gone to taxes?

How does the excess tax get calculated?

Thanks.

pensiondoc

The surplus of the DB plan belongs to whoever inherits the stock of the PC because the surplus are assets of the PC. There are ways to avoid the excise tax. How much is the surplus above the liabilities of the plan? If the wife inherits the stock of the PC there is no estate tax on the value of the surplus. If the stock is inherited by another person then the estate tax kicks in at 41% once the gross estate exceeds $1 million. If the plan is terminated and the surplus reverts to the PC then the income taxes and 50% excise tax could eat up to 90-95% of the surplus. Total federal taxes could be 135% of surplus (50% + 35%+ 50%)+ state income and estate tax. The owner of the PC stock needs to retain tax counsel to review the options. I dont know how the benefits are calculated.

Just to be sure, what interest rate and mortality table is this based on?

Pensiondoc, what do you mean by "he was advised to take out as much as he could?".

How were his withdrawals determined? Did he make an election as to how his benefits would be paid? If so, did such election also dictate what happens upon his death?

Or did he just take the value of his pension divided by a life expectancy factor, which as I understand the IRS now says was never a permissible method (but which was commonly used).

Sounds like a real mess. I think you better start with what elections were actually made while he was alive, and how such amounts were determined.

You need to determine that before proceeding to the other questions.