One of our clients has an underfunded DB plan with funding deficiencies They have been filing the 5330s and paying the tax. In 2004 the HCE forfeited enough of his benefit to make sure the NHCE received 100% of her vested benefit. The IRS claims that eventhough the HCE waived a portion of his benefit, they still must file the 5330 and pay the tax. Our position is that the HCE waived a portion of his benefit, effectively freezing the benefit, therefore the plan is no longer underfunded and no need to file a 5330. The IRS is looking for some regs to back up our position.

Any help is greatly appreciated.

My understanding is that you can not use a waiver to avoid a required contribution. Therefore, if the HCE signed a waiver and then funded the plan based on the reduced benefit, you may have a problem. I don't think you will find anything to support your position, since the IRS has been pretty consistent with their position.

The IRS will accept waivers in order to deem a plan sufficient upon termination, but I believe that is the only time. Even then there logic is a little suspect.

Also, I'm assuming your HCE was a majority owner. If not, he/she wouldn't be allowed to waive even on plan termination.

Effen

There was no contribution. I failed to mention that the plan was frozen in the prior year. The plan is going to be terminated and that's the reason why he forfeited a portion of his benefit.

thanks

gold, that's a wild and wooly approach that you are vetting but my bet is that it has a 0% chance of success.

Do you have an actuary that signed, or is willing to sighn, a Schedule B that reflected a reduction in benefits or costs as a result of such a waiver? If so, hope he is retiring soon.

I don't mean to sound sarcastic, but effen is right. Your position is invalid unless the waiver is recognized at the time of plan termination, not before.

could be me maybe not,

yes actuary signed off on it and it was his idea as a fix to the problem. Company has no money and was underfunded. It was the only way to make sure the NHCE got 100% of her benefit.

i just wanted to thank everyone for helping out. your inut is greatly appreciated.

For minimum funding purposes the waiver of benefits by a Key/HCE cannot be ignored. See IRS Private Letter Ruling (PLR) #91-46005.

I assume you won't share the actuaries name, but the ABCD might be interested in his "solution".

Flosfur, don't you mean that the waiver must be ignored? In other words the waiver is not a factor in either the actuarial valuation or in the determination that the funding deficiency was corrected.

I agree with Effen.
However, be careful about the reference to waiver by a majority owner. This is a concept meaningful only to a PBGC covered plan. In that case, the waiver takes place at the end; that is, the majority owner agrees to accept less than a 100% distribution. The IRS does not like this, but ignores it. When the plan is not PBGC covered, there appears to be no provision to do the same.

For other discussion, use the Search feature, keyword "majority owner".

flosfur?