When I wish to retire and terminate the Defined Benefit plan, what will happen if I have more assets in the plan than are needed to pay benefits?
The benefits paid to participants may not exceed IRS limits. At termination, it might be possible to amend the plan to expand benefits up to the IRS limits, and use up some of the excess assets. But if benefits are already at the IRS limits, then the plan will have excess assets at termination. Unfortunately, these assets cannot be simply returned to the sponsor (see below). That is why careful estimates of your retirement age are so important in designing the plan, and why any change in the anticipated retirement age needs to be disclosed to Schwab immediately. Technically, you may withdraw excess assets from the plan, but only after paying a 50% excise tax, and then income taxes, on the amount taken out of the plan. In effect, this results in paying 85% of the excess to the IRS.
Related Questions
- I participate in the Defined Contribution Plan, so I’m not eligible for the health care program when I retire. Do I still have to pay the extra contributions?
- Do I have the steady annual income needed to cover required annual Defined Benefit plan contributions?
- What happens to the Defined Benefit plan’s assets in the event of my death?
