Dissolving a Defined Benefit Plan?

[SValleyMD]

I'm 37 and just Just set up a DBP with a combined 401k.

I'm one year out there of fellowship and have zero retirement (just found WCI this year). I made 1.1 last year and will probably be in the 800-900 range for the next two years than 700k range after that.

With a late start and high 1099 income I jumped the gun somewhat naively on the DBP route. My payment schedule is about 100k into the DBP plus 36k in a his/her 401k with the DBP going up each year.

Although I'm a IC now I'm 50% sure that I will be "forced" to be employed in 2 years and if not I should have the option of being employed at any point.

I was told that if my employment status legitimately changes (going from 1099 to W2 or if my 1099 income drops significantly) I can "easily" dissolve the plan.

Is that the case?

[litovskyassetmanagement]

SValleyMD wrote:

I’m 37 and just Just set up a DBP with a combined 401k.

I’m one year out there of fellowship and have zero retirement (just found WCI this year). I made 1.1 last year and will probably be in the 800-900 range for the next two years than 700k range after that.

With a late start and high 1099 income I jumped the gun somewhat naively on the DBP route. My payment schedule is about 100k into the DBP plus 36k in a his/her 401k with the DBP going up each year.

Although I’m a IC now I’m 50% sure that I will be “forced” to be employed in 2 years and if not I should have the option of being employed at any point.

I was told that if my employment status legitimately changes (going from 1099 to W2 or if my 1099 income drops significantly) I can “easily” dissolve the plan.

Is that the case?

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I think that you should be talking to your TPA/Actuary about this.  If this is an individual plan, you might be able to freeze it (but you will still pay admin cost, most likely).  You can also change the formula once in a while to decrease contributions as well.  Look at the whole picture before you do anything.

[litovskyassetmanagement]

Rex wrote:

He is planning on terminating his company, not really sure freezing is a great option for such a situation.

Click to expand...

Yes, too much uncertainty.  Still, the TPA/actuary should provide advice.  Unfortunately, they are not fiduciaries, so their advice does not have to be accurate or best for your situation. I see a number of young docs with high profits who read somewhere that a CB plan is a great idea.  They often come to me with glitzy illustrations done by TPA firms dying to sell them a plan. After a thorough analysis I often have to tell them 'no', stick with a 401k plan and wait until you have a more stable income or until you are older.  Or else they can end up in a situation like this (or a situation where a plan is sold at the highest profit level, and thereafter the profits go down, making the value of this type of plan questionable going forward).  Either way, I would suggest not trying to DIY these things unless you are a legitimate expert on the topic because the cost of fixing mistakes can be hefty (and lots of wasted time in the process).  I can't stress enough, don't get into a combo plan situation unless this has been approved by your adviser/fiduciary.  They have to look at the big picture and ask the hard questions to make sure this type of plan is appropriate going forward. And as always, you have to know exactly what the costs (and rules) are to terminate the plan (the TPA has to be on record to provide this prior to any engagements), and make sure that the plan is truly set up in your best interest (not to sell you a temporary tax shelter, or provide an AUM slush fund for your adviser).