We have more information about sole participant defined benefit plans, the subject of the FAQ from our last E-mail Alert.
Rev. 09/25/05, E-mail Alert 2005-19

In the last alert, our FAQ discussed some of the issues that arise when a sole proprietor dies with a defined benefit plan in which he or she is the only participant. In this alert, we will add some additional options that may be utilized.

One of our E-mail Alert recipients wrote to us to say he did not believe that we fully covered the situation where the DB plan's sole participant is the sole proprietor. We indicated the possibility that there would be excess assets at the death of the participant (or, if married, after the death of the participant and spouse), leaving no alternative but a reversion.

Options other than the reversion are available provided the sole proprietor arranges for them prior to his or her death.

One option would be to design the defined benefit plan to include a lump sum payout option and for the sole proprietor to roll over the lump sum to an IRA.

Another option would be for the sole proprietor to select a joint life payout option with a period certain feature for the participant and beneficiary (which is permitted in 1.401(a)(9)-6 of the final regulations issued June 15, 2004).

Further, the period certain where there is a spousal beneficiary can be over a period that equals the joint life and last survivor expectancy of the participant and spouse.