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What do you non responding participants? Payout less 20%?


Guest William Lehman
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Guest William Lehman

We have a plan that has been terminated for over a year, all the assets have been distributed accept for one participant, who has about $14,000 coming. We have located this participant, but he refuses to return calls or the distribution paperwork we've sent him to indicate his decision on distribution. If multiple efforts have been made, could we cut a check, less the 20% withholding and pay him out, so that the plan termination could be finalized? A certified letter would go with this explaining the effort and his right to rollover the benefit to an IRA within 60 days of receipt.

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I am not sure if you can just cut the participant a check. However, how about sending him a letter indicating that the fees for recordkeeping and governmental reporting will be paid from the plan and since he is the only participant these fees will be coming from his retirement account (include an estimate of these fees for him to review). Once he is aware that there will be fees he may change his mind and start communicating with you.

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I like Alan's suggestion. Make it a certifed letter.

Make sure he knows that there is no immediate tax liability if it is rolled into an IRA.

I'm a retirement actuary. Nothing about my comments is intended or should be construed as investment, tax, legal or accounting advice. Occasionally, but not all the time, it might be reasonable to interpret my comments as actuarial or consulting advice.

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Is the terminated plan a dc plan without an annuity option? If so, I think you could pay him out. See 1.411(a)-11(e). If this regulation is applicable to your situation, I think you can treat the failure to elect a rollover as a decision to receive a cash payment, under a default procedure. See 1.401(a)(31), Q&A-7.

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If the terminated plan is not a dc plan without an annuity option, the only alternative would be to purchase an annuity for him - if he never responds I don't think you could maintain the plan just for him (you wouldn't want to be responsible, and the cost would be hard to justify as compared to the purchase of an annuity). The annuity would give him the rights he had under the plan (such as the right to defer to age 65, and forms of payment allowed under the plan).

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