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Guest JB2

Plan Merger to DC Plan

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Guest JB2

Is there a way for a DB plan to merge assets to a DC plan that has adopted the Retirement Equity Act Safe Harbor (meaning, the participant cannot elect payments in the form of a life annuity)? Or is the only way to process this correctly is by the DB plan terminating and participants elect to roll their account to the new DC plan.

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Since a defined benefit plan promises stated retirement benefits regardless of the value of plan assets (not an account balance based on the value of plan assets), the defined benefit plan must be terminated before the DB $ can be transferred to the DC plan. (This applies regardless of whether J&S applies to the DC plan.) The issue is that retirement benefits cannot be promised in a DC plan because a DC plan, by definition, holds its assets in account balances which may be worth more or less than the value of the promised retirement benefit.

As you suggest, the appropriate method would be for the DB plan to be terminated and participants to elect rollovers.

By electing rollovers, both the DB and J&S characteristics of the old plan $ are removed (participants had the option to take a J&S distribution of monthly retirement benefits, but elected the lump sum instead) and the $ roll into the PS plan without any "taint" of other rights.

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If the DB plan is amended and restated to be a DC plan, then maybe one could avoid giving participants the right to take a distribution from the plan (which probably occurs upon "termination" pursuant to the provisions in the DB document) ... then the assets could be moved to the profit sharing plan in a plan merger, followed by a separate accounting thereafter for assets that came from the DB plan. That way you'd have the annuity rules apply only to part of a participant's profit sharing account.

Maybe such a subaccount is more trouble than it's worth, though.

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