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Distributions After Terminating 457(b) Plan


waid10

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Hi. We have a non-governmental 457(b) plan. Our NP is being acquired by a for-profit. Upon the deal, the 457(b) will be terminated. My question is how should we handle the distributions. We have 10 participants. The deal will happen this fall. Does the organization have to choose when to make the distributions? Or can each participant choose whether to receive his/her distribution in 2013 or wait until early 2014? The Plan's distribution options include lump sum as well as installment payments. So could a participant elect to receive part of his distribution in 2013 and the rest in 2014?

I haven't been able to locate any guidance on this.

Thanks.

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The distribution options, including on plan termination, should be in the plan document(s). Try to locate them and see what they say.

The Plan document does not describe anything about distribution on plan termination. The distribution options under normal (non-plan termination circumstances) are as I describe above.

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Are you trying to test the limits of the guidance in Treas. Reg. section 1.457-10(a)? If you can't find authority allows participants to choose timing of receipt of income, consider that the principlels are generaly against it.

You are correct. My reading of that Reg indicates that distribution must be made to all participants as soon as administratively practicable. So that seems to indicate that participants cannot make an individual election. The distributions must happen to all participants at the same time. But I also think that "as soon as administratively practicable" could happen in 2013 or 2014. The employer can decide when it will make the distributions. Do you agree?

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The employer decides. The circumstances of the transaction will be important in determining what is as soon as practicable. I don't think the IRS would be overly exacting, but I would wonder a bit if the transaction closed tomorrow or was not scheduled to close until the end of January.

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The employer decides. The circumstances of the transaction will be important in determining what is as soon as practicable. I don't think the IRS would be overly exacting, but I would wonder a bit if the transaction closed tomorrow or was not scheduled to close until the end of January.

The transaction is scheduled to close in November. This is why I would think that "as soon as practicable" could reasonably mean in 2013 or 2014.

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