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Participants reappear after plan termination


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We have a client that had a defined plan that provided that if a participant could not be located, the benefit would be forfeited, and then reinstated if the participant reappeared.

The client terminated the plan, and made no provision for the participants it couldn't locate.  Now, some previously missing participants have appeared.  The client is perfectly willing to pay them from its own assets. However, clearly the money can't go into the trust, since the trust no longer exists.  And we're trying to figure out whether there is any way to set things up that the money can be rolled over.

In case it matters, it's a governmental plan, so we're not concerned about ERISA rules.  And qualification is not really an issue, for a number of reasons:

  • The statute of limitations has passed.
  • The plan got a determination letter with the provision disclosed.
  • Because the employer is governmental, no deductions are at issue, and the trust would be tax-exempt even if the plan were disqualified.

So the only real issue is the taxation of the participants who just turned up.

Employee benefits legal resource site

The opinions of my postings are my own and do not necessarily represent my law firm's position, strategies, or opinions. The contents of my postings are offered for informational purposes only and should not be construed as legal advice. A visit to this board or an exchange of information through this board does not create an attorney-client relationship. You should consult directly with an attorney for individual advice regarding your particular situation. I am not your lawyer under any circumstances.

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Can you start a new Plan and Trust with eligibility limited to former terminees with forfeited benefits?  Possibly a non-standardized new comparabilty profit-sharing plan with each former participant his/her own group?  If no highly-comp'd involved, should be an easy pass. Just spit-balling...

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I have wondered about this before and if it has ever happened.  I guess I know now.

I don't think you will find clear guidance on this question. 

I would favor paying the people and issuing 1099-Rs. 

I am having a hard time imagining the IRS or DOL having an objection that got these people the money they were do and it being taxes the same way it would have been if they had not become lost. 

I freely admit I am making this up but any other action I can come up with seems overly complex.  The only other choice that makes any sense is pay them and some how claim it is 1099-Misc or W-2 comp.  W-2 comp seems like a the worse choice. to me. 

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If you paid it (without regard to who is actually creating the check): (1) using the correct plan name, then (2) issue a 1099-R using the correct plan name and (now deceased) trust EIN, will that accomplish the goal of making it roll-able?

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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On 5/30/2017 at 0:29 PM, My 2 cents said:

Don't the PBGC regulations require that provision be made for such participants (if a defined benefit plan subject to PBGC jurisdiction)?

As a governmental plan, it is not subject to PBGC jurisdiction.

Employee benefits legal resource site

The opinions of my postings are my own and do not necessarily represent my law firm's position, strategies, or opinions. The contents of my postings are offered for informational purposes only and should not be construed as legal advice. A visit to this board or an exchange of information through this board does not create an attorney-client relationship. You should consult directly with an attorney for individual advice regarding your particular situation. I am not your lawyer under any circumstances.

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I have a slightly different take on it but the conclusion is the same: the distributions are rollable.  I would just recommend that the governmental employer write the checks from their own account and issue 1099-R's from their own EIN indicating the funds are rollable.  No  muss.  No fuss.

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  • 6 months later...

Carol - how did you end up handling this?  I have a situation that shares some similarities.  We terminated our DB plan and trust (non-governmental) two years ago.  Somehow we missed a participant's account.  That participant shows up and wants (understandably) her money.  The trust is closed.  I am trying to figure out how to handle this.

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