Unresponsive Participant

[ratherbereading]

One of my 401k Profit Sharing Plans terminated as of 2/1/2018.  There is a terminated participant with a large balance who refuses to send his distribution paperwork back despite numerous follow-ups.  Technically, the plan has 1 year to liquidate their assets, but they want to wrap this up.  I can't cash him out and the plan doesn't have an auto rollover option. His balance is too big for that anyway. Anyone else have this issues and how did you deal with it?  Thanks!

[Bird]

You have to set up an auto rollover option; no balance is too big for that for a terminating plan.  Or at least threaten to; sometimes that gets them moving.  And explain that plan expenses will now be shared by participants, and that person being the only one, will have to pay for administrative costs associated with doing all of this due to his/her recalcitrance. 

[ETA Consulting LLC]

I agree with Bird, but would add one more important point.  If your plan is written to a preapproved document, then the BPD may have already anticipated these issues and, hence, already include the language allowing for a distribution of balances in excess of $5,000 (regardless of participant consent).  So, before you do anything, read the provisions on Plan Termination in your Basic Plan Document to determine the options that are already available to you under the written terms of the plan.  Always remember, RTFD :-) 

Good Luck!

[Bill Presson]

There are a number of providers out there that can assist with this as well: Millennium Trust and Penchecks, just to name a couple.

[ERISAAPPLE]

What about the new PBGC missing participants program?  Does that apply here?  I can't remember off the top of my head if unresponsive DC participants count as missing participants.  I know unresponsive DB participants are considered missing.  

[RatherBeGolfing]

9 minutes ago, ERISAAPPLE said:

What about the new PBGC missing participants program?  Does that apply here?  I can't remember off the top of my head if unresponsive DC participants count as missing participants.  I know unresponsive DB participants are considered missing.  

Under the expanded PBGC program, unresponsive participants in a terminating DC plan count as missing. 

[ratherbereading]

Thanks everyone!!

[CuseFan]

Again, depending on what the document says, maybe explain (threaten) that any unclaimed balances at the time of final distribution get turned over to the state?

[ESOP Guy]

3 minutes ago, CuseFan said:

Again, depending on what the document says, maybe explain (threaten) that any unclaimed balances at the time of final distribution get turned over to the state?

It is my understanding the DOL does not believe an ERISA plan can turn assets over to the state ever.  You need to either put it in an IRA, now the PGGC program (if elig) or reallocate as forf (if applicable which is hard at plan termination.) 

[ESOP Guy]

As far as I know this hasn't changed regarding escheating.  

https://www.dol.gov/agencies/ebsa/employers-and-advisers/guidance/advisory-opinions/1994-41a

[ERISAAPPLE]

A nationally-known IRA provider told me you can't open an IRA for a beneficiary of a deceased participant.  I agreed with their analysis.  Back then the PBGC missing participant program was not available.  The only option was to escheat it to the state.  I think escheat is permissible if all other options have been exhausted, except now I would use the PBGC's expanded program if it is available in lieu of escheat.  

[ratherbereading]

17 hours ago, ERISAAPPLE said:

A nationally-known IRA provider told me you can't open an IRA for a beneficiary of a deceased participant.  I agreed with their analysis.  Back then the PBGC missing participant program was not available.  The only option was to escheat it to the state.  I think escheat is permissible if all other options have been exhausted, except now I would use the PBGC's expanded program if it is available in lieu of escheat.  

This participant is not deceased. Nor is he missing. He just doesn't want to respond; however, the SPD says that if a participant does not answer within a reasonable time, the Plan can pay him out in a cash distribution. That's what I will do. Thanks again, everyone!

[Kevin C]

Before you pay him a cash distribution, you should take a look at  401(a)(31)(B).  I read it to say that involuntary distributions in excess of $1,000 must be rolled over.  I don't see an exception for amounts paid on plan termination.

While not the same situation, I think a participant with less than $1,000 vested from the plan and a rollover account greater than $5,000 is close enough that the results should be the same.  In this case, it can be involuntarily distributed because the plan can provide that it ignores the rollover account in applying the $5,000 cashout limit, but any involuntary distribution over $1,000 including the rollover account must be auto rolled.

Notice 2005-5
 

Quote

 

Q-14. Are amounts attributable to rollover contributions that exceed $5,000 subject to the automatic rollover provisions of § 401(a)(31)(B)?

A-14. Yes. Section 401(a)(31)(B) applies to the entire amount of a mandatory distribution. Thus, for example, the portion of the distribution attributable to a rollover contribution is subject to the automatic rollover requirements of § 401(a)(31(B), even if that amount is excludable (under § 411(a)(11)(D)) from the determination of whether the present value of the nonforfeitable accrued benefit exceeds $5,000.

 

 

[AlbanyConsultant]

We put language in our distribution forms specifically in plan termination situations that if you don't respond in X days your balance will be rolled to an IRA (and provide the rollover IRA institution's contact info) and note that this is an exception to the general $5,000 cashout limit due to the plan termination.  This way, the participant has been notified in writing at least X days in advance (and we have sometimes suggested that it be sent a second time via certified mail if we know it's a sticky situation and there's not a time rush).

[ratherbereading]

Fortunately, he finally responded and  has been taken care of!

[david rigby]

1 hour ago, CEW said:

... and has been taken care of!

Sleeps with the fishes.

[Belgarath]

Participant is at Blinky's house?