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rocknrolls2

Money Purchase Plan Distributions upon Deemed Termination of Employment

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I am new to working for multiemployer pension funds. I see a number of these plans are money purchase plans and they have a concept of deemed termination of employment, in which no contributing employer makes a contribution for an employee (for say, 6 or 12 months), then the employee is deemed to have terminated his/her employment and is entitled to commence distribution of his/her account balance. In the context of a money purchase plan, the IRS treats them as a pension plan and they require that the employee have a severance from employment. Thus, as applied to those types of provisions, the plan risks disqualification because there is no determination of whether the participant must have an actual severance from employment. Is the IRS view on these deemed termination of employment provisions less restrictive in the collective bargaining context or should the deemed termination of employment provision in a money purchase plan be read as also requiring an actual severance from employment? Does anyone have any legal authority to cite either way for such a proposition?

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Good question...there is no less restrictive position for collectively bargained plans that I am aware of.  

Generally, if a person has no contributions for 6 - 12 months, that means they are not working for any contributing employers, or at least in a capacity that requires a contribution.  It is possible that the person moved into a different job class that would not require a contribution - say from union to management.  In that situation, I agree that the distribution might be a problem.  

I think it would be prudent to confirm the participant is no longer working for a contributing employer before the distribution is paid.  

 

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There is no exception for multiemployer plans. In order to pay the termination benefit the participant must have experienced a complete and bona-fide separation of employment with all contributing employers. A person who moved into a management position with a contributing employer will not qualify. Many of our plans require participants to sign a form that outlines the separation rules and attest that they qualify. It's not perfect, but at least shows the Board is exercising due diligence. 

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