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One of the 401 (a) is terminating and its have a MPPP through the plan sponsor had opted for annuity they never purchased an annuity and now the plan is terminating.  I believe the plan sponsor needs to provide annuity only for those who elect however since this plan sponsor has opted for Annuity and has not purchased an Annuity, will the client need to first purchase annuity for everyone who will elect for annuity and then proceed with the Plan termination? Also In case of the Non-responsive participants can the plan sponsor do a force out without purchasing an Annuity?

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The IRS position is that a qualified plan is not considered terminated until all of its assets are distributed to plan participants. One of the ways of doing this is to have the plan purchase annuity contracts for all participants whose account balance exceeds $5,000. At that point, the plan assets are considered distributed to the participant (but are not yet taxable until the participant receives them) because the participant's account balance is replaced by the annuity contract, which is outside of the plan and is guaranteed by the insurance company. The purchase of the contract for the group of all participants whose account exceeds $5,000 is one of the more expeditious methods of completing the termination process.

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On 4/30/2021 at 1:52 PM, PS said:

One of the 401 (a) is terminating and its have a MPPP through the plan sponsor had opted for annuity they never purchased an annuity and now the plan is terminating.  I believe the plan sponsor needs to provide annuity only for those who elect however since this plan sponsor has opted for Annuity and has not purchased an Annuity, will the client need to first purchase annuity for everyone who will elect for annuity and then proceed with the Plan termination? Also In case of the Non-responsive participants can the plan sponsor do a force out without purchasing an Annuity?

If the plan does not have a lump sum option, and says the only form of distribution is annuity, they will need to buy annuities, but that is really unusual.

Luke Bailey

Senior Counsel

Clark Hill PLC

214-651-4572 (O) | LBailey@clarkhill.com

2600 Dallas Parkway Suite 600

Frisco, TX 75034

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