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DB plan distribution, request date vs actual date of transfer


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Hi

Late Friday night, thought was going to relax and therefore, shut down the brain activity. However, got an email from a client with not so great news as distributions were not completed by the dates as I provided.

When it comes to determining DB plan distributions, I am a stickler to due dates for the distributions to be physically completed. I use monthly adjustments.

For example, if a participant was born on the 15th of the month, the distribution has to happen physically on 14th otherwise I recalculate the amount for the next month cycle. The software I use also agrees with me.

I am working on a PBGC termination and this is the first time I need to deal with request date vs actual transfer date issue for distribution.

I instructed the DB distribution had to be finalized by the 14th of the month. The client provided a letter to the investment house, requesting this transfer to be completed on the 14th , on the 14th. However the physical transfer of assets occurred on the 17th due to investment house procedures/settling of transfers. I have actual letters provided with the 14th date.

To make matters more complicated, the per share value of a stock held in the account was lower on the 14th than the amount on the 17th which creates excess of 415 limit (participant is over age 70 and at 415 limit) at the time of physical transfer.

As I need to provide detailed documents to PBGC showing the amounts distributed and possibly how they were calculated, which date of payment is acceptable/correct one? If it is any relevance, they transferred the assets to the existing 401k plan.

I hope i was able to explain the dilemma here.

Thank you,

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The date to determine here is the annuity starting date, which for a lump sum is the date by which all actions/events necessary to pay the lump sum have been completed, i.e., QJSA notice, valid benefit election and spousal consent (if applicable). This does not have to be the date of cutting the check or transferring funds as you are allowed reasonable administrative delay. Typically, for a 5/1 ASD and lump sum valued as of such date, we'll want everything completed and returned before such date if possible (or completed before such date and returned not long after) such that the lump sum can be physically paid before 6/1. 

For a plan termination, we would value benefits as a proposed/estimated distribution date of 5/1 and then make sure benefits were all paid in early May, but if it didn't happen until 5/4, not a problem. (14th and 17th in your case)

If you have some excess because of market value changes, allocate if required/possible or use for expenses - but assets should have been in cash so a couple of days' interest would be minimal, and if they weren't, that's another discussion.

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