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Timing of Distributions after Plan Termination


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After a plan termination, we have always provided benefit elections to participants and have required that all be executed and returned to us before the distribution of benefits. Then upon receiving all elections, we prepare a letter to the broker (signed by the trustee) to make the distributions all at one time and attach instructions and amounts for each participant. Must it be this way?

I have heard others that just process the distributions as the benefit elections arrive. I think this could be a problem in a DC plan with pooled investments, but may be ok if the DC plan has all self-directed investments.

What about a non-PBGC DB plan with insufficient assets to pay benefits? In this case, the business owner will waive a portion of his benefit to pay all other benefits. In this case the business owner will receive his distribution first and all others will receive theirs as the benefit elections come in? I don't think this should cause any discrimination issues as ultimately all remaining participants (all NHCEs) will receive their full benefits and the owner will already receive less than his full benefit.

Anyone disagree or have any comments with this way of thinking?


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About the defined-benefit pension plan, a prudent fiduciary might put the benefit-waiving participant’s distribution last. Even if the plan’s fiduciary assumes all other participants’ pensions are knowns, the amounts needed to satisfy them might not be. And even if those amounts are certain, the expenses of the plan’s administration might not be completely known.

Ending a plan often results in unexpected investment expenses and charges, and generates accounting, actuarial, and legal issues beyond those that are usual for a continuing plan.

For an individual-account (defined-contribution) plan with pooled investment, your method of not paying any final distribution until all will be determined on the same valuation (perhaps a special valuation) seems wise.

For an individual-account (defined-contribution) plan with participant-directed investment, it sometimes can work to pay claims for final distributions as the plan’s administrator receives them—if, among other conditions, all professionals and other service providers have been paid in advance (or the plan’s fiduciary prudently finds that a plan-expenses reserve is enough to meet all expenses).

Further, a professional or other service provider might protect itself by being unwilling to provide services unless those of the participants who are fiduciaries assent to take their distributions last.

Peter Gulia PC

Fiduciary Guidance Counsel

Philadelphia, Pennsylvania



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Agree w/Peter and think on DB you must pay the "benefit waiving" owner last as it must be after all other participant liabilities have been satisfied, and also agree with the wisdom on the pooled account issue, I think there has to be a liquidation date at which all accounts are valued and then distributed.

Kenneth M. Prell, CEBS, ERPA

Vice President, BPAS Actuarial & Pension Services


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