Won't Return Forms - Plan Termination

[Penman2006]

A DC plan has been terminated and everyone paid out other than the owner and one participant. The participant will not return the forms. She is not missing, she just won't return them. This participant has the mistaken opinion that she is owed more money, which is why she will not return the forms. To date the only follow-up correspondence has been by phone. It's been a few months since the forms were issued. The distribution amount is approx. $10,000. Can she be forced out? If so, what is the procedure, and is there any IRS guidance to back it up?

[Jean]

I always thought when a plan is terminating that the participants do not have the right to leave the money in the plan. So a force out distribution is possible, use the automatic rollover guidance.

[Bird]

Right, just make sure the automatic rollover amendment extends to cover distributions upon termination and is not limited to $5,000.

[rocknrolls2]

Penman 2006, you did not indicate what type of DC plan was involved.

If it a profit-sharing plan without a 401(k) feature, there is an exception to the consent requirement provided that (1) the terminating plan does not offer an annuity option and (2) the plan sponsor orr any other controlled group member does not maintain any other DC plan other than an ESOP. If the answer to both of these is no, then the plan may simply cash out the participant without regard to the amount of his/her account balance. If (2) is yes, the terminating plan may simply transfer the participant's account balance to the other DC plan without the partiicpant's consent. See Reg. Section 1.411(a)-11(e)(1). If (1) is yes, then you could purchase an annuity for the participant and distribute it to him/her.

If the plan is a money purchase plan, there is no similar exception to the cash-out rule. In that case, the only option may be to purchase an annuity for the participant and distribute it to him or her.

If the plan is a 401(k) plan, the rules are pretty much the same as in the case of a profit-sharing plan, but it is important to bear in mind the distribution restrictions on termination of a 401(k) plan. These are that there is no other DC plan is maintained by the plan sponsor or any other entity which is related to the plan sponsor within the meaning of Section 414(b), ©, (m) or (o) at any time during the period beginning 12 months before the date of the plan's termination and ending 12 months after the plan's termination. The following are not considered DC plans for purposes of the special 401(k) distribution restriction on plan termination: an ESOP, a SEP, a SIMPLE IRA, or a 403(b) or 457(b) or (f) plan.

[Penman2006]

There are two plans, a PS and an MP. There is no 410(k) feature in the PS plan. Both plans have been terminated. The participant won't return either of the election forms. I should have been more specific. Of course the MP plan has the QJSA annuity form of distribution.