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If it's over $5K in a DB or CB plan you couldn't do a rollover, you'd need to buy an annuity based on the Plan's normal form. If the Plan is a terminating non-PBGC DB Plan, see PBGC Form MP-300 and Instructions - Missing Participant Program Plan Information for Small Professional Service DB Plans

Not the IRS to blame this time - it's Congress. This comes from the statute. Some googling tells me that this particular section (attribution to minor children) was part of the original text of section 1563 which was added by the Revenue Act of 1964. It's worth noting that ARA has been trying to get this fixed in legislation, and at least one of the bills that was drafted (but has not been passed) does include a provision to fix this. https://www.asppa.org/news/browse-topics/what’s-new-secure-act-20

Put those minor children to work on the payroll! It's their fault!

Your surmise is sensible. In the mid-1990s, many investment and service providers for governmental 457(b) plans were based in life insurance companies. (Most of the biggest players still are.) That’s why lobbying on what became § 457(g) sought to allow trust substitutes, do so with recognized forms, and include annuity contracts as trust substitutes. When providers in 1996-1999 implemented the § 457(g) condition, many were done by adding one or two sentences of exclusive-benefit lingo to an annuity contract. When a governmental plan’s investments did not include collective trust units, some put non-annuity mutual fund shares under a custodial account. A large governmental § 457(b) plan often negotiates for the recordkeeper to provide a trust company, which might be a subsidiary or affiliate, to serve as the plan’s directed trustee.

bargained or non-bargained? As John said this was fairly common when cash balance plans were coming into favor. Most of the kinks have been worked out related to procedures and regulations. The issue will be the impact on the participants. Your actuary should be able to do a "winners and losers" graphic that will help you understand the impact of the change on the various groups of participants. Why are they considering a cash balance and not just moving fully DC? P.S. Thanks for the plug David! Unlike some of us who have retired, due to several acquisitions, I am now one of those "big company" actuaries. Ha ha!

Is the company a partnership? And are they talking about making the employees partners? Guaranteed payments are payments from the partnership to a partner. If the employees become partners, then their compensation for plan purposes will be net earned income, the same as any other self-employed individual. If the guaranteed payments are being paid out during the year as partnership draws, then they can be deferred from, but there is a risk that the net earned income at the end of the year may not support the amount deferred, e.g. if the partnership had a net loss.