TheBoxMan

Yes, I can see some wiggle room there if there is no amendment to terminate. I would recommend caution if this is not something the plan does as part of their normal plan administration. If the plan does a small sum cash out every year and this participant didn't get cashed out because of the SSN issue, then I would say the plan could proceed with the IRA if that is part of the plan document. However, if the plan does not cash out small sums every year and decides during the "trying to terminate" time to investigate and make distributions to this population, PBGC will likely consider any distributions made during this time as an attempt to avoid PBGC plan termination regulations and all of these distribution will be subject to PBGC audit.

If this is a qualified plan covered by PBGC...you cannot roll over to an IRA! If the plan is terminating, all missing participants need to be reported and the benefit sent to the PBGC Missing Participant Program.

Is this cash balance plan covered by the PBGC? If so, you cannot roll the money into an IRA for these participants. If this is a Standard Termination, then the money for the unpaid participants needs to be sent to the PBGC Missing Participant Program.

I agree with Tom. Even with a favorable IRS determination letter, if this is discovered during a PBGC audit, the plan will be on the hook to pay the excess assets as described in the plan document.

The timing is not clear in the question. Were the IRA rollovers done prior to the execution of a termination amendment? Was it done as part of the regular course of plan administration (provision in plan document and the plan does this every year with cash outs that they cannot locate)? If so, then the IRA is fine for these 6. But, if this is a qualified pension plan and the plan was already in the process of terminating, then the funds cannot be rolled into an IRA for the missing participants. The plan must purchase annuities or send the money to the PBGC under the Missing Participant Plan rules.

I may be misinterpreting the question. But, if the plan is doing a "standard termination" of a qualified defined benefit plan...the plan needs to be fully funded to pay all of the benefits owed. There is no option to say "we don't have enough money to pay the lump sums" in a standard termination.

I think that pro rata to CB account balances or pro rata to accrued monthly benefits would both be non-discriminatory. The point I was trying to make is...don't amend the plan document to state that the plan will reallocate excess assets. You stated, "The document allows for reallocation...". Does it allow it or require it? That is a huge difference.

Hypothetically, since I would never try to advise anyone about a potential legal issue...I think the simple correction is to have the plan ask the 10 participants, who originally wanted a lump sum, to complete new pension election forms showing they elected a rollover to the 401(k). That would make everything match for record-keeping purposes in the event of an audit.

Paul I, that is out of date. The PBGC does not allow for rollovers to an IRA for non-responsive participants. The plan would need to use the PBGC Missing Participant Program.

If the plan document allows the forced rollover and it is before the termination "process" than it should be fine. Meaning that all of this should be done before the date of the execution of the Termination Amendment.

Putting the issue of "nondiscriminatory" to the side...excess assets can be distributed to the participants, even if the plan document states that excess assets revert to the employer. For a plan termination with the PBGC, if you are audited, the PBGC will only calculate the normal accrued benefit, if reversion is allowed. If reversion is not allowed, the PBGC will calculate the normal accrued benefit and the excess assets calculation. You don't need to amend the plan document to state excess assets will be paid at termination. By amending the plan document to pay the excess assets, you just open the plan up to additional review from the PBGC.

Back in 2001, it was common for plans to have automatic rollovers to an IRA for benefits between $1,000 and $5,000. I would check to see if the money was put in an IRA for you. The Summary Plan Description or Plan Document from back then should state the automatic rollover provision, but they usually don't specify the exact IRA company. It was common for the automatic rollovers to be with the same company as the 401)k) plan. So, if your prior employer had Fidelity as the 401(k) vendor, they could have rolled it over to an IRA with Fidelity. Good Luck!

Was this a plan covered by the PBGC? If so, this plan was not correctly terminated. A plan cannot rollover the benefit for non-responsive participants to an IRA. For terminations post-2018, participants who do not respond are considered missing. Pursuant to 29 C.F.R. § 4050.103(a), the plan must provide for a missing distributee's plan benefit by filing with the PBGC Missing Participant program and either purchase an irrevocable commitment from a private insurer or transfer the value of the distributee's benefit to the PBGC Missing Participant program. If this plan termination is audited by PBGC, they will make the plan purchase annuities for these participants or transfer the money to the PBGC Missing Participant program. Even if plans purchase annuity certificates for missing participants, they still need to report those missing participants to the PBGC.

I didn't see anything that explained how the plan document defined Early Retirement. "Missing plan documents" are not an excuse for bad pension administration. Also, I don't think PBGC protection has ended yet, as the PBGC can audit this plan termination. If the Group Annuity Contract provisions do not match the plan document provisions, the plan will have to correct this and amend the Group Annuity Contract.

I may have exaggerated slightly, in that a doctor's office pays 4 or 5 doctors a couple million and the rest of the participants a few thousand each. Top heavy plan, covered in a profit sharing plan. Still just a way to pay tax deferred profits to the owners of the business.

While it should be something the IRS looks at, I don't see that the IRS actually cares. I see many small qualified plans set up for 2 or 3 years, paying the Dentist or the Doctor who sponsored the plan millions of dollars, and the rest of the employees get a few thousand dollars. The plans even submit the termination to the IRS for the final determination letter and I don't see the IRS question it.

The plan document requires excess assets to be allocated in a non-discriminatory manner? I see plan terminations where reversion of excess assets was allowed, but as part of the termination the plan is amended to allocate excess assets. This is a bad idea. The plan administrator can always give the excess assets to participants on a non-discriminatory basis, without amending the plan document.

Hypothetical Scenario A cash balance plan has a provision that states participant and spouse must consent to distributions over $1,000. The plan terminates and the plan thought the spousal consent was the standard IRC $5,000. Lump sum benefits between $1,000 and $5,000 were paid out with participant consent, but not spousal consent. The plan realizes the mistake and wants to do a post-Date of Plan Termination amendment to change the provision to state a participant and spouse must consent to a distribution over $5,000. Reviewing CFR 4041.8 Post-termination amendments, it seems like an amendment is allowed that does not 1) decrease the value of the participant or beneficiary benefit and 2) does not eliminate or restrict any form of benefit. To me, this post-DOPT amendment only limits a spouse's right to consent to the distribution. It does not decrease the value or eliminate or restrict any form of benefit. Would this type of amendment be prohibited? I would love to hear thoughts and opinions on this.

FYI...PBGC only cares about seeing trust statements with $0 balance if reversion is not allowed. If reversion is allowed and there is a remaining balance in the trust that will cover admin fees later on, PBGC is OK with that.

Whatever you do, please talk the client out of amending the plan to distribute excess assets to the participants. If the plan wants to give the excess assets to the participants, they can do that without a plan amendment.

Is this a Qualified Defined Benefit plan covered by PBGC? If so, all of the participants are 100% vested at termination and it is too late to forfeit any benefits. When was the Form 500 received by PBGC? The plan cannot make any payments due to termination until 60 days after that date. Read the letter than plan received from PBGC regarding the termination for timing. As part of the termination process, the plan must mail out Notices of Plan Benefits, etc. even for those with balances under $5,000. If there are participants that do not respond to the NOPB and don't make elections you cannot do automatic rollovers, even if you have the provision in the Plan Document. Look at the PBGC rules regarding plans with a plan termination date on or after 1/1/2018. The payments must be made to the participants (i.e. lump sums) or the plan purchases an annuity from an insurance company. The plan must complete due diligence to find the participants and if the plan cannot find the participants the only options are purchase an annuity (which may not be practical for balances under $5,000) or pay the money to the PBGC using the PBGC Missing Participant Program.

@SSRRSWas this a qualified plan covered under PBGC? If so, the plan can't just roll over amounts to an IRA, unless the participant elects to roll over to the IRA.

For a Plan Freeze, the 204(h) notice needs to be at least 15 days before freeze date for a plan with under 100 participants and at least 45 days prior to freeze date for 100 or more participants. Notice of Intent to Terminate needs to be at least 60 days prior to Date of Plan Termination.

Unless it is a fully-insured plan, all employees and former employees are considered "affected employees" for plan termination purposes. Since the resolution to terminate the plan was executed, this participant should be 100% vested. There is a section on the PBGC web site that gives examples of common errors in standard termination audits and this is one of them. "Not fully vesting terminated vested participants with less than a 5-year break-in-service." https://www.pbgc.gov/prac/terminations/standard-terminations

As a former employer of a very large third party administrator, once we were given notice of a divorce/potential DRO we would put a freeze on the 401(k)/pension account for 18 months to allow the filing of the QDRO. If nothing was filed after 18 months, the freeze was lifted.