Plan Termination

[Guest lforesz]

The majority of contract employees working for a company were involuntarily transferred to a non-related employer as of June 8, 2001. The company, now left without the majority of its workforce, will close shop on September 30th. We have advised the company to file for a determination letter. It has always been my understanding that once a plan is terminated and a determination letter request is pending, participants are not able to take distributions from the Plan. The plan is in a "black-out" period, per se. However, the client wants people to have access to their money. Can we allow all employees who were transferred to take distributions from the Plan and then terminate the plan in September? At that point there should be no participant's left with balances. Am I missing something?

Any thoughts would be greatly appreciated?

[Medusa]

There is certainly no requirement to "black out" distributions. Some sponsors elect to do so, so that if the IRS requires changes in connection with getting a DL, there are funds with which to make those changes. As a practical matter, I have never had that happen, and even if it did, it is very unlikely that the IRS would allow any changes other than deposit of additional funds. However, some still prefer the conservative approach.

[Guest lforesz]

Hi,

Thanks for the info. So, basically, unless the "same-desk" rule applies (which I don't think it does), there is no reason to prohibit the employees from withdrawing their plan balances regardless of when we terminate the plan? We potentially could be filing for IRS approval and the plan assets as of the date of termination will be zero. This seems so "odd", but, I guess, only because I've never done it before. On a slightly differnt thread, are plans, generally, still filing for determination letters even now that the Form 5500 question is gone? I'd be curious to know.

Thanks again!!

[Medusa]

Lori,

As long as a bonafide distributable event has occurred, there is nothing to prohibit payouts, absent a company policy to the contrary.

Right now we continue to encourage our clients to apply for a DL, because with all the changes in the law, document status is dicey. We are updating for GUST with a snap-on type amendment in these situations, and there is certainly no guarantee that it is adequate.

In general we have been disappointed that the DL does not help us much in the event of an audit, but I suppose there could be situations where there are document issues for which protection would be afforded with the letter. And hey, it's all we've got.

[david rigby]

Don't forget about partial termination and the resulting 100% vesting.