missing plan participants

[Guest Rockford]

I have seen several references to using the idea of simply sending

small account balances on participants unable to be located directly to the IRS for credit to the respective taxpayer's account.

The term "100% back-up witholding" is the phrase I've been hearing. This sure would simplify matters alot and who could complain?

Any thoughts on this are appreciated

[Kirk Maldonado]

The former employees lose the ability to rollover their benefits tax-free into an IRA or other qualified plan if you implement the 100% withholding.

[Earl]

I do this, but don't like it.... I don't know where to draw the line. Under $100? I guess it is ok.

The real solution is getting the PBGC program open to DC plans. Why they haven't done this already is beyond me and I see it is included in that bill that just passed the house. We will see.

The other real solution is getting the default rollover provisions going. If mutual fund companies could be compelled to accept rollovers of as little as $1000 without Participant sig. that would help. The ones i know want $5000 min. and there is the diversification issue...

So then what to do between $100 and $1000? Seems like too much money to just forward to the Treasury. Maybe some enterprising chap will put it in a document and get a DL? Now that would be interesting.

[BFree]

Earl, no determination letter available, but our approved prototype has 100% withholding language for benefits under $5,000.

[Earl]

!

Thanks

[mbozek]

why not just forfeit the benefits of missing part. under reg. 1.411(a)-4(B)(6)? Only risk is that benefits have to be restored if participant shows up a later date. For small amounts that should be no problem.

[Kirk Maldonado]

It seems to me that forfeiting benefits does not work in the case of a terminating plan.

If the participant shows up years later, the participant would get a payment from the employer, not from the plan. Thus, that payment would not qualify for favorable tax treatment (e.g., it couldn't be rolled over into an IRA or another tax-qualified retirement plan).

[mbozek]

Kurt: Yes but the chances of a missing participant under these circumstances ever tracking down the employer is minute. Many employees have reasons why they dont want to collect retirement benefits: ct order, ex spouse, etc. Also many plans are terminated because the company is being liquidated. The taxation of the distribution from an employer would depend on the terms of the settlement agreement negotiated by the parties- if necessary the employer could gross the ee up to include the taxes-- its cheaper than paying legal fees. Again I assume we are talking about small amounts of less than $1000, probably less than $500.

An ex employee of a client recently resurfaced after 15 years asking for his account balance in an ESOP. The company was taken private 5 years ago. According to his statement for 1988 the value of his interest was $189. I advised the client to settle up with the employee for the present value of the 189 at a reasonable interest rate (AFR) and get a release.