Missing Participants - DB Termination

[J. Bringhurst]

A client has just finished terminating a DB plan (standard termination), complete with a PBGC audit. We now hear from the client that several participants who received lump sum distributions have yet to cash their distribution checks. The trustee puts a stop on all checks over six months old. Assuming these participants are not considered "missing" (i.e., they timely returned election form and have been in receipt of other mailed materials), what is the best approach for handling the situation? Does this affect the status of the termination in any way (i.e., assets have not been fully distributed)?

[mbozek]

Why not send them a letter / email asking them to cash the checks. Tell the participants that if the checks become stale the plan admin. will deposit 100% of the pension distribution with the IRS and they can apply for a refund from the IRS.

[J. Bringhurst]

I was not aware that, in the event the participants do not cash the checks, the money could be forwarded to the IRS. I'll check the IRS website to see if there is additional information on this process. I predict that a few of them will not bother to cash their checks because the payments are so small.

Thank you!

[Guest Keith N]

I don't want to step on mbozek's toes, but I think the theory is that instead of w/holding 20% of the lump sum, they w/holds 100% of the amount as Federal Income Tax. The plan then issues a 1099 reflecting the w/holding and the participant sorts it out when they file their 1040.

If it was covered by the PBGC, I think you can always send the money to them under the lost participant filing even if you think they aren't really lost.

From a practical standpoint, I would just recommened that they contact the participants and ask them to cash the checks. If they refuse, maybe the plan can use a money order instead of a check - that way the trust is cleared out and you can finish the termination.

[J. Bringhurst]

Thank you Keith. We have looked at both of your two approaches (issuing money orders or submitting Schedule MP to the PBGC) but cannot determine whether Schedule MP can be filed after Form 501, Post Distribution Certification, has been filed. On Form 501 we indicated a last distribution date of November 27, 2001, which is when the final checks were dated. Can we now come back, over eight months later without triggering another audit?

[Guest Keith N]

Don't know? You may want to call the PBGC and ask them.

Do you also have an issue w/ changing GATT rates since your in a new plan year? What if current applicable rate is significantly lower than the old rate? What if it's greater?

[mbozek]

PBGC can only accept funds only if participants can not be located after a search e.g., after trying to contact them through SS. I believe the Plan admin has the current address of these people. As for purchasing a money order, why should the Plan adm go though this expense?

[david rigby]

I am finally faced with using the PBGC Missing Participant program (instead of just reading about it), found at

PBGC Reg. 4050 is here: <a href='http://www.pbgc.gov/laws/lawsregs/code/CFR4050R.HTM'>http://www.pbgc.gov/laws/lawsregs/code/CFR4050R.HTM

The interest rate required is referenced as found in Appendix B of Reg 4044. The introduction to that table reads:

“This table sets forth, for each indicated calendar month, the interest rates (denoted by i1, i2, . . ., and referred to generally as it) assumed to be in effect between specified anniversaries of a valuation date that occurs within that calendar month; those anniversaries are specified in the columns adjacent to the rates. The last listed rate is assumed to be in effect after the last listed anniversary date.”

The rates given (for June 2003) are 4.70% for t = 1 to 20, and 5.25% for t > 20.

Can anyone help me decipher this?

And do I read correctly, that Attachment B to Schedule MP does not ask for the benefit payable as an annuity, only the lump sum equivalent ?! I must be missing something.

Thanks.