Terminated Plan - Participants Refuse to Take Distribution

[BTH]

I have situation with a small plan that terminated in 2001, received a favorable IRS letter, but cannot be closed out because there are two participants who refuse to take their distributions for whatever reason. We have contacted them numerous times regarding their balances and options. Each of them has a balance over $5,000 and the Plan does have J&S annuity as the "normal" form of benefit. The Plan document, of course, does not specifically detail what to do in this type of situation -- it only deals with "lost" participants.

My thought is to purchase J&S annuities without their affirmative consent as long as they are informed that is going to happen. Another option would be to rollover their balances to an IRA that can be opened without signatures. Any thoughts on what the best way to go here is? Thanks.

BTH

[Guest F1fan]

This thread should help:

http://benefitslink.com/boards/index.php?showtopic=14478

[KateSmithPA]

Tom:

I have a similar situation and read the thread you mentioned.

What if the only distribution option the plan offers is a lump-sum distribution? Can the employer still purchase an annuity for the terminated participant?

Thanks.

Kate Smith

[Guest F1fan]

If a lump sum is the only form of distribution permitted, then purchasing an annuity would violate the terms of the plan. Therefore, it is not an option.

[mbozek]

IRAs can only be opened by the employee or by another person who has a power of attorney from the employee.

You can solve the problem by purchasing an annuitay contract that contains all of the options available under the plan, eg. lump sum and J & S benefit. It will cost more than an J & S only annuity but this is the participants problem if they wont elect a distribution. See reg. 1.411(d)-4 A-2(3)(ii).

[KateSmithPA]

Thank you Tom and mbozek. I imagine the threat of receiving an annuity should prompt our tardy participant to return her distribution forms.

[mbozek]

Kate: Participant consent is not required if a PS plan is terminated and the the only option is a Lump sum provided that the plan is amended to provide for distribution without participant's consent. reg. 1.411(d)-4 Q-2(B)(2)(vi).