Distributions in terminated plana

[Guest ARuper]

I have a plan that has been terminated and we are trying to get the final 5500 done, but there is one participant that still has a balance that is over 5000.00 that we can not force out. The client and I have both sent numerous requests to this participant to have them paid out but the participant still has not done so. The company actually went out of business and the company that purchased the old business is trying very hard to get this all taken care of and is getting frustrated with the time that it is taking to completely terminate the plan. Is there anything that we can do to get the money out of the plan so we can process the termination completely. Any insight would be appreciated.

Thanks for your help.

Amy

[david rigby]

Several prior discussions related to this topic. You might try the Search feature.

Here is one of them: http://benefitslink.com/boards/index.php?showtopic=15887

[J. Bringhurst]

Does the acquiring company have its own defined contribution plan?

1.411(a)-11(e) provides that "if a defined contribution plan terminates and the plan does not offer an annuity option, then the plan may distribute a participant's accrued benefit without the participant's consent - if the employer, or any entity within the same controlled group of the employer, maintains another defined contribution plan.... In such a case, the participant's accrued benefit may be transferred without the participant's consent to the other plan if the participant does not consent to an immediate distribution from the terminating plan."

Have you sent your requests via certified mail/return receipt? You may actually have a missing participant (and could use a search firm such as The Berwyn Group ).

[Guest ARuper]

Thanks for your help. I was not aware of that. Really the company actually terminated this participant's employment when the company went out of business, so therfore can we distribute their monies? The client has been in contact with them and has talked with them over the phone and they said they would fill out the paperwork and that was months ago. We have sent the letters certified mail since then and still do not get a response.

Thanks again for your help!!

[J. Bringhurst]

The way I read the regulations on this one is that you cannot force the money out if any employer in the controlled group of corporations maintains another defined contribution plan (other than an ESOP). I think the best you can do is transfer the money to the other plan....if there is no other defined contribution plan, I believe the money (even if over the $5,000 limit) can be cashed out, provided the plan does not offer annuity forms of distribution.

I'm not totaly sure how this works, so perhaps someone who's been through this can weigh in.

[QDROphile]

Have you tried providing an estimate to the rugged individual of ALL of the plan's administrative expenses that his/her plan account will now bear?

[Guest ARuper]

Unfortunately we have tried explaining this to them. They agree to fill out the paperwork and then we hear nothing back from them. Talk about a pain!=)

[mbozek]

The Plan admin has three options: Distribute the benefits as a lump sum subject to 20% withholding, transfer the assets to another DC plan in the same controlled group or treat the distribution as being subject to 100% IRS withholding and let the participant apply for a tax refund. The IRS withholding is used if the participant cannot be located. You cant keep the plan going indefinitely because under IRS rules all assets must be distributed within 1 year after the determination letter is issued in order for the plan to be properly terminated ( and not be amended for futher changes in the tax law). The procedure is for the Plan admin to send the participant a notice by certified mail with return receipt giving 30 days to elect a distribution or a direct rollover before the plan admin distributes the assets in accordance with one of the above options. If the participant fails to respond then the PA will transfer the funds.

Note: Under reg 1.411(d)-4(B) a terminated ps plan that offers other options can be amended to eliminate the other options and make a ls distribution without the participants's consent.

[Guest ARuper]

Thanks so much for your help!

[J. Bringhurst]

Mbozek,if the amount is over $5,000 are you saying that the amount can be distributed as a lump sum, subject to applicable withholding, even if there is another DC plan in the controlled group?

[mbozek]

My response was in the context of the prior posts regarding distributions from a plan in the controlled group. However, it is not clear that the terminated plan is part of a controlled group, especially if the acquisition was an asset transfer instead of a stock purchase.