Transfer from eligible employee class to ineligibl

[Guest DeePA]

Profit sharing plan excludes union ee's.

Participant goes from nonunion to union and has a vested benefit.

Participant wants paid out.

We say no distributable event.

Is there anything that would permit this ee to receive a distribution just because they moved to an ineligible class of ee for plan participation?

thanks

[Mike Preston]

Only if the plan document provides for it. Does it? If it doesn't, there isn't anything that I'm aware of in the Code or Regulations that does.

[KJohnson]

A plan document could not even provide that this is a a distributable event. For a profit sharing plan the only distributable events that you can have are:

death, retirement, disability, termination of employment, stated age, hardship, five years of participation or more, or "seasoned money" of two years or more.

I suppose a plan COULD provide something like: A paricipant who no longer is in a job classification covered by this Plan and is age _______ may receive a distribution....

[Mike Preston]

Your last sentence is what I had in mind.

[david rigby]

Possible: the participant would have to be beyond the PS plan definition of NRA, and the plan would have to permit such distribution.

[Guest asire2002]

In-service distributions of employer money in a profit sharing plan need not be limited to those events described above. In-service distributions can be made upon the occurrence of any specific criteria described in the plan; the 5 years of participation or two-year aging rules are examples of specific criteria that could be used. I believe it would be perfectly acceptable for a plan to allow a distribution upon movement from an eligible to an ineligible class, but as an employer that is not a provision I would want in my plan document. Maybe there is a union plan to which the account balance could be transferred?

[KJohnson]

asire2002. While I think an argument could be made under the regulations that such an event might fall under 1.401-1(b)(1)(ii), I don't think the IRS takes such a broad view. You might look at Rev. Rul 71-295, 73-553.

If you have experience with other distributable events where you have received a determination letter after "flagging" the issue, I would love to hear what the distribution criteria were.

[Guest asire2002]

KJ, I have in fact seen documents and worked on documents with in-service distribution provisions in DC plans on employer sources that are other than the 5-year participation, 2-year aging provisions, and which have received determination letters. I can't say whether these provisions were "flagged," but I would argue that an unambiguous distribution provision in a document that is submitted for a letter need not be flagged to obtain reliance.

[KJohnson]

What kind of distribution events were they? I believe that you are correct in that there is some "wiggle room" in the reg, but the various treatises and the Revenue Rulings have always seemed to limit in-service distribution option to stated age, hardship, seasoned money and five years of participation.