Paying account for terminated plan

[FJR]

Can anyone comment on a plan termination (IRS approved) where the plan assets were placed in a non-interest paying account for the purpose of paying out participants. Where most of the assets were paid within a reasonable time, there are still remaining a few that have not responded or can't locate. There balances are being held in the paying account under the name of the plan, but it does not pay any interest. Any problems here?

[JanetM]

The Plan sponsor has fiduciary duty to prudently invest the assets. When the funds were transferred you ceased to have participant direction (if you even had it before the transfer) and 404© protection.

I would say this is not a prudent investment.

[Blinky the 3-eyed Fish]

Why don't you force the payout?

[chris]

Tried locationg them per the IRS Letter Forwarding Service or using SSA's similar service??? Not that it necessarily makes it right, but what size balances are we talking in terms of not drawing any interest? There are many old threads on here re what to do if you can't find them, e.g., 100% withholding to IRS, etc...... but I'd suggest trying to find them as soon as you can.... You would also want to go through those hoops to avoid the IRS' treating it as an ongoing plan.

[david rigby]

Not specified is the type of plan. If this is a DB plan, the investment vehicle is probably irrelevant. If this is a DC plan, then the comment about the fiduciary's responsibility is relevant.

[FJR]

It is a 401(k) Plan. It was a self-directed plan but without particpant access. In other words, a balance forward quarterly valuation. The participants would not have the ability to direct to the trustee the written instructions to make changes. With not being able to locate the few participants, the only choice was to liquidate the assets and deposit in the trusts paying account which does not pay interest. Had the assets remained in the participants allocated account prior to termination, then they would have lost approximately 35 to 40 percent of the value over the last 2 1/2 years. So tell me what is prudent. perserving the value of the accounts or subjecting them to risk that they have no control over.

If prudent is having it in a money market, then it would just about be no better off where it is given the low rates that they paying.

[chris]

So what's the problem with moving the amounts to something that's safe that pays interest? And at the same time trying to locate the unpaid individuals....?

[FJR]

The question still remains. Do we have a violation of fiduciary responsibility by having the remaining 5 participants in a non-interest bearing paying account?