controlled group - termination of employee

[Guest dvandaele2]

I have a controlled group situation were there are two separate plans. I have a participant who terminated employment with one of the companies in the controlled group and was hired by the other company in the controlled group.

His job will be completely different. Can this participant transfer his money from the "prior employer" to the "current employer" as a rollover to another qualified plan? (Basically considered a "Trustee to Trustee transfer" type of distribution)

The issue I am having is that the investment company is telling us that the distribution has be labelled as a "cash" distribution and my concern is that they will withhold the mandatory 20% withholding and not complete the 1099 correctly. They are indicating that this is the way they need to handle the distribution since no distributable event has occurred.

Thank you in advance for everyone help on this one.

[WDIK]

I had a late night and am not firing on all cylinders, but I don't understand something in your post.

The investment company says no distributable event has occurred, yet they must make a "cash" distribution?

Does the second plan accept rollover contributions? If so, that looks like a good option to me.

[Guest dvandaele2]

I did not really understand the investment company's understanding of the cash distribution issue either. I do not know if they were confusing the cash distribution with the thought of a lump sum distribution.

The current company accepts rollovers.

I guess my question(s) is more or less - Can a participant who is with one plan of a controlled group roll his money into the other plan of a controlled group upon termination of employment with one of the controlled group companies? Has a distributable event occurred?

Thanks for your help.

Dianne

[Guest FormsRmylife]

There has been no termination of employment since the individual is still employed by the "employer" (unless the document defines termination of employment as termination from one member of the controlled group). Without a termination of employment, there is no distributable event.

I have seen plans in similar circumstances that amended or otherwise directed the trustee to transfer the account to the other plan where the two plans were of the same type. Basically it was viewed as a mini spin-off of employees now employed at a different location and covered by the other plan. Note this was done by the employer, not the employee as a rollover.

I do not know whether your insurance company will be able to handle this concept.

[JanetM]

Since this person is not eligible for distribution - this is only for you to ponder. Could the investment company be calling cash as opposed to "in-kind"?

Maybe the plans don't have the same investment options - you can't rollover assets as they are from one plan to the other.

Like I said - this is moot since person in not eligible for distribution.

[AndyH]

I think that FormsRmylife gave a terrific answer. This must be an employer action that is not only permitted by the document and/or trust agreement but there must be authority or affirmative instruction so as not to make this subject to employer discretion, otherwise you could have a B/R/F issue.

And, Janet, it would seem to me that the person who answers the phone at "the investment company" should not be confused with a rocket scientist or an ERISA attorney with respect to pension law.