hardhip distribution during pending termination

[k man]

Is there any reason why a participant should not be able to get a hardship distribution during a pending termination. essentially a 5310 has been filed with the IRS and the plan is being reviewed. I dont see any reason why not but i was curious if you all shared my view.

[chris]

Did the plan amendment or corporate resolution restrict distributions until a favorable letter is received from the IRS? I would think that allowing the distribution would be treating the plan as an ongoing plan, ie, never terminated....?? I could see allowing such a distribution if the plan were only frozen and not actually terminated...??

[QDROphile]

A plan can operate normally while waiting for a determination letter unless it has been amended to restrict distributions. In that case, the amendment controls.

Distributions during the wait do not adversely affect the status of the plan as terminated. However, the plan does not want to be empty while waiting for the letter, so it is common to restrict distributions if participants otherwise have the right to get distributions, for example because of termination of employment. If most participants are not eligible for distribution pending receipt of the letter, there is no compelling reason to impose special restrictions. Loans are typically restricted, however.

[Harwood]

Two IRS FAQs regarding Plan Terminations:

http://www.irs.gov/retirement/article/0,,id=97163,00.html

[Kirk Maldonado]

QDROphile:

Isn't there a Section 411(d)(6) issue if you restrict distributions to terminated participants (who are otherwise entitled to receive an immediate distribution) as a result of the plan termination?

It would seem that the plan would have to be amended if you intend to preclude making any new loans while the determination letter is pending. (Although this does not give rise to any Section 411(d)(6) issues.)

[QDROphile]

Literally it would be a problem, but the IRS has never made it an issue in the determination letter process even though the issue was in focus as a special amendment in connection with the determination.

Our standard plan language also helps us get around the issue. All distributions are subject to delay until the amount can be determined. One can argue that pending a final determination letter, accounts may have to be adjusted to meet any IRS responses.

No disagreement with your comment about the need to amend to change loan availability, although there are other ways to address loan restrictions if the plan is designed for it.