Plan termination & forfeitures

[doombuggy]

One of the plans that I TPA is going to terminate. I found this out Monday. They got bought out on 3/26, and want this done yesterday.

The plan sent in their last contribution already (I found this out yesterday). They have about $1300 in forfeitures from a distribution done last week, and one done about three weeks ago. The plan document says that match forfs are used to reduce; but no more contribuitons are going to be made. It is ok to spread these to the 25 remaining participants (who will become 100% vested) prior to the termination distributions?

While I am on the topic:

The plan has three trustees. One retired in February and the other two have resigned their "posts" at the company. The plan doc was not changed yet for teh first one, probably b/c they knew this buy out was going to happen. They have elected to amend the doc for the termination instead of waiting for a determination letter (I know, against our advice). Do all three trustees have to sign the amendment & resolution? As far as I know, only the one who has retired is willing to offer her services (so to speak) and sign all the papers & checks. The other two feel that since they no longer work at the co, they no longer have fiduciary duties. We told them that this is not so, but it sounds like they don't care. The CFo is hounding me for the resolution & amendment before he goes on vaction on the 14th, and I don't know who needs to sign! Help!

[Guest Pensions in Paradise]

Does the company which bought out the plan sponsor have a defined contribution plan of its own? If so, then you can't distribute solely because of the plan termination. 401(k) assets cannot be distributed if there is a successor plan. However, if the employees were laid off, then you could distribute since termination of employment is normally a distribution event.

With regard to the match forfeitures, check the plan document. Normally the plan will specify that forfeitures are first used to offset any required contribution, and then allocated as additional contribution.

And as far as who needs to sign the termination resolution, again check the plan document. Normally the plan sponsor (i.e., the company) would be the entity that amends and terminates the plan, and not the trustees. (Although frequently the trustees are the owners/officers of the company.)

[FundeK]

I don't know how correct this is, but when I handled plan terminations at my previous employer, we were often directed by the company to restore forfeitures to anyone how took distributions in the 6 months prior to effective date of the plan termination. (If you want the thought logic behind this, let me know.)

This often cleared out the foreiture account without amending the plan to allow for reallocations.

[david rigby]

6 months? Sure, please share the logic.