Plan to Plan Transfer

[Guest mmc]

We administer a plan that has a 65% interest in a joint venture. The other company in the joint venture also sponsors a plan. When an employee from the plan we administer goes on the payroll of the other plan, their HR is requesting we transfer existing balances to their plan with no distribution forms completed.

Must participants (with >$5000) transfer their balances, or can they be terminated and leave their balances in this plan? Can the other company request plan to plan transfers?

[Bird]

I think proper procedure depends on determining whether or not the employee terminated. I don't think there's enough information to determine that and I wouldn't want to guess anyway. But if he's terminated, it seems that he could take a distribution if the plan permits it.

If he's not terminated, then money could be transferred from one plan to another in a spin-off. I don't know if this is the classic definition of a spin-off, if indeed there is a classic definition, but you can't just arbitrarily transfer money from one plan to another without an event.

[david rigby]

...you can't just arbitrarily transfer money from one plan to another without an event.

And not without plan provisions that permit it, including description of when and how.

When an employee from the plan we administer goes on the payroll of the other plan...

BTW, should we assume this really means the payroll of the other company? Or does it refer to the joint venture itself?

[E as in ERISA]

You need to find out how the joint venture is going to be treated for general tax purposes. In many cases (e.g., where there is a dividing of the profits between the joint venturers), the JV will be treated as a separate taxable entity and then have to "check the box" on how it is going to be treated -- partnership, corporation, etc. Once the type of entity is determined for tax purposes, you then generally follow that for all purposes. So if the JV is treated as a corporation, then you follow the rules that would apply if Company A had a 65% interest in another corporation and the 35% owner wants you to transfer employees of the corporation wants you to transfer the balances without paperwork...

[Harwood]

Most Corbel documents have this: "Notwithstanding any other provision contained in this Plan, the Trustee at the direction of the Administrator shall transfer the Vested interest, if any, of a Participant to another trust forming part of a pension, profit sharing, or stock bonus plan maintained by such Participant’s new employer and represented by said employer in writing as meeting the requirements of Code Section 401(a), provided that the trust to which such transfers are made permits the transfer to be made."

[Bird]

Harwood, that's interesting. It would seem to me that you'd have to be careful that doing so didn't result in a cutback in benefits; e.g. J&S annuity provisions, a later NRD, maybe a later distribution date upon termination of employment, and a bunch of other things.

Right, or did I miss something (and not even have to duck)?