How to distribute balance over $5,000 - Plan Terminating

[Leopurrd]

Hi everyone,

I was hoping that somewhere out there among all your expertise I would find an answer to this!

I have a 401k plan that terminated late 2003. Client has yet to pay out a few people. The one in particular I am worried about is a participant - still local - with a balance over 5,000. Distribution packets including special tax notice have been mailed and never returned.

The client knows the participant still lives there, they just won't respond. It is necessary to pay them out ASAP. All others are small balances that can be easily dealt with.

Any suggestions or anyone else know about anything the IRS will NOT approve? Our approach is that the spousal consent over 5,000 was not made to hold up a plan termination and perhaps an IRA rollover would be acceptable under a plan audit, if that ever may happen?

Thanks for any advice you can give.

Vicki

[KJohnson]

1) If Plan is required to be subject to QJSA (in other words you have former money purchase pension plan amounts in the plan) threaten to buy them an annuiity.

2) If the Plan is not required to be subject to QJSA but has QJSA and/or annuity provisions in them, I am not sure whether you can amend the plan to eliminate the provisions post-termination (you could definititely do it pre-termination). However, I know that post-termination amendments are often made pursuant to an IRS request on in response to a 5310. If you can eliminate the annuity options see (3).

3) If you don't have an annuity form of distribuiton, consent is not required for distribuitons over $5,000 in the event of a terminating plan as long as you meet the following from 401(a)(11)-11 regs:

(e) Special rules--(1) Plan termination. The requirements of this

section apply before, on and after a plan termination. If a defined

contribution plan terminates and the plan does not offer an annuity

option (purchased from a commercial provider), then the plan may

distribute a participant's accrued benefit without the participant's

consent. The preceding sentence does not apply if the employer, or any

entity within the same controlled group as the employer, maintains

another defined contribution plan, other than an employee stock

ownership plan (as defined in section 4975(e)(7)). In such a case, the

participant's accrued benefit may be transferred without the

participant's consent to the other plan if the participant does not

consent to an immediate distribution from the terminating plan. See

section 411(d)(6) and the regulations thereunder for other rules

applicable to transferee plans and plan terminations.

[Leopurrd]

kjohnson,

Thank you very much for your reply!

I believe the plan does NOT have any QJSA options, so we are good to go. You learn something new everyday!

Thanks again,

Vicki