PSP Termination w/DL - Partial Distribution - Percentage?

[TCWalker]

Simple PSP termination going in for a DL letter following Co. liquidation.

Former employees have requested an immediate distribution. Plan Sponsor wants to hold-back a percentage of balance to the credit until IRS review termination status and issues DL and final trust accounting completed.

What percentage hold-back do you think is reasonable/conventional?

Thanks.

[Bird]

100%

Only half-joking; I would prefer to pay all or nothing rather than process multiple distributions for each person. We generally try to wait until we get the FDL before processing any distributions.

However, I don't know that you can impose a new condition ("wait until we get the FDL") on a distribution if a participant has already met a condition, such as termination of employment. In those cases, if someone is insistent, I'll pay them at 100% and hope that the IRS doesn't ask for any changes that might reduce his account balance (hasn't happened yet).

[SoCalActuary]

If the plan has any significant discrimination issues, you should hold back on distributions to HCE's until you get a ruling, or you should get a bond or lien on their distribution account if you pay them.

If you fear some errors have occurred either in contributions received, investment earnings or forfeiture allocations, then you should not distribute until you are certain of the distribution amount. Once the payment is gone, you have much more difficulty (and possible liability exposure) recovering a bad distribution amount.

[Alf]

However, I don't know that you can impose a new condition ("wait until we get the FDL") on a distribution if a participant has already met a condition, such as termination of employment.

I completely agree with this. Distributions on plan termination can be held up until the IRS approves the DL, but if a participant is otherwise entitled to a distribution (death, term, etc.), you have to follow whatever the document about timing.

[david rigby]

... you have to follow whatever the document [says] about timing.

Yeah. Many documents already include something about this. Look there first.