Getting Rid of Merged DB Plan's Frozen Voluntary Employee Contribution Account

[Guest rocnrols2]

Company X is a Fortune 100 company maintaining both a defined benefit plan and a 401(k) plan for the benefit of its employees. A few years ago, Company X acquired Company Y, which had similar plans for its employees and merged Company Y's defined benefit plan into Company X's defined benefit plan and merged Company Y's 401(k) plan into Company X's 401(k) plan. Company Y's defined benefit plan allowed employees to make voluntary after-tax contributions to it, but this feature was frozen a number of years before Company X acquired Company Y. Company X wants to eliminate the voluntary after-tax contribution feature.

Among the options being considered are the following: (1) spinoff the voluntary employee contribution feature of the Company Y defined benefit plan into the Company X 401(k) plan (which also allows after-tax contributions); (2) terninate the voluntary employee contribution feature and allow affected employees to make distributions from their voluntary employee contribution accounts; or (3) purchase an annuity contract to hold the voluntary employee contribution feature outside of Company X's defined benefit plan.

Questions:

If Option (1) is selected:

(a) would the Company X 401(k) plan have to track the voluntar contribution feature to make it comply with the QJSA/QPSA requirements under the tax law?

(b) since the right to make ongoing contributions to the voluntary employee contribution feature was frozen several years ago, would Company X have to issue a notice to participants under Code Section 4980F?

© are there any other issues to be considered before implementing the spinoff?

If Option 2 is selected:

(a) Would the termination of this feature have any impact upon the remainder of the Company X defined benefit plan from a qualification, ERISA or PBGC perspective?

(b) If a participant's account balance under the voluntary employee contribution feature exceeds $5,000, what can Company X do to get it out of the plan?

If Option 3 is selected:

(a) Are the Joint Guidlines prescribed by the IRS, DOL and PBGC in the early 1980s still effective? If so, would this require that Company X fully vest all Company X defined benefit plan participants in their accrued benefits?

(b) Are there any other issues from an IRS, DOL or PBGC perspective that Company X should be aware of?