Distribution From Multiemployer plan

[RCK]

This has happened before, but this one for some reason pushed me over the edge.

Our union employee has been participating in a multiemployer 401(k) plan. She is promoted to a supervisory position, and is no longer eligible for the multiemployer plan. But she is now eligible for the corporate single employer plan.

So she goes to the plan administrator for the multiemployer plan, asking to roll her account to her new plan. Plan administrator says, "sure, you can do that (after a 90 day wait)'.

Assuming that she is not age 59 1/2, where is the distributable event? She is still employed by the same employer--not retired, dead, termed, etc.

Second question. If the multiemployer plan makes a distribution to her, we are not responsibile for reviewing that plan for operational compliance, and its a lump sum distribution from a qualified plan. So we accept the rollover?

[rcline46]

Its the old story - what does the plan document say? We have documents the permit a transfer, not distribution and rollover, from one plan to another if a participant is no longer eligible for the first plan.

I have also seen union plans that treat termination from the union as a separation from service, but I do not know if the plan had a determination letter.

[Kirk Maldonado]

For what it is worth, the IRS told the ABA a number of years ago that distributions were not permitted upon going from union to non-union status.

[RCK]

Thanks for the comments.

There was no doubt in my mind that at least some of the union plan documents allow for distributions upon loss of eligibility, and probably have determination letters. But it just strikes me as wrong.

I suppose that I should stop jousting with that windmill.

[RTK]

The IRS's position would be consistent with DOL regs on contiguous noncovered service (2530.210), which is required to be counted for vesting and eligibility.

I suspect that the 90 day wait in this case reflects plan terms providing that a participant is deemed to have terminated employment after no contributions have been received for 90 days. Because multiemployer plan participants may work for a number of employers on an intermittent basis, it is difficult to determine when a participant has terminated employment under a multiemployer plan (so as to be eligible to receive a distribution). Thus, 90 days (or some other number of days) of no contributions is often used by multiemployer plans as a proxy for termination of employment. However, even so, the multiemployer plan terms should not allow for a termination distribution for a participant in continguous noncovered service, but this is often overlooked. Also, under many multiemployer plan reporting requirements, it would be difficult for the plan administrator to know if a participant for whom no contributions are being received is in contiguous noncovered service.