DB Terminations

[J. Bringhurst]

DB plan will be terminating 12/31/06. Client will be filing for a favorable determination letter as part of the termination process.

1. Would former participants otherwise eligible for a distribution from the plan (i.e., attainment of early or normal retirement age) during the FDL process be eligible to receive a distribution or must distribution wait until the FDL is received? If former participants must usually wait, is there an operational failure to follow the plan's terms?

2. Would participants active as of the termination date have to wait until the FDL is received?

3. If either or both categories must wait until the FDL is received, how should this be handled if part of the plan includes a cash balance element and the FDL could take much longer than normal?

Thank you in advance.

[david rigby]

A plan termination should not inhibit normal ongoing activities of the plan "in process". For example, a VT partcipant reaches NRA and requests commencement of the benefit. Is there any reason for the plan to tell that person he/she must wait? No.

However, the participant may voluntarily delay a request for benefits. For example, assume the plan termination will cause the plan to purchase annuities for retirees in-pay status. If the above participant delays commencement, then he/she may be entitled to a choice of a purchased annuity or a lump sum, depending on the terms of the plan, but such choice would not be available if benefits had already commenced. (Of course, such delay may also be a risk of forfeiture due to death.)

BTW, an IRS determination letter is not required. So, whether to delay payments for such letter is a policy decision of the plan administrator.

[Blinky the 3-eyed Fish]

I would delay payments to active participants only if you felt there was an potential qualification issue with the plan. Having a general tested plan or a plan around for under five years would be good times to wait for the FDL. Of course if nobody is in a rush to receive the plan termination distribution, then why not wait?

[AndyH]

Is it covered by the wonderful PBGC?

P.S. I ask because if so, it would be my understanding that you cannot distribute to those with entitlements now only due to the termination until the PBGC review period has expired, e.g. actives.

[J. Bringhurst]

Yes, the plan is covered by the PBGC and is significanty OVERfunded. I think that we've decided to distribute for anyone who becomes entitled to benefits under the plan's terms. For anyone else, we wait until the PBGC period has expired. Thanks to all who responded!

Is it covered by the wonderful PBGC?

P.S. I ask because if so, it would be my understanding that you cannot distribute to those with entitlements now only due to the termination until the PBGC review period has expired, e.g. actives.