Mandatory Rollover from Terminating DB to DC Plan

[Guest Grumpy456]

A client sponsors a DB plan and a DC plan. Other than "cash out distributions", the DB does not presently permit any lump sum distributions. The client wants to terminate the DB plan. The client wants to amend the DB due to the termination as follows:

(1) Any participant who is not employed on the termination date may elect to take a lump sum distribution; and

(2) Any participant who is employed on the termination date may elect to take a lump sum distribution conditioned upon their agreement to make a rollover contribution of the lump sum distribution to the client's DC plan.

The rationale behind (2) is that the client doesn't want currently-employed participants to take the present value of their accrued benefit in the DB plan and blow it on the proverbial "new Mercedes".

Does anyone see a problem with (2)?

I ask because the TPA firm that administers the DC plan claims that (2) violates Treas. Reg. 1.401(a)(31)-1, Q&A-9, and, as result of the violation, the contributions would not technically qualify as "eligible rollover contributions" and cannot be accepted by the DC plan. Assuming (2) is problematic, as suggested, if the DC plan permits participants to request immediate distribution of rollover contributions, does that affect the conclusion (even though it would undercut the client's rationale)?

Thanks!

[masteff]

This doesn't answer your question but for what it's worth, Q&A-7 under the same section says you can default someone to having elected a direct rollover if they don't make an election w/in a certain time period.