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When are benefits paid?


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Calendar year profit sharing plan. All employees are terminated toward the end of 1998. Business has filed for bankruptcy.

Profit sharing plan will terminate in June 1999, and file with IRS for determination. Client would like to hold off on distributing benefits until end of 1999, when favorable IRS determination letter is expected to be received.

Problem -- plan provides that benefits are paid at the end of the plan year in which the employee terminates employment. In practice, benefits have been paid early in the following year (between March and May), when the asset results are known and the allocation is performed.

Can the plan sponsor choose to delay payments until IRS determination letter is received?

(If all employees elect to receive their benefits now and are paid their benefits now, there would be no assets or participants included in the determination letter filing.)

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We always recommend that employers not pay out participants until we received approved D-Letter. However we have also sugggested that participants may be paid out, so long as at least one pariticipant remains in the trust until receipt of D-Letter. However this is not a document/distribution issue, but a 'get them off my back' issue.

A plan document that provides distributions after next plan anniversary date does not have a time standard to make those distributions, unless it's spelled out in the document. In the case of plan termination and requesting D-Letter, I am certain that you can wait until receipt of approval before doing the distributions.

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