Profit Sharing going to IRA

[Guest scottk]

I used to work for a company that had, may still have, a profit sharing plan. Each year they would say what were getting in the way of profit sharing. 1 week or less or more but never more than 2 weeks. Just over a year after I left I received a letter that my money in the profit sharing plan was converted to an IRA and an account opened for me.

I was reading on the ERSIA or the IRS site that if the a plan was changed from one type to another, the plan participants were automatically vested 100%. At my exit interview (April) they said I was only vested 40% but when the statement came out in July I was vested at 60%. I had work almost their full fiscal (June 1 to May 31) year at the time of my departure.

I used to get statements annually saying that "The Plan" had 33 million(approximately) in it and these were the expenses, payouts to retiree's...etc. I had no input as to how the funds were invested. Now all I get are the statements from the Bank where my IRA resides.

After reading some of the regulations I am confused, if you ever tried reading and following them unless this is what you deal with it is easy.

So it comes down to this:

1. Does converting from the company profit sharing plan to an IRA constitute a change in plans?

2. Is there a regulation to this point about converting plans and vesting of the plan participants?

3. If I was converted due to my leaving the company does this constitute a change in plans?

Scott

[WDIK]

At first glance, it appears that the plan likely invoked a rule that allows them to automatically roll over a participant's balance if it under $5,000. If that is the case, no change in plan type occurred, and there would be no impact on your vested percentage.

[Guest scottk]

At first glance, it appears that the plan likely invoked a rule that allows them to automatically roll over a participant's balance if it under $5,000. If that is the case, no change in plan type occurred, and there would be no impact on your vested percentage.

You are probably right but asking for a copy of the plan at the time of employment would most likely get you fired. Privately held company and they do it their way regardless of the rules are.

The amount is less than 5,000. I did find the the 5500 signed in March of 2007 for 2005, the fiscal year thing lets them do that I think because of the ones they have listed are all like that.

[david rigby]

Words can be important. The confusing word here is "converted". It appears that nothing has changed w/r/t the plan. The relevant change is your employment status. That is the date at which your vesting status was determined.

It also appears the plan administrator has made a distribution to you, and defaulted to make that distribution directly as an IRA rollover. If so, that IRA is now yours. You may find it useful to have a copy of IRS Publication 590 (call 1-800-TAX-FORM).

[Kimberly S]

This information on their "force out" provisions to an automatic rollover should be included in the Summary Plan Description that is required to be provided to all plan participants when they enter the plan.

If a force out distribution is what has happened, you should also receive a form 1099-R showing the distribution from the plan and that it was rolled over so it was not a taxable distributions.