Terminated DB Plan

[Guest Sieve]

DB Plan was termianted, PBGC filing made and IRS favorable letter received. Client sent out distribution forms, and could not locate 4 former employees after appropriate due diligence (let's take that for a given at this point). Client sent PVABs of the 4 missing participants to the state under escheat statute. We are now completing PBGC Form 501. How much trouble will we get into with the PBGC when we answer the question about locating all participants "No" but we don't indicate that we are sending $$ to PBGC?

[Guest Kabert]

Hmmmm. I've only used the state-escheat approach when terminating a DC plan. I've never thought of that being an option when terminating a DB plan -- only either stick the lost participants on an annuity contract or send the money to the PBGC (whichever is the cheaper approach). Since it is possible, obviously, for employees to get their money from the state after it's been escheated, you might contact the state and explain the situation to see if you can get the funds back somehow. Hopefully it's not alot of money. Maybe someone else knows better, but if the state won't refund the money due to "mistake," then I don't see how you can avoid ponying up the money and buying an annuity or sending the funds to the PBGC, and being able to answer the 5310 question honestly.

[david rigby]

This seems like a serious violation of PBGC termination regulations. Neither the plan nor the employer has any authority to escheat to the state. That's why the PBGC missing participant program was created.

From the Standard Termination Instructions (page 15):

"The plan administrator must distribute the plan benefits of the Missing Participant either by purchasing an annuity contract from an insurance company or paying the value of the Missing Participant’s benefit to PBGC."

Likely, you will not be the first to ask them this question. Just my hunch, they won't be happy. IMHO, you may wish to prepare the client for the possibility of having to follow the MP requirements, also.

[Guest mjb]

PBGC Reg 4050.3 states that a terminating plan must make a distribution to participants by either purchasing an annuity or paying the designated benefit to the PBGC. Under reg 4050.6 the plan will have to pay the benefits of missing participants to the PBGC and file additional information by the time the post distributoin certification is due. There is no authorization under the regs to escheat benefits of missing participants to the state.