Employer terminated 401k plan

[Guest flgirl]

I was laid off from my former employer in July of 2009, they terminated the 401k plan April 30 2009 (their fiscal year ends also on April 30). My questions is: Because the 401k plan ended on April 30 2009, do they have to payout my 401k monies or do I have to wait until next years fiscal year end because I was laid off in July?

[PensionPro]

Sorry to hear you were laid off. The best source of information is the plan administrator/employer because there are a number of variables here. Generally speaking, a plan will make distributions within 12 months of plan termination, but this is not always the case. On the bright side, when a plan terminates participants typically become fully vested.

[david rigby]

BTW, if your concern is paying taxes, don't forget that you can defer taxes by using a rollover to an IRA. If you want to later roll that amount somewhere else, it may be best to use an IRA that is separate from all your other IRA's. You can order a copy of IRS Publication 590 at www.irs.gov.

[EPCRSGuru]

Do you know if the employer has filed with the IRS for a favorable determination letter (one which states that the termination of the Plan does not affect its tax-qualified status)? Filing such an application is optional, but many employers who choose to apply will delay distributions until they have received the IRS' blessing, in case anything comes up during the examination which affects the Plan's operation.

You might also want to check the provisions of the document and the Summary Plan Description. Some plans pay out only after the annual anniversary date; others will pay quarterly. This should be in the document/SPD.

[mbozek]

Do you know if the employer has filed with the IRS for a favorable determination letter (one which states that the termination of the Plan does not affect its tax-qualified status)? Filing such an application is optional, but many employers who choose to apply will delay distributions until they have received the IRS' blessing, in case anything comes up during the examination which affects the Plan's operation.

You might also want to check the provisions of the document and the Summary Plan Description. Some plans pay out only after the annual anniversary date; others will pay quarterly. This should be in the document/SPD.

It is an urban legend of pension practice that plan administrators can withhold payments of benefits while a plan is waiting for a determination letter after termination since a determination letter request does not trump a participant's right to be paid in accordance with the terms of the plan as required by ERISA. Terminated plans awaiting a FDL are required to be administrered in accordance with their terms which requires that benefits be paid to participants who are entitled to a distribution, for example, on account of termination. Plan administrators do not have any discretion to withhold benefits while awaiting a FDL. File a request for benefits and see what happens. If the plan does not respond within 60 days then file a claim for benefits under the claims procedures in the SPD.

[EPCRSGuru]

Do you know if the employer has filed with the IRS for a favorable determination letter (one which states that the termination of the Plan does not affect its tax-qualified status)? Filing such an application is optional, but many employers who choose to apply will delay distributions until they have received the IRS' blessing, in case anything comes up during the examination which affects the Plan's operation.

You might also want to check the provisions of the document and the Summary Plan Description. Some plans pay out only after the annual anniversary date; others will pay quarterly. This should be in the document/SPD.

It is an urban legend of pension practice that plan administrators can withhold payments of benefits while a plan is waiting for a determination letter after termination since a determination letter request does not trump a participant's right to be paid in accordance with the terms of the plan as required by ERISA. Terminated plans awaiting a FDL are required to be administrered in accordance with their terms which requires that benefits be paid to participants who are entitled to a distribution, for example, on account of termination. Plan administrators do not have any discretion to withhold benefits while awaiting a FDL. File a request for benefits and see what happens. If the plan does not respond within 60 days then file a claim for benefits under the claims procedures in the SPD.

Well that's an appalling piece of information to be learning at this stage in my career. For years and years I have seen employers freeze distributions pending IRS letters with nary a peep from anyone. We usually relied on language that said that distribution would be made "as soon as administratively feasible". Am I (and my partners in crime) alone in the pension universe, or have other people been doing this too?

[david rigby]

How 'bout that old standby: "what does the plan say?"

[mbozek]

Do you know if the employer has filed with the IRS for a favorable determination letter (one which states that the termination of the Plan does not affect its tax-qualified status)? Filing such an application is optional, but many employers who choose to apply will delay distributions until they have received the IRS' blessing, in case anything comes up during the examination which affects the Plan's operation.

You might also want to check the provisions of the document and the Summary Plan Description. Some plans pay out only after the annual anniversary date; others will pay quarterly. This should be in the document/SPD.

It is an urban legend of pension practice that plan administrators can withhold payments of benefits while a plan is waiting for a determination letter after termination since a determination letter request does not trump a participant's right to be paid in accordance with the terms of the plan as required by ERISA. Terminated plans awaiting a FDL are required to be administrered in accordance with their terms which requires that benefits be paid to participants who are entitled to a distribution, for example, on account of termination. Plan administrators do not have any discretion to withhold benefits while awaiting a FDL. File a request for benefits and see what happens. If the plan does not respond within 60 days then file a claim for benefits under the claims procedures in the SPD.

Well that's an appalling piece of information to be learning at this stage in my career. For years and years I have seen employers freeze distributions pending IRS letters with nary a peep from anyone. We usually relied on language that said that distribution would be made "as soon as administratively feasible". Am I (and my partners in crime) alone in the pension universe, or have other people been doing this too?

I have a Q- assume in the above situation the employer freezes distributions upon termination in violation of the plan terms until an FDL letter is recieved a year later. In the meantime the participant's account balance declines by 50%. What do you think the employer's chances are under LaRue if the employee commences a fiduciary lawsuit for loss of account value on account of the failure to follow his instructions to distribute a lump sum to which he is entitled under the plan?

[K2retire]

The attorneys who prepared the IRS filings where I used to work took the position that until the approval was received there was not a distributable event for most participants. I believe that their termination resolutions were drafted to reflect that position. Anyone who terminated employment was encouraged, but not required, to wait.

[Bird]

We have always paid terminated employees when they were entitled under the terms of the plan, and made others wait for the DL. We don't know for sure, but there's a hint in the original post that the plan has some kind of a waiting period.