Adopted new NRD amendment, paid in-service

[John Feldt ERPA CPC QPA]

A plan sponsor (nonprofit) has one NHCE in their DB plan (subject to PBGC). They provide notice that the person has retired and asks for distribution paperwork. Plan allows full lump sum, plan has enough assets to pay out.

Participant, age 60.5 near the end of last year, did not actually retire, but sponsor paid the lump sum ($200,000) anyway. The plan sponsor thought in-service was still allowed. The plan had allowed in-service until a few months ago, last fall, when an amendment to comply with the unusual (IMO) IRS definition of the word "deference" under the final NRA regs changed the NRA to 62 and removed the in-service option pre-62.

At about the same time the participant was paid out, the plan adopted an amendment to terminate the plan and provided the proper plan term notices to the participant. The date of Plan Termination established was about 2 weeks after the participant was paid out. They are still employed now.

1. Plan paid when no distributable event occurred

2. Plan paid before the 60-day PBGC review period

What do you think would be a reasonable fix that the IRS and PBGC would accept?

[Andy the Actuary]

Question:

(1) By virtue of only NHCE receiving distribution, does Plan cease to be covered by PBGC? I.e., is it now a one-person plan? In short, you may be able to escape filing with the PBGC. There is a Q&A posted on the PBGC website to the effect that the Plan Sponsor would simply notify the PBGC of the change and status and they should be removed from the rolls. This sounded as if might be a one-person plan save the common-law employee.

(2) Is not filing for a D-Letter on termination an option? Is it an option to rescind the termination and wait?