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Plan terminating but participant won't request distribution


M Norton

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Business has been sold and long-standing PS plan is terminating.

Plan has J&S provisions.

One participant with account over $100K doesn't want to get his wife to sign off on distribution.

They are estranged but not officially divorced.

So he won't complete the paperwork to request a distribution.

What are the plan's options for getting this account paid out?

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Well, if it were a defined benefit plan, the plan would have to go out and buy a deferred annuity that had embedded spousal consent requirements unless the participant and the participant's spouse consented to a different method of distribution.

Would that be the default action (in the absence of spousal waivers) for a defined contribution plan that, for whatever reasons, includes joint and survivor provisions?

If they do go through a formal divorce, the soon-to-be-ex-spouse will presumably be able to get a fair share of the annuity (or otherwise undistributed account balance) through the QDRO process.

If the participant is looking to defraud his estranged wife by concealing substantial assets, I hope he gets caught.

Always check with your actuary first!

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The participant has the choice of getting a lump sum, with the spouse's consent (perhaps at a price), or taking a J&S annuity where she is the contingent annuitant. If he doesn't make a choice, the plan should have the ability to force the J&S on him.

Ed Snyder

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So he won't complete the paperwork to request a distribution.

He doesn't have to request a distribution. The plan is terminating, so the plan provisions will dictate what to pay, and when.

I'm a retirement actuary. Nothing about my comments is intended or should be construed as investment, tax, legal or accounting advice. Occasionally, but not all the time, it might be reasonable to interpret my comments as actuarial or consulting advice.

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I've had the same situation. DC plan with J&S is terminating and one participant won't sign distribution election. I've had a dickens of a time trying to find authority for forcing an annuity buyout if the participant doesn't respond. It seems that this must be allowable since otherwise a participant could hold the termination hostage. Can anyone give a cite?

Thanks

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See Treas. Reg. section 1.411(a)-11(e) and work backwards.

That doesn't really help because it applies to a DC plan without an annuity option and if there is no other DC plan (other than an ESOP). In this case the DC plan does have an annuity option. Been down that road already.

I thought it might have to do with an exception to "immediately distributable", but I didn't find anything there either.

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I'm a retirement actuary. Nothing about my comments is intended or should be construed as investment, tax, legal or accounting advice. Occasionally, but not all the time, it might be reasonable to interpret my comments as actuarial or consulting advice.

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