DC plan termination

[thepensionmaven]

One of our clients decided to terminate his profit sharing plan because there was a former participant/employee who stole quite a bit of money from them. The client's attorney suggested they terminate the plan as soon as possible. The account was liquidated and all people rolled over except for one.

The participant involved had an account balance well over $5,000 and is not married. The client's attorney advised them to pay everyone out by 12/31/10.

The participant involved has refused any and all mail from the client, and the client sends everything certified, return receipt.

The client still has the check representing the 80% and has not forwarded the 20% withholding yet.

Any suggestions on how to handle the check the participant will not accept??

[Lou S.]

For over $1,000 you should just establish a rollover IRA, send the funds there and make it the nonresponsive participant's problem. I don't see where you can send him a check less withwholding any more as the DOL/IRS changed those rules a few years ago.

Also at this point the withholding is quite late.

[mbozek]

One of our clients decided to terminate his profit sharing plan because there was a former participant/employee who stole quite a bit of money from them. The client's attorney suggested they terminate the plan as soon as possible. The account was liquidated and all people rolled over except for one.

The participant involved had an account balance well over $5,000 and is not married. The client's attorney advised them to pay everyone out by 12/31/10.

The participant involved has refused any and all mail from the client, and the client sends everything certified, return receipt.

The client still has the check representing the 80% and has not forwarded the 20% withholding yet.

Any suggestions on how to handle the check the participant will not accept??

The attorney should have advised the client to amend the plan to provide for an automatic lump sum payout upon termination without the participant's consent. See reg 1.411(d)-4 Q-2(b)(2)(vi). I think it is too late to amend the plan after termination. See example 1 in the reg. The only option is to roll over the fund to an IRA assuming you can find a custodian that will take the funds at this time, e.g. after termination. Q- does the plan need to have a provision that requires an involuntary transfer to an IRA upon termination?

[Guest Sieve]

If the plan is a Corbel prototype (or VS-prototype style), then distribution without consent at Plan termination is permitted by the Basic Plan Document: "Upon the full termination of the Plan, the Employer shall direct the distribution of the assets to Participants in a manner that is consistent with and satisfies the [distribution] provisions of [the Plan], except that no Participant or spousal consent is required."

But, in this case it looks like checks are being sent, but they are heing returned and not being cashed. In that case, I don't think the without-consent distribution helps any--looks like an IRA is the only way out.