Transferring Balances of Missing MPP Participants into 401(k) Plan

[holdco]

Hello everyone! Here's a situation: a terminated money purchase plan has 13 participants with remaining account balances. The former sponsor of that plan also maintains a 401(k) plan. Only one participant in the terminated money purchase plan has a balance of over $1,000. The terminated plan had mandatory cash-out provisions if balances were less than $1,000, and automatic rollover provisions into IRAs in case no distribution election was secured. We have addresses for twelve of those thirteen participants, and we're going to cash out all of them but one.

One of those twelve has a balance over $1,000 ($1,029 or so), so he can't be cashed out. The thirteenth can't be located (balance of $24). Under Treas. Reg. 1.411(a)-11(e), in respect of a terminated DC plan, if a sponsor maintains another DC plan, then a participant's account balance can be transferred to that other DC plan. In support of that, FAB 2004-02 assumes in its guidance that a missing participant's account balance can't be transferred to another DC plan.

So, what would you do? Move the balance of the guy having over $1,000 and the guy who can't be located into an IRA per the terminated plan's terms, or move the funds into the 401(k) plan? It seems like we should move the funds into the 401(k) plan. Aside from the fact that the IRS and DOL support this construction, it lessens the burden on the sponsor, and we don't have to worry about finding IRAs for $24. Plus, we keep control of the assets, which is always preferable.

I would greatly appreciate the community's thoughts on this. Thank you!

[Bird]

The terminated plan had mandatory cash-out provisions if balances were less than $1,000, and automatic rollover provisions into IRAs in case no distribution election was secured.

Seems like a different set of circumstances than your earlier post.

If the terminating plan has (had) the automatic rollover provisions all along, why didn't you do that earlier? That's not optional. That will take care of one problem.

I could find an expense to get rid of $24.

...we keep control of the assets, which is always preferable.

Not necessarily. How is it in any way good to keep $24 and $1029 hanging around, with the hassles involved in direct evidence right here?

[holdco]

The terminated plan had mandatory cash-out provisions if balances were less than $1,000, and automatic rollover provisions into IRAs in case no distribution election was secured.

Seems like a different set of circumstances than your earlier post.

If the terminating plan has (had) the automatic rollover provisions all along, why didn't you do that earlier? That's not optional. That will take care of one problem.

I could find an expense to get rid of $24.

...we keep control of the assets, which is always preferable.

Not necessarily. How is it in any way good to keep $24 and $1029 hanging around, with the hassles involved in direct evidence right here?

Thanks for the reply...the post is different in that now we've found most of the addresses of the missing participant. No idea why we didn't roll over earlier. We were still trying to track down the missing participants, I suspect. I've re-read the only available guidance on this question and it looks like we MAY transfer to the 401(k) plan, and we can also open IRAs in accordance with the MPP and FAB 2004-02. The footnote in the FAB assumes that the terminated plan didn't have an annuity option AND there is no other DC plan into which the account balance may be rolled over. It's conjunctive. Because the terminated MPP plan did have an annuity option, I don't think this guidance is ironclad in our case. Whether we move the balance to the 401(k) or open an IRA, we shouldn't be violating any duty.

If the guy with over $1,000 doesn't elect a distribution, we can roll him over into an IRA, or move him to the 401(k) plan. For the guy with $24, we technically can cash him out, but we don't know where he is. So, we can again roll him over or move him to the 401(k) plan. Regardless, per my earlier post, we have to amend the 401(k) plan to allow that transfer from a terminated MPP, preserving the distribution options.

As far as strict compliance goes (practical considerations aside), does that seem appropriate?

[Bird]

My point was that if the MPP said you must cash out for less than $1,000 and do an IRA rollover for $1,001 to $5,000, then that's what you must do (and should have done maybe some time ago). You're focusing on what the regs say you may do rather than what the plan says you must do.

[holdco]

My point was that if the MPP said you must cash out for less than $1,000 and do an IRA rollover for $1,001 to $5,000, then that's what you must do (and should have done maybe some time ago). You're focusing on what the regs say you may do rather than what the plan says you must do.

Of course, I understand. But, the plan is terminated, so now, we are dealing with missing participants in plan terminations, which is not covered in the plan terms. Of course, our first thought was to roll over, but then we saw the DOL guidance. Can you explain away that quote about a terminated participants' balance being transferred to another defined contribution plan?

[Bird]

Sorry, I just don't want to follow your line of reasoning. As I see it, you do an IRA rollover for the $1,000 guy and you just get rid of the $24.