Terminated DB Plan

[Lorraine Dorsa]

I presume that Client sponsors a DB plan in which leased employees participate and that these leased employees were leased from Company B for some period ending on day X and then leased from Company C from day X+1 to date.

If this is the case, there has been no change in the status of these employees and they should continue to participate without change.

If my interpretation of your situation is not correct, please provide more details (does the message topic "Terminated DB Plan" mean that the plan was terminated?).

[Guest jgrill]

We have a client who leased contracts from Comp.B. Comp.B terminated the lease agreement with the Client. The Client sponsored the DB plan. Would the employees be considered terminated(as in employment)? Or would the same desk rule apply? No one was ever considered unemployed or lost pay as another company began leasing immediately. Any help would be appreciated.

[Guest jgrill]

Since posting that message, i have gotten more information.

The Client Managed several care facilities under company s. Leases were carried for each facility. Employees were covered under company s' DB plan. The plan trustee is informaing us that as of the date the client lost the leases for all but one home, that the business is terminated and thus the plan. They say the plan is terminated, but NO paperwork as been filed as of yet. Not to IRS,PBGC, or the participants and this all happened in November. To date there still are a few employees on the payroll for company S. The trustee will not payout any termed employees. We are thinking the plan is still active, only everyone but a few are termed ee. I have frozen accruals effective March 5, given the 15 day notice to ee, just in case this drags out.(it was only given to me a week ago)

Can we count all ee who have been off payroll since nov as termed and pay them out as such or do we need to term the plan and make everyone 100% vested? The plan will most likely be underfunded with 100% vesting. Our legal counsel is out of town and we don't know.

Any help would be appreciated.....Thank you!!!

[Lorraine Dorsa]

It seems to me you have an not yet terminated plan which needs to be terminated. You've started the process by ceasing accruals, you'll need to continue with IRS & PBGC filings, continuing actuarial valuations/Schedules B through date of termination, etc.

With regard to the payouts, the real issue is whether employees terminated in November 1998 must be fully vested. I think they must be 100% vested due to the partial plan termination (your information indicates that almost all employees were terminated in November and this would consistute a partial plan termination requiring 100% vesting of all affected participants).

Therefore, since it looks like everyone will be fully vested (either as result of the partial plan termination in November 1998 or the actual termination in 1999) and you say that assets are probably insufficient to pay benefits, I think you need to do an analysis of the plan's liabilities vs. assets and determine if the plan can terminate in a standard termination (unlikely unless there are some majority owners who are will waive benefits since the company probably doesn't have any money to contribute to make the plan sufficient) or if it must file as distress and perhaps get taken over by the PBGC before you pay anyone out.

Once you know where you stand with regard to assets vs. liabilities, you can start to make decisions how to proceed.

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[richard]

Not knowing the sophistication of your client and its management, let me add one additional point to Lorraine's typically salient comments.

A business that has dramatically turned south (if it has) sometimes closes its eye to its obligations. The trustee may think the plan has terminated, the client may think the plan has terminated, but unless and until the plan is terminated, it ain't terminated.

(Freezing accruals -- good idea, of course.)

Lest the client be tempted to shut its eyes, just waive in front of them the continued requirements, the PENALTIES for ignoring the requirements (including the rarely enforced but egregious DoL penalties). I've done this with several clients who were so tempted (the "two-by-four" approach), and the plans were properly terminated. (And all was well ...)

[Guest jgrill]

Thank you for your input. We'll begin the process with the PBGC and probably do a distress term.

Thank you again!