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Force-outs concurrent with (sudden M&A) Plan Termination


401QUE

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Initially, our client indicated they were about to be acquired (transaction date TBD in the near future). The client had asked my firm to conduct a "force-out" distribution mailing to thin out the plan before merging it to the Acquirer, and also to give some large-balance terminees an early head's up changes were brewing and to consider moving their retirement assets more directly under their individual control.

Thus far into the force-out process, one partially-vested participant voluntarily took a rollover distribution of her net account balance. Now, the decision has been made to Terminate the plan prior to the corporate merger taking place. In my mind, this sort of nullifies the force-out process, and I'm sure the client would be okay, in effect, not forcing anyone out under the original force-out time frame (3/15/2013), and allowing the full vesting and plan termination distributions to occur somewhat later.

My question is:

Do we make whole the one participant that received a partiallly-vested distribution by reversing the forfeiture and distributing it to her IRA? That seems like the conservative thing to do, given 1. it coincides with the plan termination and would give the appearance of an ill-intended maneuvering of the plan sponsor (not their intent) and 2. people talk and so many other terminees that chose not to do anything will become fully vested it may lead to a complaint.

Or, in general, what is the guidance or regulation regarding forcing out partially-vested terminated participants with a pending plan termination?

Thanks!

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Suggestion: Retroactive amendment to the date of that distribution and make everyone currently in the plan 100% vested. You then fix that one distribution and hopefully then don't have to worry about orphaned forefeitures.

Kurt Vonnegut: 'To be is to do'-Socrates 'To do is to be'-Jean-Paul Sartre 'Do be do be do'-Frank Sinatra

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I understand how a plan termination would cause distributions, but I don't understand how one day the sponsor can decide mandatory distributions should occur. Mandatory distributions occur in accordance with plan terms, not willy nilly. Did the sponsor amend the plan to provide for a different schedule for mandatory dstributions, such as changing from year-end to ASAP?

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"Force-out"? Are these terminated participants?

"...give some large-balance terminees an early head's up..." Discriminatory? Why would you communicate "advice" to one group of participants and not to all?

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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Guest 401kbee

The questions I would ask are:

What was the force out communication date?

Who received this communication? I am assuming terminated participants since they are the only ones that can be forced out.

When was the last forceout communication sent to these employees?

How many participants processed transactions prior / after the communication? (prior with in a reasonable time before)

How much will it cost the ER to make the participant whole?

Conservative approach would be to make those whole and not discriminate.

Remember, you should be able to identify your process to be able to support your process.

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We're only talking about terminated participants - sorry, I shouldn't have assumed it went without saying.

The Doc states "as soon as is practical following severance if partially vested" and the administrative process has been to do so toward the end of each plan year in batches. They wanted to accelerate this year's mandatory distribution process.

The terminated group (particularly large balance, many of which are extremely pleased with the performance of the plan) have been the only group not aware of what was going on at the company, so I don't think it was discriminatory at all. By "early" I meant relative to upcoming events, rather than earlier than other participants.

Making the one recipient whole would cost the ER nothing, it would just be a matter of reversing the forfeiture and paying it out per their IRA rollover election. It just happened a few days ago, but any earnings would be included. I agree with you, 401kbee, about making whole, and the client will no doubt agree as well. Thanks for the very thoughtful comments, questions and concerns so far!

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