Plan Termination and 1 year Distribution Requirement

[Dougsbpc]

Have a small client that terminated their DB plan and 401(k) plan effective 1/31/12. The plans just covered husband and wife (no employees).

We have been reminding them of the one year distribution rule. However, they are going through a very bitter divorce and assets (including plan assets and benefits) are part of it. They have not been able to finalize the financial aspects regarding plan assets.

I dont believe there is any relief (other than non-liquid assets) in terms of the one year distribution requirement.

Has anyone been through this? Is there any solution?

Thanks.

[ETA Consulting LLC]

The question is this case is whether the plan is "actually" terminated. When you fail to distribute within 12 months, there is an argument to whether the plan terminated. If not, then, as a rule, all regulatory requirements (i.e. restatement or amendment deadlines) would apply through the current date. Not sure when the last DB restatement deadline was; wasn't it April 30th, 2012 (not sure). At any rate, if by terminating on 1/31/12 you avoided the need to restate; you "may be" a non-amender.

Just some random thoughts that come immediately to mind.

Good Luck!

[Lou S.]

Isn't rule actually to distribute as soon as administratevely feesable? I suppose an argument could be made that it is not administratviely feesable until the QDRO is issued. Might be a stretch but I'd doubt the IRS would challenge it too much.

[ETA Consulting LLC]

"Plan termination" requires distribution of assets within 12 months from the date of termination.

Good Luck!

[Tom Poje]

for example, (from ASPPA Q and A 2010 #3

calendar year DC plan terminates 9/15/10

Q: for 2010, do you treat 9/15 as if it were the last day of the plan year for top heavy purposes?

A:Of course if there were no contributions, then no top heavy (this is a DC plan). but if there were contributions, including deferrals, then top heavy is due thru 9/15.

Plan must liquidate within a reasonable time (Rev Rule 89-87) or else 9/15 may not be reasonable.

[Bird]

Just to clarify, it's not that you have to distribute within one year, it's that if you don't, the plan isn't effectively terminated and you have to keep the document up-to-date and otherwise operate it like an ongoing plan. I'm not sure that's the biggest thing they have to worry about.

[12AX7]

There also may be ongoing 5500-EZ requirements until the final plan year (assets >$250K).