Internal Plan Rollovers

[Young Curmudgeon]

Is it feasible to reclassify Defined Benefit assets as rollover assets by simply issuing a 1099? The money never actually leaves the trust, it's just reclassified as a rollover account and no longer affects the DB valuation. I've never heard of this previously but I'm being told it's a normal practice. Sounds a little fishy.

[Effen]

I doubt the financial institution would be willing to just rename/reclassify the account. Different types of trusts have different requirements.

[Andy the Actuary]

Normally there is a new account set up and assets are transferred in-kind to new account (Plan should allow). However, probably wouldn't create Hiroshima concerns if account was simply retitled (which I've seen done).

[Rball4]

I have seen this for DB plan terminations where a DC plan is being established (for one person plan who no longer needs high deductions). The custodian reclassifies the assets, but the money never actually moves anywhere.

[Young Curmudgeon]

What if the context was to reclassify assets in the trust to avoid excess assets from gain? For example, one person plan, I have $2.4M in assets, my lumpsum limit. A 1099 issued indicating a rollover distribution, but nothing actually moves. There is still $2.4M in the trust, but now it's a "rollover account" rather than a defined benefit asset so the earnings that would create excess assets are no longer considered. It seems to me that this would fail the criteria as a direct rollover but it's being argued that the current plan is an eligible retirement plan.

[masteff]

EDIT: deleted my query about a statement BG made which he has now withdrawn. leaving this for now so the next post makes sense. feel free to delete that too BG and I'll delete this.

[BG5150]

My bad. I didn't see the part about the balance being "returned" to the plan.

Never mind. Carry on.

I'll delete my original post...

[Young Curmudgeon]

The DB plan actually is continuing after the "in plan rollover". My concern is that without money physically moving from the account, there has not been a distribution/direct rollover and all of the assets are still part of the actuarial valuation. The position of classifying assets as a rollover account would hold up since the money never moved.

[masteff]

1) Is the participant in question currently eligible to take the distribution? (And has completed or will complete a form to that effect)

2) Is the participant in question currently eligible to make a rollover contribution to the plan? Especially, does the plan accept rollovers? (And has completed or will complete a form to that effect)

[Young Curmudgeon]

Yes to both.