Term. participants not given the opportunity to elect benefit payment. SCP?

[kwalified]

A new small plan recently was established with TRANSFERRED funds from a plan whose sponsor sold the company of the participants of the new plan. The financial company of the prior plan, which was a large plan, just transferred funds to the financial company of the new plan sponsor. It appears the 11 participants in the old plan, which was VERY large, did not receive a Benefit Payment Election Form and were not given the opportunity to roll or take a distribution in cash. Their funds were just transferred to the new employers new plan. Total transfer is less than $40K for the 11 participants. Additionally, the new plan was established with no ROTH provisions or loans, yet a couple of participants have small loan and ROTH balances. It would appear that the Large plan sponsor would have the liability. However, the new plan sponsor has tainted funds in it's brand new plan.

Should this call for a VCP filing? The ratio of participants/assets affected is miniscule compared to the overall balance in the large plan, but I don't know if this is SCP material.

Thoughts please?

[QDROphile]

The new plan does not necessarily have a problem based on what you report. Neitehr does the transferor plan. A loan program is not necessary to maintain transferred loans, but some refinements to the new plan's terms would be appropriate. Opinions differ about maintaining Roth accounts in a plan when Roth contributions are not allowed. The documentation of the transfer may have been rough and in need of refinement, but don't jump to the conclusion that a disqualifying violation has occurred.

[kwalified]

Sure the issue of the new plan not allowing loans or ROTH is fairly easy fix.

The main issue is the fact that terminated participants were not given the election to take a distribution in cash or rollover. Their funds were just transferred and you can't necessarily transfer them back to the old plan and do a "do over" and I don't think you can give the participants the option to distribute now that they are in the new plan.

[rcline46]

Transfer of assets is common in a spin-off (trustee to trustee transfer). I know there is a bug-a-boo about separation from service and separation from employment (same desk rule re-visited), Why do you think the participants should have had options?

[david rigby]

To the original poster, note the important difference between a plan merger and a plan termination. In the former case, (generally) employee options do not arise; the word "transfer" is often used in this case, although it may not be the best choice of terminology.

Could that be the situation you have?

[kwalified]

Yes it is. Thanks for your comments.