Form 501 - Post Distribution Certification required attachments

[AdKu]

I'm in the process of filing Form 501, post distribution certification for standard termination, with PBGC for one of my client.

PBGC instructions calls for attaching a copy of the cancelled check or bank statement with the individual's name and distribution amount when filing Form 501.

Unfortunately, one of the plan participant distribution check is not cashed. I called the investment provider for his employer retirement plan where the check was sent as a direct rollover for the benefit of the participant based on his election. I have learned the said plan asset was liquidated over a two month ago. I reached out to the participant to follow-up and the participant promised to get the check cleared/cash, which didn't happen still. Is there any other options?

Clock is ticking and 45 days passed since the proposed plan asset distribution date that we listed on the Form 500. Although it appears PBGC will not assess penalty as long as the Form 501 filed not more than 90 days.

Highly appreciated to hear your experience of filing Form 501 and associated attachments.

[Lou S.]

I don't recall ever attaching copies of cancelled checks to the 501. Is this a new requirement? It's been a few years since we terminated a PBGC covered plan.

[Mike Preston]

Yes, it is new in the geologic sense. Been this way for a bit over a year.

[Belgarath]

So what does happen then, if one or more participants don't cash the checks (which I assume is not an uncommon occurrence)?

Do you just go ahead and file the 501, with a copy of the check and a statement that the participant hasn't cashed it?

Just curious - I'm not a DB person, but it seems like there must be some sort of acceptable solution to this problem.

[My 2 cents]

So what does happen then, if one or more participants don't cash the checks (which I assume is not an uncommon occurrence)?

Do you just go ahead and file the 501, with a copy of the check and a statement that the participant hasn't cashed it?

Just curious - I'm not a DB person, but it seems like there must be some sort of acceptable solution to this problem.

I am a DB person, and it seems to me that something like that must be satisfactory (especially if the participant's whereabouts are known and they just haven't gotten the check deposited or cashed). The plan paid the benefit out and should assert so on the Form 501.

But I am a bit confused by the initial post. Does it say that the check was sent to the financial institution designated by the participant for a direct rollover? If so, how could the check possibly not have been cashed? If the election was for a direct rollover, the participant couldn't possibly have cashed the check. Did the participant request a rollover, specify the financial institution and direct that the check (made out to the institution) be mailed to him or her?

[AdKu]

The check was sent to the participant but payable to the financial institution designated by the participant for the benefit of the participant as a direct rollover, according to the completed distribution election form and the attached direct rollover acceptance letter from the financial institution.

However, before he participant forward the distribution check to his designated financial institution, the investment provider for his new employer retirement plan, the said plan asset was liquidated.

The distribution check is in the hand of the participant with no action, and only promises to make sure that his broker will cashed the check soon.

Unfortunately, the participants's present value of Vested Plan Benefit is greater than $1,000, which is the plan cashouts amount.

Had anyone luck attaching other proof of plan benefit distribution to the Form 501 other than cancelled check in the last one year, for instance, a copy of the check that was sent to participants or the letter attached to the check, or even a sheet that lists participant names, the distribution amounts, distribution dates or any other?

[AdKu]

The plan cashouts limit was $5,000 before the EGTRRA restatement that changed the cashouts limit to $1,000.

Is this permissible to use the old plan cashouts limit of $5,000, taking into account 411(d), to make cash distribution for benefits under $5,000 without the consent of the participant?

[My 2 cents]

This is a plan termination. Surely nobody with a benefit worth less than $5,000 was given the choice of having an annuity purchased!!! Upping the involuntary cashout limit from $1,000 to $5,000 in connection with the plan termination (or any other circumstances) violates no anti-cutback rule. Further, every plan with a $1,000 involuntary cashout limit that I have ever seen explicitly stated that if the benefit is worth less than $5,000, it can only be paid as a lump sum (even if it could not be immediately forced out).

[AdKu]

Hi My 2 cents,

Is the plan lower cash-out limit provision irrelevant when it comes to making involuntary cash-out under $5, 000 (assuming lump sum is the normal form of distribution for benefit under $5000)

§ 1.411(a)-11 Restriction and valuation of distributions

(3) Cash-out limit.

(i) Written consent of the participant is required before the commencement of the distribution of any portion of an accrued benefit if the present value of the nonforfeitable total accrued benefit is greater than the cash-out limit in effect under paragraph ©(3)(ii) of this section on the date the distribution commences. The consent requirements are deemed satisfied if such value does not exceed the cash-out limit, and the plan may distribute such portion to the participant as a single sum. Present value for this purpose must be determined in the same manner as under section 417(e); see § 1.417(e)-1(d).

(ii) The cash-out limit in effect for a date is the amount described in section 411(a)(11)(A) for the plan year that includes that date. The cash-out limit in effect for dates in plan years beginning on or after August 6, 1997, is $5,000. The cash-out limit in effect for dates in plan years beginning before August 6, 1997, is $3,500.

https://www.law.cornell.edu/cfr/text/26/1.411(a)-11