DC plan: in-servce dist after plan term?

[AlbanyConsultant]

Hi.  I have a 401(k) plan that has terminated effective 12/31/16.  The business is still continuing, but the plan is winding down (calculating final employer contributions, testing, etc.).  A participant has asked for an in-service withdrawal.  Presuming that if the plan were not terminated she would meet the plan's criteria to take one, should be allowed to?  I don't see anything that specifically addresses this in our document (Datair) or the regs.  Thanks.

[Peter Gulia]

This question has come up a few times in one of my monthly among-practitioners groups.  There, a consensus view was that a fiduciary might have some duty to consider whether allowing a distribution before everyone gets the final distribution could result in the earlier-paid participant not bearing her fair share of the plan's wind-up expenses.  (All of our discussions involved situations in which expenses are paid from plan assets, and unallocated amounts were insufficient to meet the plan's expenses.)

[ETA Consulting LLC]

Yeah, but weighing that against the obligation to enforce the participants rights under the written terms of the plan?
It's given that the Plan Administrator has a responsibility to ensure that that plan doesn't pay unreasonably high expenses, but I'm not sure about the notion of denying a Participants rights to a distribution under the terms of the plan for purposes of having the share in anticipated expenses; especially if that delay is longer than 3 business days.

Good Luck!

[ESOP Guy]

The person is working and the plan still exists so the terms of the plan rule.  I think you have to make the in-service distribution. 

[Peter Gulia]

ETA, your concern is why the group's consensus was only that a fiduciary might consider how an earlier distribution affects the allocation of the plan's expenses.

Your allusion to the blackout rule is interesting.  In one of the situations I remember, the plan's administrator decided, without any lawyer's advice, to send a blackout notice, explaining that the plan would delay distributions until the wind-up administration was completed.

That administrator also treated a participant's complaint about not getting a distribution before the final distribution as a request to review a denied claim, and followed the plan's ERISA section 503 claims procedure.

Returning to AlbanyConsultant's query, might the differences in how the plan's expenses would be allocated among participants' accounts be small enough that the claimed in-service distribution would not significantly harm other participants?

[Peter Gulia]

A further thought:  In some of the situations I mentioned, there was a concern that allowing early distributions would deplete the plan's assets so much that the plan would become unable to pay for necessary services, including an independent qualified public accountant's reports the Labor department insisted on.  In one of those situations, the administrator balanced the concerns by allowing partial distributions, but leaving reserves to meet anticipated payments to service providers.

These situations can be fact-sensitive.