Proposed Distribution Date when filing for IRS DL

[AdKu]

forgive me if a similar question was asked and answered on this forum that I seem not to find it.

My client wants to file for IRS Plan Termination Determination Letter.

Assuming every other notice and filing requirements are met and the DB Plan proposed termination date is 8/31/2017, can I use 2/25/2018 as a proposed distribution date.

 

Please help

 

[My 2 cents]

The key deadlines for a plan termination with a proposed termination date of 8/31/17 would (assuming the plan is subject to PBGC jurisdiction) include providing the Notice of Intent to Terminate to the plan participants this month (60 to 90 days before), followed by filing a Form 500 with the PBGC as late as 180 days after 8/31/17.  If you are filing for a determination letter, you will want to file that no later than the Form 500 filing.  Then you must wait at least 60 days before distributing the benefits.  Before you can file either with the IRS or the PBGC, you need to distribute notices of plan benefits.  Depending on complexity of the termination, it could well be possible to get the benefit notices out quickly enough to support a PBGC Form 500 filing before Christmas, which would support a distribution on 2/25/18.

You are, of course, not bound to distribute benefits on the proposed distribution date, and I don't think that the IRS regulations include any guidance on the choice of a proposed distribution date for the determination letter filing.  So I see nothing to stop you from using 2/25/18 as the proposed distribution date for your determination letter filing.

Incidentally, I have seen nothing to indicate that the IRS recognizes that the assets breakdown in the Form 5310 should not be expected to match the anticipated amount being distributed as documented on the Form 6088.  The former is as of the proposed date of termination and the latter as of the proposed date of distribution.  Why should they match?

[AdKu]

Thank you My 2 cents,

Is this permissible to  provide the NOIT along with the Notice to Interested Parties and NOPB at the same day? 

I was wondering whether the terminating plan with a proposed termination date of 8/31/2017 can use any earlier date before 2/25/2018. And what that date would be.

 

 

 

[My 2 cents]

The NOIT must be given out 60-90 days before the proposed date of termination. 

The NOPB must be given out on or before the date the Form 500 is filed (which must be no later than 180 days after the effective date of plan termination).

The Notice to Interested Parties must be given out 10-24 days (as I recall) before the determination letter filing is submitted to the IRS.

Any combination of notices may be given out simultaneously so long as these timeframes are met.

I know of no rules setting a particular earliest date for the proposed date of distribution, but if the plan is a calendar year plan with a 12-month stability period, it is a good idea to base the estimated lump sums shown on the NOPBs on the specific 417(e) mortality and discount segment rates that would apply (assuming that participants not in pay status would be given the opportunity to elect a lump sum in lieu of an annuity purchase).

[AdKu]

The intent is to check if there is a possibility under the the regulation to terminate the plan and make the benefit distribution before the end of the 2017 plan year to avoid additional gov't filing for 2018 plan year in this particular plan case.

Reading PBGC Standard Termination Filing Instructions page 14 (distribution Deadline) as well as page 19 line 11a-b, plan asset distribution can take place the later of

Ø  180 days after expiration of 60-day (or extended) review period, or

Ø  120 days after receipt of IRS favorable determination letter

 

Doesn't this PBGC instruction indirectly sets the proposed distribution date?

If so, what would be the earliest possible proposed distribution date.

[Mike Preston]

You are confusing outside limits with inside limits.

[Effen]

Also, the deadlines are stated as the latest possible distribution date, not the earliest.  If you can get the PBGC filing prepared, and the NOPBs out before June 30, you can use a DOPT of 8/31/17 and make distributions on the next day.  Of course you also need to also prep election packages, allow at least 30 days to make elections, chase down stranglers, coordinate distributions, shop annuities, etc.  

A small plan with all lump sums maybe able to get it done by 8/31, but it is a lot of work to accomplish for a larger plan.  However, 12/31/17 should be do-able if they have already made the decision to terminate.

Also, keep in mind the IRS submission is optional.  

[My 2 cents]

If what you are trying to do is complete the benefit distribution and bring the plan assets down to $0 by the end of the plan year (is there such a thing as a plan year running from February 26 to the following February 25?), then the game is to arrange all actions backwards from then to permit doing so.  Count backwards to 60 days from when you would have to pay the benefits out to wrap it all up by the end of the plan year (for 2/25 that would be somewhere around Christmas).  Make sure you have the PBGC Form 500 filed by then.  If you want to get everything paid out by the end of the current plan year, it might not be feasible to wait for IRS approval.  And so on.

Note to Effen:  Yes, you do have to watch out for those stranglers!  Sorry to say, it made me think of a plan termination scenario involving zombies.  Hard enough to get through plan terminations as it is!

[david rigby]

What does the plan say?  As mentioned above, filing with the IRS is optional.  However, I've seen documents that make it mandatory.

[CuseFan]

Be cognizant of the fly in the ointment - if you have a relatively small plan and have to buy annuities, especially deferred annuities, and doubly especially if you have a general lump sum option, it is EXTREMELY CHALLENGING to find an annuity provider (recent discussions in this forum will attest to that). And be aware of 45 day advance notice requirement on annuity purchase.

[tymesup]

Do you want to distribute the assets before you receive the IRS determination letter?