Terminated DB Plan

[Dougsbpc]

When it comes to plan terminations, we have always obtained all benefit elections and then instructed the trustee to distribute benefits all at one time.

Is this really required?

For example, we handle a 10 participant non-covered traditional DB plan that terminated November 30. Is there any problem distributing the benefits to one of the two 50% shareholders of the plan sponsor now and all remaining participants 6 months from now?

All participants other than the one remaining 50% shareholder would receive their full benefits (including PVABs determined up to the distribution date). The one remaining shareholder will end up waiving about 10% of his benefit.

Thanks.

[Effen]

Is he otherwise eligible for a benefit payment at this time?  Are you discriminating in favor of HCEs by offering him his benefit before anyone else?  What is the basis of the early distribution and why wouldn't the others also be eligible?

[david rigby]

21 minutes ago, Effen said:

What is the basis of the early distribution and why wouldn't the others also be eligible?

Exactly.  It is fairly common for distributions to be made when information is available (eg, because some participants make an election sooner than others).  The original post implies something else, such as intentionally delaying distributions for a group of participants.  Is there something else going on?

[ERISAAPPLE]

That was my question: why is there a 6-month wait for the other participants.

[Effen]

Who says there is?  If it is a non-PBGC plan, and you are not asking for IRS approval (or even if you are), you just need to wait until after the termination date to distribute.   Sometimes we do the election forms in advance and make distributions a few days after the termination date.

You need to give participants at least 30 days after they have received their forms to make an election, but there is no requirement to wait 6 months.

 

[ERISAAPPLE]

The person who asked the question said there is.  The question says the other participants will get their distributions six months from now.  

[CuseFan]

it could be they are waiting for d-letter but the one owner doesn't want to wait. i think paying that now but paying everyone else later (after d-letter, if that's the case) is probably a BRF issue.

[Dougsbpc]

To clarify,

The one 50% shareholder is actually now retired. He just wants his benefit earlier because he is moving. The corporation will soon be 100% owned by the remaining 50% shareholder. The termination amendment and corporate resolution contained language indicating that if assets are insufficient to pay benefits upon distribution of benefits, assets will be allocated in a non-discriminatory manner. A 4044 allocation except the remaining business owner decided he would waive a portion of his benefit and make sure all employees receive 100% of their benefits.

This brings up another question. If the retiring shareholder did receive his benefit earlier and elected a rollover instead of annuity, would there be a requirement that the plan be funded 110% after his distribution. I would think not since the plan is terminated.

[ERISAAPPLE]

Are you filing with the PBGC or is this a non-PBGC plan?  For PBGC terminations, there are distribution restrictions after you send the NOIT, but even then you can generally make distributions on account of termination of employment.  And by "generally," I mean there are rules that apply.