Rollover into a PS plan from a DB plan for a retired participant

[Jakyasar]

Hi

A DB plan covers  the retired owner (a corporation) and also his spouse who is part of the plan as an additional employer (sole-proprietor). Their children are over 21, for 1563 purposes.

Retired owner has both DB and rollover assets in the DB plan and wants to transfer the rollover portion into the new PS plan. Eventually they will terminate the DB and will want to rollover all assets into the PS plan, may be this or next year.

According to the vendor for the PS plan document, the document does not allow any new participants who are already terminated/retired thus the retired owner cannot transfer his rollover portion from the DB into the new PS plan because he can never be a participant (nor the eligibility provisions allow/have anything on it). According to the vendor, the only way out is to change some language in the document which may take out the document from pre-approved status.

Has anyone seen this before and was able to find a solution?

Thank you

[Bird]

Either just roll it to an IRA instead of the plan, or (maybe) rehire the former owner for a while if that is sufficient to get him in the plan.  

[Jakyasar]

IRA is not an option for them (for whatever reason, not my call).

Thought of rehiring the owner but the question now becomes, what is a reasonable pay (I am aware that this is a loaded question but as he is the owner, he can get anything - last paycheck was 7 years ago) and also how many years should he stay employed.

Thank you

[Bird]

Shrug.  I don't think I want to opine on how long is reasonable.  Just long enough to tell the investment provider he is employed...I don't think anyone else (IRS) cares too much but I would make it the client's call and not my recommendation.  Of course that income could trigger unwanted contributions.  

[david rigby]

59 minutes ago, Bird said:

Shrug.  I don't think I want to opine on how long is reasonable.  Just long enough to tell the investment provider he is employed...I don't think anyone else (IRS) cares too much but I would make it the client's call and not my recommendation.  Of course that income could trigger unwanted contributions.  

Get (and follow?) the opinion of the plan's ERISA counsel.  (BTW, you can search for prior discussion threads on "sham terminations"; the same principles might apply to "sham re-hire".)

[CuseFan]

4 hours ago, Jakyasar said:

IRA is not an option for them (for whatever reason, not my call).

I would hope they would share with you their reasons for discarding the seemingly easiest and most viable option if they're asking for you to provide a solution. The only reason I could think of would be better creditor protection? If he must have it in a qualified plan, then why not just keep in the DBP until that plan terminates? Of course, that just kicks the can down to road. I would also take a good look at the existing document (and available provision options) and not just take the vendor's word for it.

Maybe you tell them you can't have everything (where would you put it?).

Good luck.

[Jakyasar]

Thank you all for your comments/suggestions.

I agree with all, the client happens to be a CPA so they will need to make a decision on this.

Mr. Rigby, thank you for the reference, will check.

Cusefan, plan is not set up yet and hence the question - told them that they cannot have it all. I agree with keeping in the db plan until it terminates but they will still want to transfer all into a PS plan so the problem is inevitably will come up again.