Valuation Date

[Guest djsimonetti]

DC plan using balance forward valuation wants to amend so that terminated participant gets balance as of quarterly valuation date FOLLOWING termination rather than quarterly valuation date PRECEDING termination. Purpose is to prevent terminee from sticking other participants with losses occurring between preceding quarterly valuation date and termination date. Plan says that distribution will be made as sonn as administratively practical after termination.

The change in the valuation date appears ok under 1.411(d)-4 Q&A-1(d)(8). The change will, however, necessarily result in a longer period of time between termination and distribution which appears to violate 1.411(d)-4 Q&A-2(B)(2)(ix). Is this right or is proposed amendment ok with respect to current employees because they don't "accrue"

the "benefit" of an earlier distribution until they terminate?

[MWeddell]

I think what you're suggesting is permissible. Changing the valuation date for the distribution is not a protected benefit due to Treas. Reg. 1.411(d)-4 (Q&A-1(d)(10)).

As far changing the timing of the distribution from as soon as administratively practical after termination until as soon as administratively feasible after the quarterly valuation date on or after termination, I think the IRS would look at this as a change of 2 months or less, as permitted by the regulation you cited. You have to allow the participant at least 30 days to make a rollover election, so you weren't able to process a distribution immediately under the old rule anyway, considerating the paperwork exchange needed before the distribution is processed. Yes, for participants who turn in their election forms early, you could have processed them in less than 30 days, but I doubt the IRS will consider the fact that the participant could waive the minimum 30 day requirement if it considers whether you've changed the distribution date by more than 2 months.

[richard]

I'd agree that you could amend the plan as you want to without violating 411.

The only thing I'd be careful of is regarding participants who have already terminated and who haven't received their payout.

For example, today is November 23. Assume an employee terminated November 12, and would be do his/her September 30 account balance. I'd be uncomfortable forcing him to wait until after December 31 and taking his December 31 account balance.

So, I would make this amendment prospective only; to be safe, make the amendment apply only to employees who terminate in the quarter after the amendment is adopted or later (i.e., adopt the amendment December 10, but only applicable to employees who terminated on or after January 1).