Rescinding plan termination

[Draper55]

In a topic on this board at some time in the past, I recall a couple of users chiming in that it was possible to rescind a plan termination by corporate resolution. Assuming this is true, is a distribution to a pre 59.5 active employee after the termination date too problematic such as to preclude the rescinding action? The employee is an NHCE;I doubt that has any bearing from a qualification standpoint. Any input is appreciated.

[FORMER ESQ.]

1. What does plan document say about who has the power to terminate the plan?  Is it the full board? Is it someone else like VP of Finance, etc... Many times, proposed termination resolutions may not be effective if the wrong people signed the resolutions. So one would argue that the initial set of resolutions had no effect.

2. If the proper authority signed, and not too much time has passed from the effective date of the resolution, I usually don't see a problem in a rescinding resolution. I don't think the IRS or DOL are going to complain that the client changed its mind and decided to continue the plan unless there was some sort of evil or discriminatory intent behind it.

3. As far as the pre 59.5 distribution to a NHCE, I doubt again that this has an impact on the corporate resolution to rescind. Of course, now you are going to have to explain this change of heart by the plan sponsor to the NHCE and ask for the money back because of an operational failure-- plan overpayment.  

[ESOP Guy]

While the plan might (this one is pretty grey they were allowed to make the payment at the time) have to ask for the money back if the person doesn't pay it back nothing really bad happens.  

The self-correction method is pretty clear. 

https://www.irs.gov/pub/irs-drop/rp-19-19.pdf'

See page 38 of 125 4(b).

I quote:

"(b) Make-whole contribution. To the extent the amount of an Overpayment adjusted for Earnings at the plan’s earnings rate is not repaid to the plan, the employer or another person must contribute the difference to the plan. The preceding sentence does not apply when the failure arose solely because a payment was made from the plan to a participant or beneficiary in the absence of a distributable event (but was otherwise determined in accordance with the terms of the plan (for example, an impermissible in-service distribution))."

So make the good faith effort to get the money back.   Send the needed letters and so forth but the correction method in the end is nothing.  The paid the person that was otherwise due the money except for the absence of a distributed event.