Qualified Birth of Adoption Distribution -does plan accepting transfer of assets and liabilities from a multiple-employer plan that offered them need to accept repayments?

[bito'money]

I have a plan sponsor that bought a small company that participated in a multiple employer plan, and whose 401(k) plan is going to be accepting a spin/off transfer of assets/liabilities from a multiple-employer plan that offered QBADs.

Notice 20-68 says that a plan that issued a QBAD must accept repayment of one. However, it doesn't address what happens if the participant is no longer a participant in the same "plan" that issued the QBAD (such as when a plan spin-off or transfer of assets and liabilities occurs after the QBAD is taken that causes the participant to no longer be part of the original plan that distributed it).  When the account is spun off/transferred to another plan, does the requirement to accept the repayment move with the transferred assets?    

My thoughts are as follows: it appears that the right to take a QBAD is a protected benefit under 411(d)(6) with respect to the assets transferred (and it is not excepted from 411(d)(6) anti-cutback rules like hardship withdrawals are).  Therefore my client's plan will need to add QBADs, and will need to accept repayment of QBADs (even if they were taken from the multiple employer plan before the spin-off/transfer). 

Do you agree? Or, do you think repayment of QBADs made to the prior plan would not need to be accepted by the plan accepting the spin-off/transfer (since the prior multiple employer plan still exists, the person who received the QBAD is no longer a participant in it and that plan wouldn't accept a rollover from a former participant)?  

[Nate S]

I agree that you'll need to accept the repayment as part of the merger resolution/amendment; otherwise the spin-off clearly harms the affected participant(s) by reducing their available benefit.  However, I do not see that you need to explicitly add QBADs to the Plan otherwise, even if the adoption agreement format checklist is structured to do so.  This would be a minor modification to a cycle 3 document, at worst you may want to add it to the administrative procedures checklist or the special effective dates section and clearly limit the fact that you are only accepting repayments. 

[Peter Gulia]

To preserve a protected benefit, would it be enough to provide that the transferee plan accepts a repayment of a qualified birth or adoption distribution a transferor plan paid before that plan’s transfer-in?

[bito'money]

On 2/28/2023 at 9:13 AM, Nate S said:

I agree that you'll need to accept the repayment as part of the merger resolution/amendment; otherwise the spin-off clearly harms the affected participant(s) by reducing their available benefit.  However, I do not see that you need to explicitly add QBADs to the Plan otherwise, even if the adoption agreement format checklist is structured to do so.  This would be a minor modification to a cycle 3 document, at worst you may want to add it to the administrative procedures checklist or the special effective dates section and clearly limit the fact that you are only accepting repayments. 

Thanks for your reply Nate. Are you just saying that the right to repay post-transfer is somehow required under Notice 20-68? 

Otherwise, I don't understand how the right to repay a QBAD withdrawal from the prior plan could be required if the QBAD optional form itself is not a protected benefit.  

The receiving plan is an individually designed plan, so the last sentence of your reply (cycle 3 document, administrative procedures checklist, special effective dates sections) is inapplicable to my situation.