DB Plan Mandatory Cashouts

[Hojo]

I believe I know the answer to this, but a trust provider is telling me differently.

In a PBGC plan termination we have a number of participants whose LS value is less than $500.  Is it possible to open and IRA for those participants since they are considered force-outs?

I thought the answer was no and you had to submit them through the missing participants program....am I wrong?

[Lou S.]

If you are using the PBGC missing person program that is all or none as I understand it, you can't pick an chose which participants you cash out and which you send to the PBGC if that is the question you are asking.

If you are buying annuities for everyone and not using the PBGC program, I'm pretty sure you can force out the under $5K (now $7K under secure 2.0?) to IRAs.

[Hojo]

It's not quite that.  Their balances are super small and we have a large number that have not cashed their checks.  The Trust company wants to just open an IRA for each one.  I guess since they are a force out that it's doable, but I didn't believe that it was.  Maybe I'm mistaken.

 

[Lou S.]

I think you can but if you sent them checks with a 1099-R associated with it, later rolling the uncashed checks to an IRA could be problematic from a reporting standpoint, especially if there was withholding on the original check. I also assume this is their whole balance and not a series of periodic payments you are talking about. But I see no problem with cashing out small balances in a DB plan if you are following the terms of the plan document.

[david rigby]

I think the Plan tells you what to do.

[Hojo]

1 minute ago, david rigby said:

I think the Plan tells you what to do.

The plan says that they can be forced out, but not what I can do if they don't cash the check.

[Effen]

I believe the relatively new (last few years) PBGC instructions require you to submit ANYONE that you cannot locate, or who doesn't respond, to the missing participant program.  Once you have started the process, you cannot force them into IRAs.  There may be an exception if < $200, but I would need to double check the rules.

So, I agree with Hojo's initial post - you need to submit them to the missing participant program.

[Peter Gulia]

If a terminated plan's administrator can put this burden on the Pension Benefit Guaranty Corporation, is there a reason a plan's sponsor or administrator might prefer not to?

[HBActuary]

It's very clear that once you are in the PBGC term process you cannot do an auto cash out. Missing and unresponsive under cashout go to PBGC. Missing over cashout go to PBGC. Unresponsive over cashout must have an annuity purchased.

 

[CuseFan]

Agreed - unresponsive participants under the plan's cash out threshold must be paid out through the PBGC's missing participant program.

[Effen]

Sorry, but I wanted to come back to this older post.  Not debating anything said previously, but I did have a follow-up question.  

A-15 of Notice 2005-05 says, "a plan administrator will not be treated as failing to satisfy this notice requirement or section 402(f) with respect to an eligible rollover distribution merely because the notice is returned as undeliverable by the United States Postal Service after having been mailed to the participant using the participant’s most recent mailing address in the records of the employer and plan administrator."

Therefore, it is ok to force a distribution when the sponsor doesn't have a good address as long as they comply with the above rule.  But, once the plan starts the PBGC termination process, then those unpaid participants go to the missing participant program and they can no longer force the distribution.  

Are there any rules or guidance related to the timing of the forced IRA rollover?  IOW, if a participant terminated in 2015 with a $1,500 PVAB, and the sponsor is contemplating a plan termination in 2024, can they force the 2015 termination into an IRA (assuming PVAB is < 7,000) before they start the plan termination process?  Let's further complicate this and assume the sponsor is pretty sure the "last known address" is no longer valid.  

[TheBoxMan]

If the plan document allows the forced rollover and it is before the termination "process" than it should be fine. Meaning that all of this should be done before the date of the execution of the Termination Amendment.