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DB Plan Mandatory Cashouts


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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?

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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.

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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.

 

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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.

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I think the Plan tells you what to do.

I'm a retirement actuary. Nothing about my comments is intended or should be construed as investment, tax, legal or accounting advice. Occasionally, but not all the time, it might be reasonable to interpret my comments as actuarial or consulting advice.

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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.

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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.

The material provided and the opinions expressed in this post are for general informational purposes only and should not be used or relied upon as the basis for any action or inaction. You should obtain appropriate tax, legal, or other professional advice.

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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?

Peter Gulia PC

Fiduciary Guidance Counsel

Philadelphia, Pennsylvania

215-732-1552

Peter@FiduciaryGuidanceCounsel.com

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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.

 

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

Kenneth M. Prell, CEBS, ERPA

Vice President, BPAS Actuarial & Pension Services

kprell@bpas.com

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