Top Hat Plan - Missing or No Payment Election Form on File. Plan Does not Appear to have Default Payment Provisions

[David Olive]

I have a client that maintains a Top Hat Plan for certain employees.  They have a Participant that separated from service in January of this year.  The client has no distribution election form on file and the Participant has no recollection of ever being given one.  The Plan is not clear on how distributions are to be made in default of an election.  Here are the provisions on Distributions:

"A.  Provided that the Participant's services with the Employer and all other related employers of the Employer (as determined under section 414 of the IRC) terminates for any reason (other than death), distribution of the amount credited to the Participant's account under this Plan shall commence to, or with respect to, the Participant upon termination of services or at such date elected by the Participant at the time the Participant began participation in the Plan.  Payments shall be made in the number of installments initially elected by the Participant.  Once commenced, the number of installments shall not be changed or accelerated, except by the application of Section VII (Participant election to Modify the Timing of Benefit Payment).  Payments shall be made at such time and in such form as provided in distribution forms provided by the Employer.

     (i)    Participant may elect a distribution of the amount credited to the Participant's account under this Plan in the following form:
        {A) annual installments.
         (B)    single sum
         (C)    annual installment/single sum combination
          (D)    transfer in-kind

B.  Distributions will commence 60 days after severance from employment.  If a Participant should die before distribution of the full amount of the account described in this Plan has been made to the Participant, any remaining amounts shall be distributed to the Participant's beneficiary by the method designated by the Participant on distribution forms provided by the Company at the time the Participant selected the number of distribution installments. The Participant may designate a payment of a lump sum or the continued payment of the Participant's elected number installments to the beneficiary if distribution has begun. If distribution has not begun before death of the Participant, payment to the beneficiary shall be made in a lump sum or not more than five installments. If a Participant has not designated a beneficiary, or if no designated beneficiary is living on the date of distribution, the amount credited to the account shall be distributed to the Participant's estate in a lump sum distribution as soon as administratively feasible following the Participant's death.  The Participant may change the designation of beneficiary in writing delivered to the Company before termination of services to the Company."

 

Appreciate any thoughts on how payments should be made, whether this is a provision of the Plan that could be amended to provide for an explicit default payment method, and whether there are any issues with delaying commencement of payments after the required 60 days (although, still in same taxable year so maybe not as big of an issue).