Rolled over cash balance benefit into new cash balance plan

[ADJENN01]

Curious how others handle this one!

Hypothetically, say we have a plan that strategically terminated and when paying out the benefits were told to roll them into an IRA.  However, said owners put all of the money into the trust for a new plan they were setting up. How should this rollover be treated/tracked in the new plan?  The new plan does allow rollovers, so no issue there. 

[John Feldt ERPA CPC QPA]

It’s tracked as a rollover, but that assumes the prior plan actually terminated and the completed benefit election form indicated a lump sum rollover to this new plan. If not, that should be addressed first.

Regardless, sure to offset the 415 limits in the new plan by the adjusted value of the old plan benefit based on the date paid, amount paid, and years of participation (a multiple annuity start date calc is needed for that).

 

[david rigby]

Embedded in the original question is an implication of something else going on.  Perhaps, "owners" trying to hide the "new plan" from other employees?  Failure to identically communicate to all participants?  Other subterfuge?  

[CuseFan]

Was this an owners only plan or were only the owners' lump sums rolled into the new plan?

The new plan's document should specify treatment, which should be as a segregate account.

Strategically terminated? But then rollover into a new plan of the same type? Sounds more like some stratgery.

[Artie M]

you need to lay out the facts better.  if there was a 401k plan termination, they did not have a unilateral right to move the distribution into a new plan.  There would have had to have been a plan merger, not a plan termination.  The only way we can assist is you have to have the facts.  Also, you need to try to be precise in the terms you use of at least provide more information in the way you describe things... e.g., some will say rollover, when it is a transfer, etc. etc. etc.

[Staff Now]

Interesting scenario. I’d treat this as participant rollover contributions in the new plan—not a plan-to-plan transfer—assuming the terminating plan actually processed distributions as eligible rollovers.

The key thing is documentation and traceability. If those amounts were reported as distributions (e.g., 1099-R) and can be tied back to each participant, then track them as rollover sources in the new plan.

If the money never really left plan control or wasn’t properly distributed, it starts to look more like a failed termination than a clean rollover, and that’s a different issue.

Curious how others would handle it if the distributions weren’t clearly documented.

[R Griffith]

Not sure how exactly to handle a rollover from a terminated cash balance plan to a new cash balance plan - but if this was a rollover from the cash balance plan to a 401k/Profit Sharing plan - you would record the rollover as a Related Rollover in the 401k/Profit Sharing plan and would need to be counted as part of the top-heavy test.  Not sure if there is such a thing as a related rollover for the new cash balance plan.