Participant Moves from one Location to Another

Client has 2 locations with separate plans to avoid being a large plan filer. One participant has moved from one location to another. Should her account balance be moved to the new location as well?  If so, would this be treated as a regular rollover distribution where the employee has to complete distribution paperwork and a 1099R is generated? Or can it just automatically be moved? The amount in question is over 100K. 

Thank you!

Depends on your document...

I'm not crazy about this kind of set up, but if you are going to use it you need to be specific in the document or you can end up with a mess.  Right now it sounds like you would have a Trustee to Trustee transfer based on the event that triggered the move from one plan to another.

A better way is to structure your excluded/eligible employee caveats in the plan so that an employee stays in the plan they were in when they first met eligibility.  This way you don't have switching back and forth based on location, last name, division, etc.

These plans were in place prior to me being employed with the TPA firm. The 2nd plan does state that it excludes employees who work at the first location. However, this employee presumably moved their residence and are now employed at the 2nd location.

If the participant stayed in the first plan, wouldn't it make it more difficult to keep track of who is in what plan when doing the year-end testing? That is, you have separate census's from each location but the census of one location may include employees who are participating in the other plan.

The documents will govern ongoing eligibility, that is, for which plan is the person an eligible employee.

There is no basis for a distributable event, so a trustee to trustee transfer of the existing plan account is the only way to move money - but both plan documents should have provisions to support that action in the event of a participant relocation/transfer. Unless this was a frequent occurrence I do not see a problem in doing this, provided the plan documents support.

It's not a distributable event - so it's not rollover - which requires a distribution.  If the document(s) are silent, then it can't happen.  We have plans like this that provide specifically for a trust to trust transfer (but usually they are from union to non-union plans).  Also, keep in mind, that if the transfer doesn't happen and the participant has balances in both plans, then the participant count for audit purpose may need to be considered...

I agree with the comments to the effect that a plan-to-plan transfer is the appropriate vehicle, and given the design, unless there is some material difference between the plans that is not described, someone did not do their job if the plan documents do not already provide for transfers of this sort.

How should this be reflected in the participant's account under the 2nd plan. As a rollover?

6 minutes ago, Coleboy1 said:

How should this be reflected in the participant's account under the 2nd plan. As a rollover?

No.  A rollover may have unrestricted distribution rights.  There is no distributable event, so under no circumstances can this be a rollover.  We map the account over as if it were a spin-off from plan A and merger into Plan B.  If the plans aren't (substantially) identical, this can be problematic...

23 hours ago, MoJo said:

How should this be reflected

As a transfer of same money types with same vesting and, unless a new election is made or funds are different, the same investment mix.

and hopefully the transfer doesn't lead to a one-person blackout!

On 8/29/2022 at 10:24 AM, RatherBeGolfing said:

A better way is to structure your excluded/eligible employee caveats in the plan so that an employee stays in the plan they were in when they first met eligibility.  This way you don't have switching back and forth based on location, last name, division, etc.

I'm not a big fan of this, as it could cause census nightmares.  Chances are you are getting a census from each location separately, and you'd have to remember these X participants should be in the other plan.

On 8/29/2022 at 8:50 AM, Coleboy1 said:

Or can it just automatically be moved?

It can if the two plans say so. They probably should. I have drafted plans with similar facts and circumstances in the past to provide for that. Otherwise the employee will need to manage two accounts.