Distribution to a terminated participant before filing for PBGC termination

Good morning

Sponsor just signed the resolution to terminate the plan by 12/31/2022 (PBGC termination). Form 500 will be filed in 2023.

They just told me about a recently terminated employee.

Can they pay out this employee now with 60% vesting or have to wait thru the whole termination process and pay in 2023 with 100% vesting?

Thanks

If normal plan administration calls for paying out this person now you can pay and forfeit, including an involuntary cash out if permitted. However, given that today is 10/21 and this person will need to get the NOIT (due by 11/2), unless a cash out can be done, I would not expect this person to elect a distribution knowingly that would result in 40% forfeiture.

Hi

NOIT will be provided by 10/28/22 however, unless the participant declines, can still get paid the 60% prior to 12/31/2022 i.e. official plan termination date, correct?

Unless it is a fully-insured plan, all employees and former employees are considered "affected employees" for plan termination purposes. Since the resolution to terminate the plan was executed, this participant should be 100% vested. There is a section on the PBGC web site that gives examples of common errors in standard termination audits and this is one of them. "Not fully vesting terminated vested participants with less than a 5-year break-in-service."

https://www.pbgc.gov/prac/terminations/standard-terminations