Plan to Plan transfers for a union population

Hi. We have a client who has a group of employees that are now under a union contract. They are still employed by our client. New contributions are being sent to the union plan which is administered by another vendor. The broker has requested that we amend the plan they have with us to exclude this group of employees from being eligible to participate in the plan and transfer these assets to the union plan. There are fringe wages and deferrals in this plan - don't know if this matters, but wanted to mention it.

Our base document states:

3.4  TERMINATION OF ELIGIBILITY

In the event a Participant shall go from a classification of an Eligible Employee to an ineligible Employee, such Participant shall continue to vest in the Plan for each Year of Service (or Period of Service, if the elapsed time method is used) completed while an ineligible Employee, until such time as the Participant's Account is forfeited or distributed pursuant to the terms of the Plan. Additionally, the Participant's interest in the Plan shall continue to share in the earnings of the Trust Fund in the same manner as Participants

We are not convinced that changing the eligibility status of the participant population, while still remaining employees of the same company, permits a plan to plan transfer. Our attorney agrees but we're getting push back. The broker has stated that one of his colleagues had this exact situation and that's what his client did. Is there any code that anyone can direct me to that would help us resolve this?

Thanks!

Jen

In general, plan sponsors (and the TPAs they hire) will do better to follow the plan document rather than the broker.

20 hours ago, Jpagano said:

We are not convinced that changing the eligibility status of the participant population, while still remaining employees of the same company, permits a plan to plan transfer. Our attorney agrees but we're getting push back. The broker has stated that one of his colleagues had this exact situation and that's what his client did. Is there any code that anyone can direct me to that would help us resolve this?

The problem is that the plan to plan transfer in your context is not a distribution event from the Plan.  So whatever you do with their account balances, they will have certain BRF attached to them (vesting, sharing in earnings, etc...) under 401(a)(4). You can set up a "mirror plan" just for your union employees, do a plan to plan transfer, and have a different vendor administer it. 

8 hours ago, FORMER ESQ. said:

do a plan to plan transfer, 

Right. But would require amendment to plan, including amendment in form of board resolutions. Other plan would also have to amend to take the transfer. Protected benefit/option rules would need to be provided.

The union plan that has been established is not sponsored by the client. Does this change the ability to process a plan to plan transfer assuming each party amends as required?

5 hours ago, Jpagano said:

The union plan that has been established is not sponsored by the client. Does this change the ability to process a plan to plan transfer assuming each party amends as required?

Jpagano, it sounds like the plan to which new money is going for the employee group is a multiemployer defined contribution plan. If that is the case (and I have of course not confirmed that it is), then IRC sec. 413(b)(3) says that the exclusive benefit rule is satisfied, so you probably could. Nevertheless, I would want to look for more specific guidance under 413(b)(3), if there is any, specifically dealing with transfers, and most of all you would need to review the plan documents to see whether they provide for such a transfer. If they do and the plans are covered by favorable determination letters, that would be good. If they need to be amended to accomplish the transfer (and it sounds like at least your client's plan would need to be amended), then of course that is somewhat problematic given that IRS no longer issues DL's for amendments.

Also, whenever you are dealing with union employees the employer should coordinate with the bargaining unit.