ACOPA Meets with PBGC on Form 501, Forced Cash-outs
The leadership of ACOPA met with representatives from the Pension Benefit Guaranty Corporation (PBGC) in May of this year. Discussion included the changes to the PBGC termination forms and instructions for post-distribution certifications filed on or after March 1, 2015, and the ability to do default rollovers for participants with small account balances when the plan terminates.Form 501.
The instructions require proof of distributions to be attached to the Form 501. For individuals who received a lump sum distribution, the instructions state that a copy of the cancelled check or a bank statement with the individual’s name and distribution amount should be attached to the filing. PBGC acknowledged that it may be challenging to provide such documentation and noted that they are amenable to other types of documentation. For example, trust statements that show the monies being distributed from the plan with a cross-reference to a separate listing of participants and individual distribution amounts that tie to the trust statement amounts would satisfy this requirement. Copies of Form 1099Rs are not considered adequate proof of distribution. Plan administrators that want to provide an alternative proof of distribution should contact PBGC in advance to ensure that such documentation is acceptable.
All documents, except for the Form 501, which requires an original signature, may be uploaded to http://pbgc.leapfile.com
In some post-termination plan audits, PBGC has questioned forced cash-outs. Where a plan provides for the immediate cash out of benefits having a present value that does not exceed $5,000, the plan administrator must obtain the participant’s written consent to directly pay benefits with a present value between $1,000 and $5,000. Without such consent, the plan administrator is required to transfer the benefit to an individual retirement plan and notify the participant of the transfer. However, such transfers cannot be made if the participant is a missing participant under PBGC’s Missing Participants regulation.
PBGC has found instances in which benefits are improperly transferred to individual retirement plans when a participant is a missing participant. In such cases, the plan administrator must follow PBGC’s Missing Participant regulation, which requires that the plan either purchases an annuity for the participant or transfers the participant’s benefits to PBGC, and in either case provides information to PBGC. Thus, plan administrators should take steps to determine whether non-responsive participants are missing participants.
After the Notice of Intent to Terminate is issued, the plan administrator must continue to carry out the normal operations of the plan. But even before the Notice of Intent to Terminate is issued, a plan that has not historically forced cash-outs of participants in the normal course cannot do so in anticipation of the plan termination. PBGC said that a cash-out of a group of participants with small benefits and termination of employment dates spanning a number of years was an example of a situation in which forced cash-outs had not been part of the plan’s normal operations.Lynn M. Young, MSPA, is ACOPA’s current president.