Generally, the IRS requires distribution of all the plan assets within one year of the plan termination date (Rev. Rul. 89-87). The defined contribution plan must distribute all its assets before 12 months from the termination date of the plan. Thus, in the case of a defined contribution plan termination, distributions may be made without the participant’s consent even if the participant’s vested balance is over $5,000 as allowed by per Treas. Reg. 1.411(a)-11(e) provided that:
.The plan does not offer an annuity option as a form of payout;
.The plan is not a money purchase or target benefit plan;
.There is no other plan of the employer (with the exception of an ESOP);
.There is no other plan among any employer of a controlled group to which the employer belongs (with the exception of an ESOP);
.Every effort has been made to locate the participant; including the following from the DOL missing participant rules:
Required Methods of Searching for Lost Participants
The DOL provides four mandatory search methods that must be used by all fiduciaries. These are considered efficient and relatively inexpensive methods. The mandatory methods are:
1.Certified Mail – This mail can easily ascertain, at little cost, whether a participant can be located for distribution purposes.
2.Check Related Plan Records – Thus, an employer must review its other retirement and welfare benefit plans for more up-to-date information on the missing participant’s address. If privacy issues arise (a common concern with health plans), a letter may be forwarded that asks the participant to contact the plan administrator of the retirement plan.
3.Check with the beneficiary designated by the participant.
4.Use either the IRS or Social Security Administration letter forwarding services. The IRS has published guidelines (also on the IRS website http://www.irs.gov) as well as the SSA ( http://www.ssa.gov).
NOTE: All four steps must be taken only if the prior steps were not successful. So if the participant is located after checking related plan records the employer need not make use of the remaining two steps
For now, once every effort has been taken to locate the participant, than the money should be directly rolled into an IRS under the automatic rollover rules.
We say “for now” because the Pension Protection Act of 2006 permits terminating defined contribution qualified plans to send the missing participant’s funds to the PBGC where they will be handled under the PBGC’s missing participant program, However, this awaits the regulations from the PBGC providing guidance on the PBGC’s rules and procedures.