July 2007 Pension Plan tip of the month...

Terminating Participants’ Balances (July, 2007)

As a part of the termination process, your plan’s participants may forget that they are leaving behind an account in your company’s retirement plan and may not always understand their distribution options. It’s often a good idea to provide them with distribution paperwork before their last day of employment.

If the amount is more than the mandatory force out they must make an election for a distribution to occur and they will need to give some serious thought as to what to do with the account.

There are usually three different distribution options to choose from (each of the following will have different tax consequences)-

(1) Take the money as a one time lump sum distribution

(2) Leave the money in the plan or

(3) Roll the balance into an IRA or into a new employer’s retirement plan (if they
allow for rollovers.) This may allow greater convenience, efficiency and monitoring of retirement savings.

** Note that some plans allow for additional distribution options, such as annuities which cannot be discussed here.

In making such a decision as this, participants should be encouraged to weigh their options very carefully. Since these accounts are ear marked for retirement purposes the prudent choice would be to choose option(s) 2 or 3. To leave the funds in your company’s employer plan or to roll the account into an IRA or into a new employer’s plan helps preserve assets for retirement. (It also allows the account to grow tax-deferred.)

If a participant does not respond within a set time frame, your plan’s force-out threshold may need to be implemented. This threshold will vary according to your plan’s document provisions.

Also, if a participant cannot be found, the IRS and Social Security Administration have a missing participants program. For more information follow this link: www.ssa.gov/foia/html/ltrfwding.htm or www.irs.gov/forms_pubs/index.html

The Paragon Alliance Group, LLC
64 North County Line Road
Souderton, PA 18964
Tel. (215) 703-0844
Fax (215) 723-1265
www.tpagroup.com