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Terminating 457(b) Plan

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a non profit has a 457(b) for one participant and the NP is going out of business. The participant is wanting to leave the assets where they are at. Is that possible? Could she just pay the taxes and leave the funds invested as is? Also, I am under the impression there are no reporting requirements(5500) for a terminating 457(b) since it is "unfunded". Correct?

 

 

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This may be acceptable but it depends on how the 457(b) plan is written. If the plan has a plan termination provision as described in the final 457 regulations (published 7/11/03), all deferred 457 accounts must be distributed as soon as administratively feasible after the plan termination. Absent of this plan termination provisions, 457 plans usually allow for the deferment of benefit payments up until the required mandatory distribution (attainment of age 70½). However, there may be some administrative issues with the 457 account since the accounts are typically owned by the NP for the exclusive benefit of the 457 plan participant (top-hat employee). Therefore, the NP may have to provide the 457 provider with a blanket authorization to distribute the account upon the participant’s instructions at a later date. Then the NP would need to arrange that the 457 provider or a third-party administrator issue the w-2 to the top-hat participant for the tax year that the distribution is made.

 

In regards to the reporting requirements (5500) for a terminating 457(b), a 457(b) top-hat plan is not automatically exempt tom the reporting and disclosure but a one-time filing exemption is typically filed with the Secretary of Labor immediately after the plan is set-up.

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Thank you. To elaborate, this is a non profit, non governmental plan, so ultimately the participant will have to take a taxable distribution, correct? She could take a lump sum, less income tax withholding or perhaps buy an annuity, but a rollover is not an option unless its to another 457(b) that allows for rollovers? If she opted for an annuity, the purchase amount would be net of taxes?

 

As for the document, it was restated effective 7/1/03 to incorporate the final code 457 regs regarding EGTRRA published 7/11/03.

As for distributions, the AA states that distros are made as soon as administratively feasible and that lump sum single payment is the only method. However, the plan permits a participant, with the plan administrator approval of election, to elect to postpone distribution beyond the time the Employer has elected (Immediate) and also to elect the method of distribution (lump sum). So does this mean that she could continue to maintain the contract or perhaps take installments with the company's approval? Why would they do this if they are going out of business?

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Thank you. To elaborate, this is a non profit, non governmental plan, so ultimately the participant will have to take a taxable distribution, correct? She could take a lump sum, less income tax withholding or perhaps buy an annuity, but a rollover is not an option unless its to another 457(b) that allows for rollovers? If she opted for an annuity, the purchase amount would be net of taxes?

 

As for the document, it was restated effective 7/1/03 to incorporate the final code 457 regs regarding EGTRRA published 7/11/03.

As for distributions, the AA states that distros are made as soon as administratively feasible and that lump sum single payment is the only method. However, the plan permits a participant, with the plan administrator approval of election, to elect to postpone distribution beyond the time the Employer has elected (Immediate) and also to elect the method of distribution (lump sum). So does this mean that she could continue to maintain the contract or perhaps take installments with the company's approval? Why would they do this if they are going out of business?

 

 

You are correct. The participant will have to take a distribution upon termination of the plan or purchase an anniity both of which will be subject immedate taxation as wages.

 

If the employer is going out of business and liquidating its assets and liabilities it will not be possible to postpone payment since the provider will not want to be acting as fiduciary for the participant after the plan terminates. Since postponement of payment requires approval of the plan administrator the answer is deny the participant's request and distribute the assets to the participant. The participant would prefer this result because it would prevent the benefits from being seized to pay the debts of the business as long as there is no claim by a creditor under the bankruptcy law.

 

TPA- The exclusive benefit rule does not apply to NP 457 plans because they are not subject to the fiduciary provisions of ERISA so I dont understand why you think the NP would have to give the 457 provider instructions to distribute the account pursuant to the participant's instructions after termination of the plan. Please explain. In any event in order for the plan to be considered to be terminated under the IRS regs the plan assets will need to be distributed as soon as adminstratively practible after termination.

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Thank you Intruder.

 

I trust someone, her former employer or a cpa, will need to issue a 1099-R for the 2010 plan year as well reflecting distribution.

 

Also, should a resolution be prepared effectively terminating the plan?

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Thank you Intruder.

 

I trust someone, her former employer or a cpa, will need to issue a 1099-R for the 2010 plan year as well reflecting distribution.

 

Also, should a resolution be prepared effectively terminating the plan?

 

 

Yes, all of the corporate formalities must be followed including a resolution and completing a request for a distribution. Also distributions from a NP 457b plan are reported on a w-2 from the employer, not a 1099-R because the 457 plan is a non qualified plan, not retirement plan.

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My employment with a NP philanthropic trust is terminating at the end of 2012. I am currently the only peron with a 457B. It will be more advantageous to me to postpone a payout of the assets in the 457B until at least 2014.

 

This NP's bylaws state that the NP will terminate upon the death of its benefactors after which a NP private foundation is to be formed with the remaining trustees and will receive any remaining assets of the old NP. What happens if this occurs between the time of my departure and the scheduled payout? Does my 457B transfer to the new entity or, because the old entity terminates, is the 457B immediately distributed? or am I in danger that the assets in my 457B could be assumed by this new foundation and that they might not honor the payout?

 

Thank you.

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