Terminating and liquidating a non qualified plan
However, I promised to discuss a second type of recurring top hat plan litigation: claims by former plan participants who received their benefits, but not at the time or in the forms they elected, alleging damages due to adverse tax consequences.
A client will ask from time to time whether it can terminate its non-qualified plan and pay out all participants’ benefits in a single lump sum despite participants’ elections of other forms (and timing) of benefit.
The answer has always been – and continues to be, as two recent federal court cases reached the opposite result on this question – “it depends.” One case, the terms of its supplemental executive retirement plan when it terminated the plan and paid out each participants’ benefits in a single lump sum.
In the second case, the court awarded significant damages and attorneys’ fees and expenses of 0,106.30 (not payable from rabbi trust) to the “aggrieved” participants.
Space limitations prevent me from discussing both cases at length. Rather, the claims were that the early termination and payout resulted in tax consequences that did not meet the participants’ expectations.
The only significant differences between the two cases are that: The moral of this story is that employers should review (and, where necessary, improve) the plan termination language in their non-qualified plan documents and that employer-sponsors of SERPs need to be even more cautious than deferred compensation plan sponsors.
Why is the IRS holding the money from my retirement plan now that the plan has terminated?
The IRS does not maintain or hold the assets during the plan termination process.
That post and the two that followed focused on litigation by former employees who left before becoming eligible for vested benefits alleging that that they should have been vested and received benefits because the plan did not qualify as a top hat plan, exempt from ERISA.Entities are generally considered in the same controlled group when they can trace at least 50% ownership to a common parent entity.An example of a controlled group under the basic standard is a parent corporation, its 100% owned first-tier subsidiary and an entity owned at least 50% by that subsidiary.When must plan assets be distributed after a plan terminates?Generally, an employer must distribute assets from a terminated plan as soon as administratively feasible after the date of plan termination.