Last month, we offered ideas on how to use FreeERISA's 5310 database of terminating pension plans to generate leads in your market. This month, let's focus on ideas for contacting those leads and turning them into participants you can counsel and rollover assets you can capture. Keep in mind that many "5310 terminations" occur when a company changes from one type of plan to another, such as converting from a defined benefit or money purchase plan to a profit-sharing or 401(k) plan.

From a plan fiduciary's perspective, there are two separate areas of responsibility regarding terminations. One involves handling money. The other involves notifying participants of their rights and options.

In terms of handling money, a plan technically does not terminate until the last distribution is made. However, this event occurs at the end of a long chain of complex requirements involving participant notification. Two recent developments have made this chain even more difficult for plans to manage.

  • EGTRRA and related IRS regulations have created a new excise tax, which applies when a plan administrator fails to provide timely notice prior to the effective date of any plan amendment that provides for a significant reduction in future benefit accruals. The excise tax is assessed at the rate of $100 per participant per day. It applies to all plans subject to Section 204(h) notification requirements of ERISA, including defined benefit and "individual account" plans subject to minimum funding requirements. For details, see Federal Register Volume 67 No. 78, page 19713, 4/23/02.
  • Revenue Ruling 2002-42 holds that when a money purchase plan is partially terminated and its assets are converted to a profit-sharing plan, the notice requirements of 204(h) do apply.

Section 204(h) notification is one of the most difficult compliance burdens in pension law, because it mandates that notification be made within a "reasonable time" (usually 45 days prior to an amendment's becoming effective) and in a manner "calculated to be understood by the average participant." It's not enough to post notices on bulletin boards and company Web sites. Section 204(h) also contains "receipt requirements" that specify acceptable delivery to each individual.

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