5 replies to this topic

[Beneflaw]

The plan is a frozen 401(k). Has filed for the past 3 years (froze in 2008) with a participant count of 65. The plan year is 7/1-6/30. A corrective contribution to approximately 150 ppts. for a prior year was made to the plan in October 20xx, so that will not affect 7/1/xx-6/30/yy plan year because on 7/1/xx, there were still only 65 ppts. with an account balance. HOWEVER, the service provider put the money in the wrong plan. Therefore, although feasibly, had the corrective contribution been placed in the correct plan in October, there could have been more than 100 (and greater than 120, if the count is right) ppts. with account balances as of the start of the 20yy plan year. BUT, the discovery was not made until the Plan was well within the 20yy plan year, and then money was moved at that time, bringing the participant count to roughly 150 ppts (inclusive of the frozen 65) as of 1/31/20yy. Looking forward to the 20yy plan year filing-do I base participant count on what "should have been" versus what it was on its face (i.e., that because the service provider mistake had yet to be identified as of 7/1/20yy, as far as the plan was concerned, there were only 65 ppts. with an account balance in the plan)? I also note that the plan is terminating, so the 20yy plan year (or short plan year depending on how fast we get the assets out) will be the final 5500 filing.

I have read through the form's instructions, and combed through regs, rev. rulings...I don't see any guidance. So if anyone has encountered a similar situation and can share your outcome, or if you want to proffer some advice, I would really appreciate it.

Edited by Beneflaw, 24 February 2012 - 09:31 AM.

[Bird]

Nice name, is that benef-law or bene-flaw?

My initial reaction was "of course" you count them since those additional participants are owed the money. But, you may file on a cash basis, and if the accounts don't exist...

...but on the other (other) hand, I'd think the technically correct theory is that the moment it was determined that money was owed to someone, they became a participant (again?). Cash in an account doesn't make one a participant or not.

(I'd still be open to arguments that they are not participants.)

[Beneflaw]

Nice name, is that benef-law or bene-flaw?

My initial reaction was "of course" you count them since those additional participants are owed the money. But, you may file on a cash basis, and if the accounts don't exist...

...but on the other (other) hand, I'd think the technically correct theory is that the moment it was determined that money was owed to someone, they became a participant (again?). Cash in an account doesn't make one a participant or not.

(I'd still be open to arguments that they are not participants.)

Thanks Bird-name is to be interpreted any which way you like, but was designed to evoke that kind of mystery.

I may be getting too literal here, but my understanding is that you count those with an account balance as of the first day of the plan year for which you are filing. So this number can reflect terminated employees, deceased individuals, alternate payees, beneficiaries, in addition to the active employees with account balances...so long as you have an account balance, you are counted. So, sure-I think you or I can argue that based on the plan doc definition of participant, if you cease to be eligible to participate in the plan, you are not a participant. But for the purpose of Form 5500, even if you have ceased to be eligible to participate in the plan, but you have an account balance as of the first day of the plan year, you are counted for purposes of determining whether an IQPA is needed for the filing. Please correct me if I am wrong....I never reviewed 5500s when I was in-house, the only time I touched them was for gathering info needed for submitting plan restatements.

[ESOP Guy]

While I understand this is a frozen plan I would point out the directions to the 5500 defines participant as follows:

The description of ‘‘participant’’ in the instructions below is
only for purposes of these lines.

An individual becomes a participant covered under an
employee welfare benefit plan on the earliest of:

the date designated by the plan as the date on which the
individual begins participation in the plan;

the date on which the individual becomes eligible under
the plan for a benefit subject only to occurrence of the
contingency for which the benefit is provided; or

the date on which the individual makes a contribution to
the plan, whether voluntary or mandatory.

While normally in a frozen plan that would only mean people who have a balance. However, in this case haven’t they met the conditions of 2nd point above? Aren’t they “eligible under the plan for a benefit” regardless if it has been funded correctly or not?

In a non-frozen plan someone who got a PS allocation on 12/31/2010 even if not funded until 7/31/2011 would still be a participant on 1/1/2011-- as an example of someone without a balance who counts.

[Beneflaw]

Thanks ESOP guy, that is logic that I can use to back up my conservative view that we would have to count them. What year's instructions did you pull these from?

Thank you both, again.

[ESOP Guy]

I used the 2011 page 16 although I checked and 2010 seems to be the same.

http://www.dol.gov/ebsa/5500main.html