Facts: Employer sponsors a 401(a) qualified retirement plan that is invested entirely in insurance contracts or policies (annuities, generally). Thus, the plan is exempt from ERISA's trust requirement.

My question is how to treat separated participants. The annuity provider / insurer is telling us we do not have to count former employees as participants for purposes of reporting on the 5500. But I'm not sure that tracks with the Tax Code's distribution requirements. For example, what about the Code's requirement that distributions over $5,000 can be made only with the participant's consent, and if the participant is said to have taken a distribution, do we have to issue them a 1099?

As an example of how this can come up, imagine the plan has an operational failure & wants to use EPCRS. Most of the fees under EPCRS are governed by how many participants the plan has, or what the plan assets are. Do we count separated participants?

Also, for purposes of simplified 5500 reporting, do we consider separated employees to be participants when deciding if we have less than 100 participants?

Any advice, comments and shared experiences welcome. Citations to authority are specifically appreciated!

Why don't you ask the annuity provider / insurer for citations to authority?

I did & they can't provide any.

I am surpised they did not refer you to the two insurance company exceptions to all rules:

1. Because we say so.

2. Because we have always done it this way.

I am not claiming that their position is correct, but I would guess that they would be relying on the 5500 instructions, that say several times in the instructions to questions 6 and 7:

This category does not include an individual if an insurance company has made an irrevocable commitment to pay all the benefits to which the beneficiaries of that individual are entitled under the plan.

I think that position is somewhat defensible for a DB plan that is distributing annuity contracts, but have trouble with the DC side--isn't it implicitly a rollover to an IRA?