Complete discontinuance of profit sharing contributions

[Medusa]

Five or six years ago, at some conference at which the IRS was presenting, a question was asked about whether a frozen profit sharing plan could continue to exist indefinitely. The IRS's response was that without the possibility of future contributions, it could not. Since then, we have been restating our frozen profit sharing plans as 0% money purchase plans, since IRS indicated that this did not present the same problem.

However, we have seen no mention of this position either formally or informally since then. Is anyone familiar with this issue or does anyone have any direct or indirect evidence of the IRS's position? It is a pain in the neck to restate them if we don't need to.

Thanks for any input,

M.

[Guest sdolce]

Jim Holland/Dick Wickersham said this at the ASPA conference several years ago. Maybe that's the meeting your referring to.His explanation was that profit-sharing contributions, although discretionary, must be "substantial and recurring" for the plan to be qualified. My recollection is that the "substantial and recurring " language appears somewhere in the 411 regulations which determine whether there had been a complete discontinuance of contributions,which would then trigger 100% vesting for all particpants.I never really understood how this translated into a qualification problem,but that's what he said.

What's the point of a frozen profit-shaing plan anyway?Why not just terminate and get it over with?

[Medusa]

The problem is generally participant loans or other illiquid assets.

I don't think anyone has an issue with full vesting. It is more that we don't want to terminate. To convert it into a 0% money purchase plan, which they indicated would solve the problem, seems like smoke and mirrors to us.

I searched our resources to determine whether there was any documented evidence that the IRS had disqualified such plans; I couldn't locate anything. In fact, I ran across several PLR's that didn't specifically address this issue, but did involve profit sharing plans that had been frozen for a number of years, and no mention was made of this being a problem.

[Kirk Maldonado]

I seem to recall that there are some ancient revenue rulings on this point.

[Medusa]

I have not been able to locate these ancient rulings on any of my resources, and I am probably far too young to have seen them when they were issued. If anyone knows what they are, I would appreciate a pointer in the right direction. The only guidance I can find relates to vesting.

[chris]

What about Rev. Rul. 69-157, 1969-1 CB 115 ? We had a PSP get audited where the sponsor, a professional corporation, dissolved under state law 15 years ago. The plan was maintained in all other respects by the trustee, a bank, and the former officers of the p.c. (under state law the corp is still in existence for purposes of winding up). The plan contained real property which was tied up in bankruptcy proceedings for a number of years. Of course, no contributions had been made since 1987. The agent hung his hat on the absence of a sponsor and tried to disqualify it. We pointed him to the above Rev. Rul. Ended up terminating the plan, distributing remaining assets and filing a final 5500. The agent blessed it.

[Medusa]

Chris, that Revenue Ruling seems to support that the plan can stay in existence, so long as the document and operations are consistent with current law. There are some later Revenue Rulings that seem to affirm this. In our situation, of course, we do have sponsors, so that is not an issue.

Anyone know of any contrary position taken by the IRS, other than the ASPA conference comments?