Jump to content

No Employer; How should distributions be handled?


Guest kms
 Share

Recommended Posts

When an Employer terminates his business in essence the Qualified Plan is also terminated as there is no sponsoring employer. Often times the Employer abandons the plan and the participants are unable to receive a distribution as no Plan Administrator is available to authorize the distribution. What steps should the Trustee (directed) take to terminate the plan and distribute the plan assets? Should these participants become fully vested? How should the final 5500 be filed? If the trustee signs is he taking in the Plan Administrators liability? Any comments and suggestions are appreciated.

Link to comment
Share on other sites

I don't know the answer but isn't the Plan Administrator is still liable for all compliance aspects of the plan.

Now if the Plan Administrator is the owner of the company (personally), he/she is still personally liable.

If the Plan Administrator is the corporation, would the officers of the corporation have potential liability?

I don't like the idea of the Trustee taking the role of the Plan Administrator.

Link to comment
Share on other sites

Guest T Hoffman

The IRS position is that an "orphan" plan has not terminated unless the date of termination is established by way of plan amendment or board of directors resolution and the plan's assets are distributed as soon as administratively feasible after the proposed date of termination. Although the specific plan document would have to be consulted to determine who has the authority to terminate or amend the terms of the plan, it is doubtful that the trustee could do anything in this regard. A plan that has not satisfied these requirements is an ongoing plan whcih must continue to satisfy the requriements of 401(a) in order to remain qualified. Additional vesting, funding, and benefit accrual may be required and additional qualification requirements may have become effective after the date the plan was orphaned. Finally, in any year in which the trust assets have not been distributied, the plan is subject to informaiton requieremts and 5500s are due.

As for vesting, a defined benefit or money purchase plan would have to fully vest participants upon a permanent discontinuance of contributions (which would seem to be the case when the sponsoring employer goes out of business). All participants would have to be vested upon the termination of any type of plan.

I have heard people theorize that an orphined plan cannot maintain qualification because of the requirement that a plan must be maintained by a sponsoring employer and because it is impossible to follow the terms of the plan document if there is no sponsoring employer, although I have never seen anyting offical from the IRS on this issue. As for the trustee, is resignation an option? Otherwise, someone with authority to act on behalf of the former sponsoring employer must take some action to terminate the plan or amend the plan to transfer sponsorship to some other ongoing entity.

Link to comment
Share on other sites

Chris, I don't think that is the position of the IRS, and I agree with them.

A qualified plan must have a sponsor. The trust cannot fill that role. Once a sponsor ceases to exist, then the plan should be liquidated, or some other organization must agree to assume sponsorship.

Generally, the IRS says that you can have a "wasting trust" for up to 12 months, which means that you have one year to find all participants and pay them out.

The participant is not really the deciding factor here, although this does predate the Direct Rollover/20% withholding requirements passed in 1992.

I'm not sure the revenue agent was correct in claiming that the plan should be disqualified (maybe) but the response you got (distribute all remaining account balances and file a final 5500) seems quite reasonable to me.

I'm a retirement actuary. Nothing about my comments is intended or should be construed as investment, tax, legal or accounting advice. Occasionally, but not all the time, it might be reasonable to interpret my comments as actuarial or consulting advice.

Link to comment
Share on other sites

I recently had a revenue agent examine a psp previously maintained by a client. The client corp. went out of business in mid 80's and liquidated and dissolved ( except for assets etc. of the psp). Forms 5500 were filed annually. The plan document was amended and restated as required. Most of the e/ee's were paid out following the year of dissolution of the corp., but some e/ee's elected to leave their funds in the plan. The examination agent took the position that the plan should be disqualified because only an "employer" could sponsor a qualified plan. No "employer" , no qualified plan. After discussing a few Revenue Rulings with him (which I don't think he understood), his response was that the plan should be disqualified but that if we distributed all of the assets and filed a final Form 5500 he would not disqualify it. I would think you could allow the e/ee's to elect whether to receive their funds from the plan or keep the funds in the plan. As pointed out above, if assets remain in the trust, 5500's must be filed. The plan document should also be kept in compliance with legislative changes...

------------------

Link to comment
Share on other sites

Pax, to clarify your message, you are basically agreeing that the plan must have an employer as a sponsor?

The agent was saying that since there was no "employer" there was no qualified plan. Under state law, a corporation that has been dissolved is considered still in existence for the purposes of liquidating and winding up the corporation's affairs. My position is that the plan still had a sponsor in that handling the plan and the plan assets was one of the duties of the corporation in winding up its affairs. The agent was adamant that the lack of an employer caused the plan to be nonqualified.

In response to the original message, is it possible that someone, or some entity, has the authority under the relevant state laws to wind up the affairs of the former employer, i.e., terminate the plan and distribute the assets accordingly?? Or would no one be willing to act in that capacity even if possible??

------------------

[This message has been edited by chris (edited 06-02-99).]

Link to comment
Share on other sites

Thank you for the responses.

It may be possible that no one is willing to act on behalf of these plans.

If the company officers, plan administrator and owners have refused to act on behalf of the plan who would you suggest contacting? Could a banrupcy trustee take on this responsibility? If so, any suggestions on how to find the bankrupcy trustee?

Link to comment
Share on other sites

Guest Bill

As a last resort, ee have contacted the DOL in situations where the terminated employer has refused to do anything and as trustee we were being pressured by participants to make distributions.

Link to comment
Share on other sites

Create an account or sign in to comment

You need to be a member in order to leave a comment

Create an account

Sign up for a new account in our community. It's easy!

Register a new account

Sign in

Already have an account? Sign in here.

Sign In Now
 Share

×
×
  • Create New...