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terminating an orphan plan


Gudgergirl

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I have an orphan plan in which there is one participant account. The participant is the former sole shareholder of the plan sponsor which dissolved several years ago.

I have read about the orphan plan procedures under the DOL regs and under EPCRS.

The DOL rules seem to focus on insulating the custodian of the plan assets from liability while the EPCRS rules focus on ensuring the qualified nature of the plan assets.

My client is the plan participant. Since he is not the custodian, may he just correct under EPCRS or must he also convince the custodian to follow the DOL regs?

The EPCRS rules say they don't apply to a plan that has terminated pursuant to the DOL regs.

I am confused as to whether one or both procedures must be followed.

Any assistance is appreciated.

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I don't think your situation fits under the DOL orphaned plans program. If it did, I think their first action would be to find the former sole shareholder of the plan sponsor which disolved several years ago and pursuade him/her to fuflill his/her fiduciary obligation to the plan and terminate it. Also, with the sole participant being the former sole shareholder, do you really have an ERISA covered plan?

It sounds like you have some issues to correct under EPCRS before the plan terminates.

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I agree with Kevin that either there is no "orphan plan" here because the sole shareholder is on the scene, or it is not a Title I plan in any event, or both. I would focus solely on EPCRS and figure out what deficiencies exist and then the best way to correct them (plus any past due 5500s or 5500-EZs, if any).

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I have looked at EPCRS and the DOL procedure and am having trouble figuring out how they would apply to my situation.

In this situation, there were originally 9 participants. The sole shareholder had some legal trouble, terminated all the employees, dissolved the corporation and paid out all the participants except for himself. This all happened 10 years ago. I think there was an intent to terminate the plan but int he midst of the legal trouble no one ever followed up to make sure it got done.

Form 5500s have been filed annually but no updates to the plan document have been made since the GUST restatement.

Both of you said you don't think this is an orphan plan. Why? The plan sponsor was a corporation that has since dissolved. Does the former shareholder somehow become the de facto plan sponsor upon the corporation's dissolution?

I agree that the EPCRS orphan plan correction method (which just says to follow the DOL rules and terminate the plan) seems inapplicable here.

Do you think the proper procedure is to correct for the failure to update the document under EPCRS and then just file a final Form 5500 (and perhaps Form 5310)?

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From the EOB:

Where the plan is maintained by an unincorporated sole proprietor,
presumably the individual would be treated as the sponsoring employer, even after the sole proprietorship
discontinued actively engaging in a trade or business, at least until the individual's death. However, the IRS
has not specifically addressed this issue.

Might this be relevant? I know you said corporation, but...

QKA, QPA, CPC, ERPA

Two wrongs don't make a right, but three rights make a left.

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Here the sole shareholder terminated his corporation after he "discontinued actively engaging in a trade or business." It makes sense that the former sole shareholder should continue to be treated as the sponsor.

The plan has language in it that it will terminate upon the earlier of the employer adopting a resolution to terminate the plan or the employer dissolving.

I am wondering whether it makes sense to take the position that the plan dissolved in 2008 (when the corporate dissolution occurred).

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The former sole shareholder was responsible for the plan 10 years ago and I don't see that changing because he disolved the corporation and failed to fulfill his fiduciary obligation to terminate the plan at that time. If the remaining participants were former employees and the former sole shareholder died or disappeared, then I think you would have an orphaned plan.

Even if they did the paperwork 10 years ago (or in 2008) to terminate the plan, they did not terminate within a reasonable period of time. The document needs to be updated under EPCRS. Then, the plan can terminate. If the document update is done using a pre-approved document, I probably wouldn't file for a determination letter on the termination. Others might suggest that you file for a determination letter.

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Couldn't he update under the non-amender provisions of EPCRS?

If the assets aren't large and he plans on taking a taxable distribution would it be easier to just disqualify the plan and take taxable income? Presumably there are no deductions to open tax years to worry about since the corp dissolved about 10 years ago.

The advantage to EPCRS at this point is really the ability to roll the assets over to an IRA. Right?

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I was referring to a non-amender VCP filing under EPCRS. I think the VCP filing would be very helpful in making sure the assets can be rolled over. But, if the plan was disqualified, wouldn't the assets be taxable when the plan was disqualified? I would think the plan would be disqualified when they became a late amender, not now.

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