Plan no longer subject to ERISA - final 5500?

[t.haley]

Client recently discovered they qualify for exemption from 5500 filing as a governmental plan.  They currently sponsor an ERISA-exempt 403(b) plan (employee deferrals only) and 401(a) plan with only employer contributions for which they have been filing a 5500.  Based on newly discovered governmental plan status they want to freeze the 401(a) plan and have participants rollover their accounts through in-service distributions to the 403(b) plan in 2022.  If there are some participants that choose not to rollover their accounts and there are assets still in the plan for the 2022 plan year, what do we do for the 5500? 5500 instructions say a final return cannot be filed if assets remain in the plan but technically the plan is not subject to ERISA so no 5500 is required.  Thoughts?

[QDROphile]

Taking your descriptions for granted, and not inquiring into or challenging some interesting propositions, such as "have participants rollover their accounts through in-service distributions to the 403(b) plan", filing a final Form 5500 in any event is a good formality for avoiding inquiry into why the plan quit filing the Form, which could lead to other broader intersting questions, such as the ones overlooked in making this response. 

[t.haley]

Let's just say we don't want the plan to be red-flagged through the 5500 and then audited....My issue is that if we file a "final" 5500 but show assets still in the plan, won't that red-flag them?  I think the best course of action would be to continue to file 5500s until there are no assets in the plan and then file the final 5500.  

[QDROphile]

If in fact the plan can properly distribute assets in a reasonable time, I think waiting is a reasonable strategy to present a conventional final Form 5500.

[david rigby]

A few years ago, I was aware of a non-profit hospital purchased by a county-run hospital authority, so that the plan immediately became a governmental plan.  The date of acquisition was the end of a short-plan year on the 5500.  However, the plan was not terminated, and the "final filing" check-box was not checked.  There were no subsequent 5500 filings, so a "final filing" never occurred (i.e., because federal agency "oversight" had expired).

The facts presented in the original post above seem to be inconsistent, using "freeze" as if equivalent to a plan termination.  Check the plan document for the conditions related to an "in-service distribution".  This plan sponsor needs to consult an ERISA attorney, now.

[t.haley]

15 hours ago, david rigby said:

A few years ago, I was aware of a non-profit hospital purchased by a county-run hospital authority, so that the plan immediately became a governmental plan.  The date of acquisition was the end of a short-plan year on the 5500.  However, the plan was not terminated, and the "final filing" check-box was not checked.  There were no subsequent 5500 filings, so a "final filing" never occurred (i.e., because federal agency "oversight" had expired).

This was our thought as well but we cannot find any authority to back it up.  Our fear is that since we have been filing 5500s for many years for the 401(a) plan, if those suddenly stop with no final return filed, the DOL will come knocking.  I would think that if that happened, we could simply explain why we stopped filing 5500s - because the plan became a governmental plan.  But this could raise more questions from the DOL regarding the circumstances under which the plan's status changed and the plan in general, which we are trying to avoid.