Plan Already Terminated -- Winding Down Assets -- Does it need to be a

[Guest 91smithie]

We are winding down the assets of a plan that was terminated several years ago (we have missing participants). Does the plan still need to be amended for GUST?

Sarah Richards

[KJohnson]

Most provisions of GUST were effective for Plan Years beginning after 12/31/96 (some were effective even earlier). Accordingly, your plan should have, prior to termination, been updated for all GUST provisions that were effective up to the date of termination. Did you get a determination letter on the termination? If so, the IRS should have checked to see that you were up to date on all GUST provisions that were effective prior to termintaion.

Generally, a plan that has terminated is no longer a qualified plan, but considered a "wasting trust" and the IRS generally provides that assets must be distributed as soon as possible and sets a presumptive guideline of one year from termination. However, I don't think this rule is "hard" if you have legitimate reasons why assets could not be distributed.

Someone else may have a different opinion, but assuming that all amendments were done at the time of termination, I don't think anything else is required--you really don't have anything to amend--your plan is gone.

[jstorch]

Does anyone have a cite supporting that plans that have terminated but that have not yet distributed all plan assets do not need to be updated for law changes in the period from termination to final distribution?

[KJohnson]

I think that if you haven't distributed assets as soon as administratively feasible, you really aren't terminated and you would have to update for any GUST provisions that became applicable since your "tried" to terminate.

On the other hand, if you terminate an update for GUST at that time, and then distribute as soon as administratively possible. I don't believe that you have to update for a new GUST provision has an effective date between the date of termination and the date you distribute. I don't have any cite that is "right on", but you may want to look at the following:

Rev-Rul 89-87 h basically says that a plan that has been terminated whose assets have not been distributed as soon as administratively possible must continue to meet 401(a) of the Code. It then gives the "rule of thumb" of one year. I have always taken this to mean that the converse is also true, that if you do distribute assets as soon as possible you don't have to continue to meet 401(a).

89-87 modified 69-157 that says that a trust whose corresponding plan has been terminated is no longer a trust exempt under 401(a).

Finally under the determination letter Rev. Proc. at the beginning of every year, they indicate that a Plan must be updated for new law prior to termination but they never say anything about after termination.

So I guess that the specific requirement that you update prior to termination PLUS the notion that the trust after plan termination is no longer qualified anyway PLUS the fact that after the plan has been terminated you have nothing to "amend" brought me to that conclusion.

At this point, we really should not be talking about much other than the stuff that became effective in 2000 or 2001. It would seem that anyone else would have the problem that they have not distributed as soon as administratively possible and do not really have a terminated plan.

[KJohnson]

Someone just sent me a link to this web site where it is very easy to pull up those old 1960's and 1970's Revenue Rulings.

http://www.taxlinks.com/