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it makes no sense to me that they are not doing an ACAT transfer for the brokerage accounts. Someone might have hundreds of positions in their account. I have never heard of these accounts not transferring in kind. I guess that doesn't help much but I guess would just really push back on that position. If Fidelity is the SDBA provider, they can transfer in kind to Schwab, etc. That happens literally all the time.

Surrender the excess insurance.

That a plan existed before the first day of the reported-on year yet begins the year with assets valued at $0 might not attract unwelcome attention. If you want a practical sense about whether a BoY plan assets of $0 would attract a filing-error message or an edit check, enter the plan’s information and see what message (if any) your software turns out. Consider also that if a one-participant plan never had enough assets that a Form 5500 report was otherwise required (and all years before the final year went unreported), the plan might not be much of an examination target to which the IRS would devote scarce resources.

If the order specifies a dollar amount, but says nothing about earnings, it is reasonable to establish the alternate payee's subaccount with the specified dollar amount as of the date the plan administrator gets around to establishing the subaccount. If the order states a date of "segregation", a reasonable QDRO administrator (the relevant fiduciary, which might be the plan administrator) might still interpret the order to provide for a specified amount whenever the subaccount is established. As observed by others, the statement of a date injects ambiguity because the fiduciary will recognize those words as having a meaning associated with investment earnings. The notice of qualification will state the fiduciary's interpretation by stating whether or no earnings will be awarded. That allows the parties to appeal (to the plan, not the court) if they don't agree. That might be the smoothest way to proceed. If they appeal, the plan will have to disqualify the order for failure to specify the amount to be paid (unless the parties agree in the appeal on the implicit award of earnings and how to calculate them) and then everyone is back in the same position as suggested by not qualifying the order in the first place. In any event, the relevant fiduciary is the one to interpret the order and should express that interpretation (including an interpretation the the order is ambiguous) in the notice of qualification or not qualification. It is always nice for the written QDRO Procedures to state that, as a condition of qualification, the order must make an express statement about the award of earnings. Responsible drafters of DROs will read the QDRO Procedures, but responsible drafters of DROs will also know better than to omit specific terms about earnings. The QDRO Procedures might also say that a DRO will be presumed to recognize time value of money and that absent an overriding instruction, the plan's usual administrative procedures* for calculating earnings on an award to an AP will apply. Again, that might be a quicker route to the intended outcome than immediate disqualification. The plan has at least a chance that it will choose what the parties intended (if the parties actually thought about it). And, sadly, even if the Plan's default is not what the parties intended, everyone may be so relieved to get on with life that they won't appeal, thus saving the Plan from further rounds of dealing with incompetent drafters. Obviously, I am used to looking out mostly for the plan. It is dangerous for a plan to try to look out for the competing interests of individuals in a divorce. *Which might include such other things as (1) creating the AP's subaccount with a proportionate share of each of the participant's investment accounts, or (2) investing the AP's subaccount initially in the Plan's default investment, or (3) stating any unvested balances will be allocated between the participant and the AP.

This is the answer. And it is impossible for us to guess if earnings should be considered without knowing what the DRO says...

It all depends on what the QDRO says.

Exactly, that would be a very plausible reason for final filing to show BOY $0 and EOY $0 as is the now worthless assets. Even if it is scrutinized, nothing to see here, just move along.

Also, what if the owner did an inservice distribution the year before the termination and filing? You probably wouldn’t think twice about it. Just make sure you have documentation of the bankruptcy and $0 assets. Might be worth completing distribution forms rolling the $0 to an IRA just in case anything shows up in a year or two.

Participants may have the ability to make trades in accounts but they aren’t the “owner” of the account, the trustees are. The trustees have the ability to liquidate whatever account they want. If they haven’t done so, it’s on them.

I agree with @Bri and suggest that Dr. X or his plan account pay the fee for the additional work.

If the independent qualified public accountants delivered an “unmodified” report the IQPA authorizes the plan’s administrator to upload in the Form 5500 report, that the administrator received a management-weaknesses letter (see below) is not itself a distinct disclosure item in Form 5500. What is a management-weaknesses letter? Under certified public accountants’ professional standards, an auditor must communicate to “management”—for an ERISA-governed employee-benefit plan, the plan’s administrator—about “significant deficiencies” and “material weaknesses” in the plan’s internal control. (Internal control is auditor-speak for ways of making sure you do things correctly, and ways of preventing, or at least detecting, what someone does wrong.) If the accountants during their audit of a plan’s financial statements found an internal-control problem, the firm typically sends a “management weaknesses” letter. The letter usually includes at least the deficiencies and weaknesses the CPAs’ professional standards require them to tell you about. Also, the rules permit an auditor to tell “management” about other control-related matters. Why you should read the management-weaknesses letter Instead of just filing away the letter, read it. First, receiving information and failing to consider it likely is a breach of a fiduciary’s duty of care. And one might as well use something the retirement plan or its sponsor already has paid for. Look for a “false positive” When you read the auditor’s letter, use some prudent skepticism yourself. Even a careful auditor obtains only an incomplete, and sometimes incorrect, understanding of a plan’s provisions and operations. A finding about a deficiency or weakness might be wrong. If you have even a slight doubt about a finding, check the source documents and records yourself, or get a careful worker to test the auditor’s finding. If you see a mistake, don’t ignore it. Instead, write an explanation of your plan’s procedure for the task involved. Or if the mistake is that your auditor’s finding is that you lack a control that’s unnecessary for your plan, write a cogent explanation about why the control is unnecessary. Respond to every mistake; doing so can help avoid wasted time and effort in the next audit. Look for procedures that need improvement On some points, you might concur with your auditor’s finding that a procedure or control could be tighter. If so, start work on the needed improvements. Aim not only to design but also to implement the improvements before the next audit engagement begins. (Many auditors use the preceding years’ management-weaknesses letters, and a client’s responses to them, as tools to help evaluate risks the auditor must consider in planning an audit.) But if making a new procedure or control would require the retirement plan to incur an expense, you must as a prudent fiduciary evaluate whether the value of the improvement makes the expense worthwhile. Get help from your advisers A plan’s administrator might ask its lawyer for advice about the management-weaknesses letter and how the administrator should act on the information. After considering the lawyer’s advice, an administrator might consider sharing the auditor’s letter with its third-party administrator, recordkeeper, and other service providers. They might suggest ways to improve the plan’s procedures. A TPA’s or recordkeeper’s way to fix a problem might be more efficient than a method the employer/administrator alone would have found. Using good sense Even if a list of problems feels unwelcome, an employer/administrator can evaluate and act on an auditor’s management-weaknesses letter to keep making improvements in how one administers the retirement plan. This is only general information, and is not advice to anyone.