A client acquired a small DB plan a few years back (around $1M in assets) in connection with acquisition of the sponsor entity. The plan appears to well over 100 percent funded and the only participants in the plan are terminated and retired employees.
The company would like to terminate the plan but the problem is we recently discovered that since the client's acquisition of the plan, payment of benefits under the plan (affecting all participants) have been made from the corporation's general assets instead of from the plan assets.
This is obviously in violation of the terms of the plan but our question is what correction needs to be made if any? The client does NOT want to recover the amounts that were mistakenly paid out of corporate assets, so any correction would be for compliance purposes to ensure the plan can be properly terminated and there is no penalty to the participants that were paid out of the wrong account.
Would appreciate insight from anyone who has dealt with a similar situation. Was unable to find anything on point in the IRS correction procedures
