Corrections concerning thought-to-be-terminated plan

[chris]

Client purported to terminate pension plan in 1997. Apparently, TPA was directed to do whatever was necessary to get it done. Client switched to new TPA sometime thereafter thinking all was well. As of a month ago, IRS has asked for 5500 for 1997. Appears that all assets are still in pension plan. Are the IRS correction programs available for purportedly terminated plans?? I know the plan may be treated as an ongoing plan under 89-87 as the assets were not distributed out w/i 1 year. Any comments?

[Wessex]

The client is wilfully ignorant and irresponsible.

[chris]

As to the above post, it appears that client didn't fund the plan (other than to provide benefits for some of the HCE's) in 1996 and 1997. The plan is a target benefit plan such that the client is on the hook for a required level of funding. I know the correction programs are not available to waive/abate exise, penalty taxes, which client understands. I have advised client as to filing 5330's for the 1996 and 1997 underfunding and paying the 10% penalty with each. Also, a submission to waive/abate the 2nd tier 100% penalty tax may be in order given the relatively small size of client's business. The payment of insurance premiums associated with some of the HCE's and none of the NHCE's brings up nondiscrimination/coverage issues as well as raises the issue of whether client actually terminated the plan at all. Anyone see anything else???

[Guest]

You won't have to do any special filing with respect to the 100% second-tier penalty. The second-tier penalty isn't due until 90 days after the Service issues a notice of deficiency under IRC 6212. The payment of the first-tier penalty precludes issuance of the notice.