SAR Requirements for Terminated Plans

[Guest ptpnthr]

Does anyone know the latest guidance, formal or informal, on SAR requirements for (former) participants who have received their distributions? Assume we have a defined contribution plan.

1. We terminate the plan and make all distributions in 2001 plan year. By the end of the plan year there is no one and no money left in the plan. Do we provide a 2001 SAR to anyone and if so, to whom?

2. We terminate the plan in 2001 but don't complete our distributions in 2001. By the end of the 2002 plan year there is no one left in the plan but we have $100,000 in forfeitures which we use in 2003 for plan expenses. Ignore the question of whether the plan actually terminated because we didn't make distributions within 12 months after the proposed termination date. We file the 2001, 2002, and final 2003 5500, all timely.

For 2001, can we limit the SAR to those persons who had account balances on the last day of the plan year, do we have to send it to everyone who had an account balance at any time during the year, or something else?

For 2002, do we send anyone a SAR and if so, to whom? What about 2003?

[rcline46]

An SAR goes to all PARTICIPANTS. This means participants at the end of the year. If no participants then who do you send it to???

We never do an SAR for a 5500 with a zero participant count at the end of the year.

[Guest ptpnthr]

I'm not sure it is that simple. There is a DOL Advisory Opinion that says you have to send the SAR even if you have no participants due to the plan's termination. That advisory opinion deals with a terminated welfare plan that has some money left over and it may be that the same rule does not apply to, for example, a 401(k) plan. Any other thoughts?

[rcline46]

If the funds are to be allocated to participants but have not yet, then an SAR is required. If the funds are to be used for expenses or reversion only, no SAR.

Sometimes the DOL issues non-sense. Preparing an SAR for 0 participants is non-sense.

[Guest ptpnthr]

What is your authority for saying you only look to participants at the end of the year and that if nothing left in the plan at the end of the year gets allocated to participants you don't have to send them a SAR? You seem to assume that if there are no participants or beneficiaries at the end of the year then there are no participants to whom you should or can send a SAR.

Anyway, I finally reached someone at the DOL and, as you may guess, they were not aware of any further formal guidance. Naturally, they went for disclosure and said you should send it to all participants and beneficiaries around at the end of the plan year and all participants and beneficiaries who received a distribution in the year. I agree with them, particularly if you have a fund left over at the end of the year that would otherwise be allocated to the participants who left during the year. I would think a reversion would strongly support sending the SAR to participants and beneficiaries who left during the year.

The SAR informs participants about plan expenses and benefits paid during the year. I can't see why someone who receives a distribution one day prior to the end of the plan year is less entitled to know about expenses paid during the year than someone who happens to terminate the next day. If you go back one day do you go back two? A month? How far? The logical cut-off is the beginning of the plan year, though you might make a good argument for some time later than the first day of the plan year. You don't go back the previous year because, presumably, you sent them a SAR and informed them about plan expenses for that year. As usual, it ends up being a risk analysis.

[rcline46]

Look at it this way - The SAR is in lieu of the 5500 because the government figures participants can't read the 5500. The 5500 is an end of year recap.

Ok, so who are participants? If someone has been fully paid out, then they are a FORMER participant. Sorry, that does not give rise to being a participant. End of year participant is the only rule that makes sense.

[Guest ptpnthr]

You seem confident that you only look at participants at the end of the year? What is your basis for that when the DOL has said in both formal guidance and informally that you don't just look at the end of the year?

[rcline46]

My turn! My turn! OOOOHHHHHH I love it! Seems I am usually on the other end here.

Cite please specifying anytime participants? Informal (as discussed above) is not binding.

[Guest ptpnthr]

DOL Opinion Letter 79-64A. Anyway, I have my answer. Thanks for your help on this. I appreciate it.

[david rigby]

For those of use who don't have that Opinion Letter, the conclusion is what?

[rcline46]

79-64A says a terminated plan must provide an SAR to all participants and beneficiaries even thought they have terminated.

The references lead to 2510.3-3(B) which is:

(2) (i) An individual is not a participant covered under an employee welfare plan on the earliest date on which the individual—

(A) Is ineligible to receive any benefit under the plan even if the contingency for which such benefit is provided should occur, and

(B) Is not designated by the plan as a participant.

(ii) An individual is not a participant covered under an employee pension plan or a beneficiary receiving benefits under an employee pension plan if—

(A) The entire benefit rights of the individual—

(1) Are fully guaranteed by an insurance company, insurance service or insurance organization licensed to do business in a State, and are legally enforceable by the sole choice of the individual against the insurance company, insurance service or insurance organization; and

(2) A contract, policy or certificate describing the benefits to which the individual is entitled under the plan has been issued to the individual; or

(B) The individual has received from the plan a lump-sum distribution or a series of distributions of cash or other property which represents the balance of his or her credit under the plan.

Now dad gum it, there just ain't no blooming participants and the DOL is just plan wrong!!!!!!!! Strong opinion to follow!