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Do we need to wait for the determination letter from the IRS regarding


Guest LTurner

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Guest LTurner

We have a Money Purchase Plan, only two participants are the owner and his wife.

We have amended for GUST and EGTRRA. We are now terminating before the end of the year (as we no longer need a paired plan to reach the 25% limit).

Do we need to wait for the determination letter from the IRS regarding the termination before the assets can be distributed, or in this case rolled to IRAs?

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Why did you even submit for a letter? In any event, I don't think would have a problem, since it is a DC Pension plan, with rolling monies out. The plan isn't subject to any discrimination or reporting issues, so you should not have any problem with getting a qualified opinion letter, unless you have had problems with satisfying IRC 412 in any prior year.

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Guest LTurner

jaemmons

thanks for your input. we have not yet filed the 5310 with sched Q, are you suggesting we don't need to do this? I'd be much happier if I didn't have to. I was under the impression we had to do this to terminate the plan.

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Remember that a determination letter is not a requirement for terminating a plan. I normally look at each client's plan term individually and assess whether or not a letter is needed. In cases where we have a plan that only covers an owner and a spouse, I don't recommend filing with the IRS, especially if the plan is not a DB. (but DB plans are a different story). The plan is not subject to most ERISA requirements because of who the plan benefits and as such, you don't have any testing on the plan.

Please note that my opinion is only that: an opinion, but in cases where you administer a small plan, the cost of preparing the filings, even if you have an individually designed plan, are not worth it, because the IRS agent has nothing really to review, except the plan document. Therefore, I would recommend you restate the plan for GUST and informally terminate the plan with a resolution and pay out the assets.

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Why are you terminating the plan? An alternative is to merge the plans, probably effective January 1, 2002 (but it could be 12/31/2001). Avoids the expense and bother of termination. Also, larger amounts invested might give the plan more flexibility in available investment options.

I'm a retirement actuary. Nothing about my comments is intended or should be construed as investment, tax, legal or accounting advice. Occasionally, but not all the time, it might be reasonable to interpret my comments as actuarial or consulting advice.

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Guest LTurner

pax

thanks for your input... we're terminating the Money Purchase, because it is no longer needed in order to reach the 25% contribution limits. Also, the existing Profit Sharing has been amended to allow 401(k) deferrals, hence there may be more benefit to the participants than just 15% Profit Sharing and 10% Money Purchase.

we do not want to merge the plans primarily because we do not want to keep the joint and survivor issues that "have" to stay with the dollars merged from a money purchase. The only way to eliminate that issue, is to offer lump sum distributions to participants and let them roll them (which all participants will do)

all participants are already 100% vested.

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I think that you could distribute the assets before receiving a determination letter. However, in the event the IRS has some questions/issues with the termination, it is probably best to wait. And, in the situation you describe, there doesn't seem to be any reason to rush to get the assets rolled over.

As far as actually applying for a determination letter in a very small plan situation, we like to present the pros & cons to our clients and let them make the decision. Having the "insurance policy" of a determination letter doesn't hurt in the event of a future audit, but there are certainly costs involved.

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  • 3 weeks later...

It seems to me that the question changed somewhere along the line. The original question was for a two person plan--husband and wife. But LTURNER's last resonse makes me think that the husband and wife are the last two in the plan, but that it was bigger and covered others sometime in the past.

If that is the case, the argument in favor of waiting for a letter gets stronger, because there would more possibility that the IRS will require some kind of change. If they, for example, required a change in an allocation of forfeitures, then there would be a possibility that the rollovers would have to be unwound.

To me, if you're going to file for a letter, it does not make sense to make distributions before you get that letter.

RCK

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Guest LTurner

RCK thanks for the input,

it is and always has been only a two person plan. Very vanilla setup - strictly 10% Money Purchase, no Soc Sec integration, no forfeitures, etc.

I presume that to terminate the plan we simply need the corporate resolution/meeting minutes documented, and distribute the assets, and file a final 5500. does that sound right?

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