Corporation closed but Plan not terminated

[Fred Payne]

Doctor shut down his corporation in 1998 after distributing all MP and PS account balances (fully vested) to his plan participants but did not distribute assets to himself or wife.

Plan needs to be updated for GUST and terminated. We wanted to request letter of determination for termination but don't know what to do now that we've discovered Corp has been closed down.

Suggestions?

[Guest b2kates]

How have you been filing 5500s for the last few years.

Obviously to amend you need a plan sponsor. Any reasonable way to make the Dr. the plan sponsor? Why did he not take distributions at the same time as termination?

[david rigby]

Why do you need determination letter for termination? Can the other assets of the participants (doc and wife) be distributed? That is not the same as a plan termination.

[Fred Payne]

We've been filing the 5500's, but showing the corp as sponsor. It was only with the completion of the forms to request the letter of determination that we were told his corp was previously terminated.

Distribution to the Doc was delayed because of the creditor protection offered with an ERISA account.

Recently his state of residence changed the law to provide that same creditor protection to IRAs.

[Fred Payne]

Concerning the need for a letter of determination, our attorney advised us that when money purchase plans are involved, a letter of determination is advisable.

[mbozek]

What do you mean by terminated?? Does corp still file tax returns?? Was the corp liquidated or dissolved. If corp was dissolved you could deem the Dr as the successor sponsor as a sole proprietor. Under IRS rules a plan cannot be terminated until all assets are distributed. If employer was liquidated or dissolved then plan would be deemed terminated in year of dissolution. IRS has a position that q plan can not exist if sponsor no longer exists. In any event plan should be amended for gust and applicable 2002 provisons, terminated, assets distributed and a final 5500 form filed. A dc plan a termination filing is probably not necessary as long as contributions were made in a non discriminatory manner but IRS has claimed the ability to find and audit terminated plans that do not get a determination letter upon termination.

[Guest stryan]

On several occasions I have seen terminating plans WITH determination letters get selected for audit. In several instances, the IRS relented when the situation was explained, but not in all cases.

I feel that plan termination determination letters are just window dressing, but can increase the comfort level of plan sponsors particularly as the number of participants and plan assets increase.

[chris]

We had a plan get selected for audit 2 years ago. Doc's professional corporation was dissolved 15 years ago and all participants but the doc were paid out. Plan had invested in NationsBank real estate stuff that went south. Instead of tying up participants' balances for time period to wait out the bankruptcy, other partcipants got paid cash and doc took the hit by waiting on the speculative real estate interests. IRS said what you read above re no qualified plan if no sponsor and the agent threatened disqualification back to date of dissolution. Our response was that under state law officers of prof. corp. have authority to wind up the corp's affairs even though prof. corp. dissolved. 5500's had been filed every year. All amendments had been done. IRS then said you can't have an "employer" if you don't have "employees" and only an "employer" can maintain a qualified plan. Told him to take a look at 69-157 re "employer" must have "employees" argument. End result was that remaining assets were rolled over to an IRA and we filed a final 5500. Agent signed off on it, but only after telling us how close the plan was to being disqualified???

Why not make whatever amendments as are necessary per whatever state law argument re winding up, distribute the assets to the doc and wife, file the final 5500 and forego the request for a determination letter???