Wasting Trust

[Guest taj32z]

Does anyone have any information or websites on "wasting trusts"?

Thanks.

[david rigby]

Try searching these message boards?

[Guest taj32z]

Yes, I have searched. I have not found the answers that I am looking for (or at least the answer I want to hear). My situation is a bit different - the employer has retired but wants to keep the plan in tact and not terminate it - just not contribute to it.

[david rigby]

"Retirement" does not automatically imply that the plan must terminate. A plan can continue to exist if its sponsor continues to exist.

[Guest taj32z]

I have a plan that the company is no longer there, but the plan is still there - no contributions because compensation is zero. Is this considered a plan termination?

[david rigby]

If the corporation has dissolved (with no successor plan sponsor), doesn't that mean there is no longer a sponsor? Then the IRS rules about a "wasting trust" would seem to apply.

The comments by KJohnson in this thread might be helpful.

[mbozek]

A wasting trust is a qualified plan in which the employer no longer exists. (The assets waste away as participants terminate). The IRS has stated on several occasions (although not very clearly) that a qualified plan requires an employer and that when the employer goes out existance or dies the plan must terminate or merge with another empllyers plan. A retired employer who generates no income from the business which under which the plan operates can be deemed to have gone out of existance. But if the owner generates a few dollars of income there is no retirement. However, the service has little control over terminating such plans and as a practical matter retirement trusts continue long after the employer has been liquidated or died. The question is why bother mantaining a qualified plan and paying the expenses when no contributions or deductions are possible. Its cheaper to terminate the plan and distribute the assets to participants which can be rolled over to an IRA. I think that these plans are continued out of ignorance or because they generate fees for service providers. Other than paying back outstanding loans I dont know of any reason to continue a plan when the employer has folded.

[Kirk Maldonado]

My understanding of what is a "wasting trust" is very different than MBozek.

His definition is what I typically hear referred to as an "orphan plan."

A "wasting trust" isn't exactly the same thing. It is a plan to which no more contributions are made. That may occur with respect to an existing employer, when it adopts a new type of plan but does not terminate the old plan.

Wasting trusts used to be popular until the IRS "clarified" that they must continue to satisfy all of the qualification requirements (e.g., amendments to comply with new legislation). I haven't seen one in almost 10 years.

[mbozek]

Wasting trust is generic term which refers to any of several types of trusts where there are no further contributions and the assets are paid out as required under the terms of the plan. On the east coast your example of a wasting trust is referred to as a frozen plan which is subject to all requirements of the IRC. I have heard the term wasting trust applied to a taxable trust which holds an illiquid asset such as RE in foreclosure where the plan participants receive a certificate of ownership which is held in an IRA until the assert can be sold.

[Kirk Maldonado]

I agree that the terms "frozen plan" and "wasting trust" are synonymous. However, the term "wasting trust" is going out of favor.