Plan Termination Issues

[Guest ANNEBV]

My client wants to consider terminating it's 401(k) Plan. Their company is not yet bankrupt, but it is insolvent.

The plan has a $50,000 contribution receivable from the previous plan year. My client thinks that the plan termination will eliminate it's need to fund this receivable. I am looking for confirmation that this is absolutely incorrect.

Furthermore, the client does not want to have to pay for a plan audit for the last plan year as well as the current plan year (which will include the plan termination.) The plan has paid a significant amount in plan administrative expenses and the client does not want the plan to incur any more expenses, if not absolutely necessary. Any cites that I can reference regarding audit requirements in year of termination??? I don't know how to convince this guy that, even though his company is insolvent, that his plan must be audited (the plan has well over 100 eligible participants at the beginning of each plan year in question.)

Of course, this client does not want to file a 5310. I am curious what the timeframe is lately re: receiving a FDL for termination after filing. Anyone?

Any benefits in simply freezing the plan (it is 401(k) with discretionary match and discretionary PS) until if/when the company files for bankruptcy? What about transferring to a wasting trust?

Any insight will be greatly appreciated!

[BFree]

We received acknowledgement that an application for determination was received in mid-September last year. In April of this year, the agent contacted us with 2 short questions. We expect the letter soon after we respond.