Due Date for Final 5500 after Merger

[MarZDoates]

Calendar year "Plan A" was merged into "Plan B" as a result of a corporate merger. "Plan A's" assets were transferred into "Plan B's" plan on November 15, 2002.

Question: Is "Plan A" considered to have a short plan year ending November 15, 2002? If so, is the due date of the 5500 then June 30, 2003?

Thanks.

[WDIK]

Yes and yes.

[E as in ERISA]

No. Plan A is generally considered to have a short plan year ending on the LEGAL date of merger, not the date of transfer of the assets. (So, assuming the legal date occurred a couple of months prior to the date of transfer, the 5500 is probably late).

[WDIK]

Absent the indication that the "merger" and "transfer" dates were different, I assumed that the date given was appropriate to the question. This, in retrospect, was presumptious. Thank you Katherine for clarifying.

Form 5500 instructions indicate that a final return should be filed for the plan year that ends when all plan assets were legally transferred to the control of another plan.

[Guest DMK]

Has anyone noticed that many recordkeepers ignore this rule and wait to file the final Form 5500 seven months after the end of the plan year in which the merger occurred, i.e., not recognizing that the plan year technically ends and is a short plan year when all of the assets are transferred? I always thought that this was fairly straight-forward, but I have had to fight this battle quite often lately.

[mwyatt]

Actually, I'd add the comment in general on short plan years of the problem of filing using the prior year's form. Consider a calendar year plan that merged 5/31/2003, with a corresponding due date of 12/31/2003, possibly extended to 3/15/2004. Now, you could go ahead and use the 2002 forms to file, but you might have the EBSA robots bounce it back since you're not using the 2003 series forms (technically, the 2003 forms might be issued by 3/15/2004, in which case they would state that you should have waited to take action until the appropriate year forms had been available). This issue speaks to why many folks don't try to rush filing that final short year (remember, no good deed goes unpunished...).

[Kirk Maldonado]

Katherine:

What is your authority for the proposition that "Plan A is generally considered to have a short plan year ending on the LEGAL date of merger, not the date of transfer of the assets."

[rcline46]

Since the plan and trust are inseparable, if one says plan A is merged into plan B effective 9/30/2002, then there is no way that anything survives of plan A.

Obviously you cannot reregister the assets of A to B prior to the merger date. You can only order the change after the merger has occured. (Unless all is liquidated and check written on 9/30 to B trust). So the assets may not have APPEARED to have moved until some later date, but in fact were in the B trust on 9/30.

I don't see how any other interpretation can be made for a merger.

(now I go on vacation for a week so I won't be able to defend my position!)

[E as in ERISA]

If the plan and trust documents state that the "effective date" of merger is 9/30/2002, then for legal purposes that is the date that the "disappearing" plan ceases to exist -- regardless of when the assets are physically transferred. The same is true for reporting purposes. Source? I don't know. It has always just been common knowledge in the circles I'm in -- that "effective date" for legal purposes means "effective date" for reporting purposes. But I've also heard Ian Dingwall and Michael Auerbach speak about plan year ends in merger situations on a number of occasions -- and their comments are consistent. They have mostly been dealing with more specific issues -- like what happens when the merger is effective at 12:01 on January 1, 2003 -- so there would potentially be a one minute audit and 5500 that had to be prepared.

[Guest Fourohonekay]

If the plan and trust documents state that the "effective date" of merger is 9/30/2002, then for legal purposes that is the date that the "disappearing" plan ceases to exist -- regardless of when the assets are physically transferred.  The same is true for reporting purposes. Source?  I don't know.  It has always just been common knowledge in the circles I'm in -- that "effective date" for legal purposes means "effective date" for reporting purposes.  But I've also heard Ian Dingwall and Michael Auerbach speak about plan year ends in merger situations on a number of occasions -- and their comments are consistent.  They have mostly been dealing with more specific issues -- like what happens when the merger is effective at 12:01 on January 1, 2003 -- so there would potentially be a one minute audit and 5500 that had to be prepared.

If I understand you correctly (which I might not), I respectfully disagree. If the "legal" merger date in fact marks the end of a short plan year, then what do you file with respect to that short plan year -- the "FINAL" 5500? If so, then what do you file once the merging plans assets are finally transferred (the FINAL 5500 will already have been filed). If not, with respect to what plan year will you file a "final" 5500? Another short plan year subsequent to the one that ended on the date of the "legal" merger?

It doesn't make any sense to have one short plan year that ends on the "legal" merger date and then have ANOTHER short plan year (the "final" one) that ends on the date the assets are transferred from the merging plan to the mergee plan.

If plans merge and the assets are transferred in the middle of a plan year, the final 5500 "should be filed for the plan year (12 months or less) that ends when all plan assets were legally transferred to the control of another plan." (2002 Form 5500 Instructions, p.6).

[Blinky the 3-eyed Fish]

If plans merge and the assets are transferred in the middle of a plan year, the final 5500 "should be filed for the plan year (12 months or less) that ends when all plan assets were legally transferred to the control of another plan." (2002 Form 5500 Instructions, p.6).

4o1, note the last sentence of the instructions you quote. What Katherine is saying, of which I agree 100%, is the legal date of the transfer in a merged plan IS the date of the merger, not the date of physical transfer of the assets. In essence, once the merger happens, any and all assets held under the merged plan's name are deemed to be now held under the surviving plan.

[RCK]

I agree with Katherine and Blinky. On the plan merger date, the merged plan does not exist, and therefore can't hold any assets.

I spent too much of last summer convincing the technical department of a Big 4 accounting firm that this position was correct. But I did finally convince them of the correctness of this position.

RCK

[Guest Fourohonekay]

Gotcha. Thanks for the good explanations. I understand what you're saying, but I'm still not 100% convinced. I can't figure out how you are going to report the plan/trust activities between the "legal" merger date and the date of the asset transfer -- will those activities be reported on the transferee plan's 5500 for that year? If so, how are they to be reported?

Finally, out of curiosity, can one of you give me an example of a situation when two plans would need to be "legally" merged prior to the actual transfer of assets from one trust to the other? When does that happen & for what reason? Thanks.

[E as in ERISA]

The 5500 for the plan that is being eliminated would show a transfer out to the other plan as of the legal date of merger and would show zero assets as of the legal date of merger. The old trustee only has "possession" of the assets as of that date, not legal ownership.

Legal ownership and possession very often don't transfer on the same date. The old saying "Possession is nine-tenths of the law" is not applicable in most phrases. In the sale of a home, there is usually a delay between the closing date and the date that possession is transferred. But that doesn't mean that the old home owner has any interest in the house after closing.

[Guest Andrew S.]

The 5500 for the plan that is being eliminated would show a transfer out to the other plan as of the legal date of merger and would show zero assets as of the legal date of merger. The old trustee only has "possession" of the assets as of that date, not legal ownership.

I think this is not quite the right legal description, although the bottom line for this questioner is the same. As of the the legal merger date, but before the physical transfer date, the old trustee remains in place and is still the trustee for the assets in question. However, as of that date this trustee is now trustee under a new plan. Therefore the wording of the instructions (as of 2013),

A final return/report should be filed for the plan year (12

months or less) that ends when all plan assets were legally

transferred to the control of another plan.

... applies as of the date the new plan has the ownership, which is the date of the merger, even though the identity of the trustee has not yet changed.

[Flyboyjohn]

Irrespective of the legal technicalities I propose that the important thing is that the outbound and inbound plans are consistent in their 5500 reporting.

For example if I merge a plan into another on 12/31 I want to be sure the outbound plan 5500 reflects the same amount of "transfer out" as the inbound plan 5500 reflects as "transfer in".