Frozen plan to be terminated

[chris]

Have a MPPP which was frozen back in 2001. Given the upswing in the market, the trustees are considering terminating the plan as of June 30, 2003. The plan document (vol. submitter) was recently updated for GUST. Due to language changes the document will need to be submitted to the IRS for review. Anyway to combine the GUST review with the termination, ie, wouldn't it be possible to submit the 5310 and include the new document and receive a det. ltr. on both the termination and the new document? Alternatively, any issues with terminating the plan as of June 30, 2003, paying out participants as soon thereafter as possible and then submit the document for review, ie, forego the 5310, but terminate as soon as possible?

[Guest RSNOW]

Chris, I have done a lot of plan termination work and plan termination submission, and agree that submitting the plan restatement w/the Form 5310 serves the double purpose of receiving a qualification letter on both the document's qualification and approval on the plan termination work submitted with the Form 5310. This is generally a very cost-effective approach for getting IRS approval on these two aspects of the plan.

Practically speaking, I don't think typically there would be a problem with the second approach either, but in the unlikely event the plan document submission, which usually requires submission of earlier document versions, revealed some prior aggregious document problems leading to plan disqualification, there are probably more hassles to deal with when the money is already out of the plan. In such an extreme case I believe it's better to still have the money in the plan's trust (vs. already distributed) as there would be fewer actions to undue (e.g., rollovers to IRA now disqualifed) and proper reporting of taxation of monies presumably would be easier. This assumes an IRS hard line approach and it's likely they would be able to correction the situation short of full disqualification, perhaps throug the Audit Cap sanction approach.

Of course in addition, the IRS claims that those plans not submitted for plan termination approval have a higher risk of audit and audit challenges. In reality I'm not sure this has proven to be that significant of an issue.

[chris]

Thanks for the input RSNOW.

[chris]

Given the upswing in the market, I think the trustees would like to distribute the plan assets as soon as possible. Thus the no assets there/undoing of transactions issue will be present in both cases. I typically advise clients to wait until the favorable letter comes back b/f making any distributions, but, of course, they don't all do that.... Regarding the second alternative above, I was just considering the issue of dealing with the IRS as to the amended and restated document when all assets had potentially already been paid out of the trust. However, I guess it's the same issue whether you go the 5310 route or not.... And, even though the 5310 route seems to lend more credence to the process, the fact that the 5310 is discretionary tells me the second alternative is a viable alternative.