5500 EZ allowed or bond required?

[Guest Christie Banks]

I have a plan where the owner is the only participant with a balance. There are 3 others who are "eligible participants" because they meet the age and service requirements. However, the owner is never going to put any more contributions into the plan, so they will never have a balance. Is it allowable to file Form 5500-EZ and forego the bonding requirements? Or does he still need a bond?

[mwyatt]

Short answer: no. You file 5500 and face the bonding requirement.

Longer answer: This plan, although only one participant has an account balance, has 4 participants. Therefore you're not able to meet the requirements to file Form 5500-EZ and have to file Form 5500 (and hence Schedule I) where the question concerning the fidelity bond is asked, and you are therefore required to get a bond. Note that a "no" response to the fidelity bond will raise your chances of audit (and for whatever reason, the fidelity bond has been one of the principal focuses in the audits I've been involved with over the past few years). I know that all of the assets belong solely to the one participant (who I'm assuming is also wearing all of the hats) and getting a bond to insure against you stealing from yourself doesn't make a tremendous amount of sense, but not much you can do.

[Guest ElKH]

Silly question . . . with the bonding requirements, filing requirements, administrative requirements, and yes, "substantial and recurring contribution" requirements, why is he not terminating the plan and reclassifying his balance as an IRA?

[mwyatt]

Well, if this guy was a doctor, he probably would like to keep these funds in a qualified plan rather than an IRA for protection against creditors. Going along with EIKH's thought, is another plan which is being funded that this old plan could be merged into by chance?

[Guest Christie Banks]

The main asset in the plan is a nonparticipant loan that is outstanding. He could shut down the plan, but it is difficult to find a custodian for an IRA that will take a loan as an asset. So...I guess he's out of luck!

[imchipbrown]

There's a company in San Francisco called Pensco which will accept "non-standard" type assets into their IRAs. I have absolutely no affiliation with the company.

[Guest ElKH]

Again, I think the "substantial and recurring contribution" issue is key. I don't know how many years he has left to pay off that loan, what the outstanding balance is, or any other extenuating circumstances, but I can say firmly that you don't want to have the plan hanging out there for too long in this state of limbo . . . particularly when the owner is the only one with a balance. It just doesn't look good . . .