Forgotten/unknown plan assets and how to handle them.

[Guest CRA]

I have a 401(k) Profit Sharing Plan that has recently been made aware of $8,000 that has been in a "side" account since 1997. For whatever reason, nobody was aware of this asset until just recently. The question is...do we need to go back and allocate it to eligible participants in April 1997 or can we just allocate it as gains now? This was money that was trustee directed profit sharing asset.

Any thoughts would be much appreciated!!

[Kirk Maldonado]

I had the same situation, except that the dollar amounts were much larger.

I wasn't able to immediately come up with a good solution, and I lost the client when the attorney that was the primary contact at the client left the firm where I was working at that time.

Because the original investment occured 10 or 20 years before, we determined that having the TPA redo the recomputations for all of those years would have cost more than the amount of the investment.

Also, the dollar amounts were many multiples the amount of the annual administrative costs of the plan. However, you might see if you can come up with something creative along those lines for your situation.

I'd be interested in hearing if anybody else has been able to devise a solution for this problem that would work.

[JanetM]

Back in TPA days this happend to one of my clients in May 1999. Small PS Plan - no audit required, trustee/employer directed investments, balance forward accounting.

Plan had about 35 lives, the "found" amount was little over $10,000 that had been invested in some kind of 5 year CD. CD matured and bank called. To make a long story short - We split it in half and allocated the amounts to participants in 1998 and 1999 based on balance - just like earnings.

Since the turnover at this office was quite low it would have been easy (but not free) to recalculate prior balances so that paid out folks would have received their due. But that is not what the client wished to do in the end.

[mbozek]

This is similar to a DC plan that receives shares of stock when insurance co demutualizes. Plan sells stock and then usually allocates proceeds among participants with account balances on date of sale since tracing the shares to persons who actually invested in annuity contract would be too difficult /expensive. Perhaps you should treat 10,000 as a forfeiture and allocate according to plan terms.