GUST non-amender and plan termination flaws

[Guest ActuaryWannabe]

We (TPA) were approached by one of the advisors we work with regarding their client who (1) did not amend for GUST and (2) terminated the plan and distributed the assets without documentation or election forms. The owner is the only participant. Apparently he called the IRS and asked them how to terminate the plan, and they told him to distribute all the assets and file a final Form 5500. Sheesh!

Do you think this can be handled through a single VCP submission? If so, I am guessing that the reduced nonamender user fee would not be available, even if by some miracle we could get it submitted by September 30. Is this the best way to handle it?

[rcline46]

What kind of plan? What benefit forms were offered? What benefit form was taken?

Need to know these answers. Then just a non-amender filing, maybe. Maybe he signed a prototype and didn't know it. Who was document provider?

Lots of questions here.

[Guest ActuaryWannabe]

I know it was a DC plan but not sure at this point whether MP or PS.

All the proceeds were transferred to an IRA.

He did have a prototype (not sure whose), but has no record of adopting a GUST restatement, nor does the prototype provider have any record of sending him one to adopt.

I can see that he might be able to get past the election form issue, but as for making distribution without an event permitting it... not sure how to get around that one. What am I missing.

[chris]

Wouldn't the termination of the plan give rise to a distributable event?

[Guest ActuaryWannabe]

Yes. If there was actually documentation terminating the plan. But he just transferred the money, no documentation.

[chris]

I'm assuming there are no minutes of a meeting or corporate resolution which discusses getting rid of the plan? I have a few clients who have done the same thing. Many of them did not want to take the time or $$ to fix it. In those cases, I had them sign off on an acknowledgement that the plan may not have been qualified at its termination, that the rollover may be adversely affected, etc.......

[Guest ActuaryWannabe]

Thanks Chris. In this case, the sponsor wasn't one of our clients, in fact he didn't have a TPA at all and was just doing his own thing. When he called the IRS and they gave him their "professional opinion", he took it at face value.

At this point, the sponsor's attorney became aware of the situation, and he knew enough to know there was a problem. So he had them contact us relative to fixing it. We certainly had nothing to do with how it was done in the first place, so I don't see that any "acknowledgment" would be of any particular value. Just trying to get it fixed the right way.

[SoCalActuary]

You have a good example of an anonymous CAP submission. That allows you to tell the IRS the important facts, propose a solution (such as corrective amendments) and find out what they would do. If the client doesn't consider the correction acceptable, then you have given them written notice of the potential damages, and they can decide whether to risk an audit.

As a practitioner, you should be clear about getting paid for your work, regardless of the outcome. Then you must also figure how to sell it (your work, that is) to the client.