Plan Audit

[Guest moltengater]

An audited 401(k) plan terminated on 12-31-04. The new plan year starts 01-01-2005. The assets are paid out on 06-30-2005 so we are filing a final return. Would employees who were eligible for the 401(k) plan in 2004 but never contributed and never had a balance in the plan be considered participants as of 01-01-2005?

The 5500 instructions indicate:

"Active participants include any individuals who are currently in employment covered by a plan and who are earning or retaining credited service under the plan....."

Are those employees who were eligible prior to the termination of the plan still "covered by the plan" as of 01-01-2005? I'm trying to determine if the plan needs an audit in the final year - if these employees with no balance in the plan are still "covered by a plan" than the plan needs an audit - if they are no longer covered than the participant count drops down to 30 participants who were all paid on 06-30-2005 and the plan would not need an audit.

Is a 401(k) participant with no balance considered to have a "deemed distribution" as of the termination date?

Any thoughts would be appreciated.

[WDIK]

I think the same principles apply as noted by Bird in this previous post.

To clarify, I agree with Bird's assertion that such participants would be deemed distributed "at the point of plan termination" and would not be included in the participant count thereafter.