Corporation dissolved, plan continues

[katieinny]

A corporation dissolved in the mid 90s. The officers and Trustees of the corp are still around, so they've kept the plan going. It's been properly updated and 5500s have been filed. Nearly everyone has been paid out, but now the IRS is having a fit because, technically, there isn't a plan sponsor. They want to disqualify the trust and put them through the CAP program.

Maybe I'm out in left field, but it seems to me that the IRS is overreacting. Why can't the Trustees be considered liquidating agents, acting as successors to the employer? Any thoughts from my peers?

[david rigby]

I believe the IRS opinion has been consistent. A plan must have a sponsor. When a sponsor ceases to exist, and there is no successor sponsor, the plan is deemed to terminate. A terminated plan may not continue to exist indefinitely as a wasting trust. Generally, it should not take more than 12 months to pay out the benefits; more than that looks like the wasting trust.

BTW, are you the sponsor's legal counsel? Sponsor should have ERISA counsel to answer these Qs, especially possible remedy(ies) and whether CAP is the next step.

[Guest Pensions in Paradise]

I can't believe I'm saying this, but I side with the IRS on this one. Generally, if assets are not distributed within one year of the termination date then the plan is viewed as an ongoing/active plan. Revenue Ruling 89-87. And plans must be sponsored by an "employer".

Why were the assets not distributed sooner?

[katieinny]

The Trustees didn't see any rush. They felt they were acting responsibly by keeping the document up to date and 5500s filed -- and I'm not so sure they're wrong. That's more than some employers are doing. I just think the punishment should fit the crime.

[Ron Snyder]

How could the plan have been updated without a plan sponsor? Who signed on behalf of the employer? Why didn't the officers create an new entity to takeover the plan? Etc, etc. This sounds like a case of negligence (and a violation of fiduciary standards) on the part of the plan trustees and their advisors. As mentioned above, since the early 1980s IRS has taken the position that a wasting trust has 12 months to liquidate, or it must be considered to be active and must meet all of the qualification requirements (including providing Top-Heavy minimum benefits).

Were I advising the trustees, I would tell them to come in under CAP. The Trustees should be responsible to reimburse the trust for any losses incurred by their incompetence. The Trustees may have a malpractice case against their professional advisers.