Easy Plan Term / 5310 Question

[fiona1]

If a plan sponsor wants to terminate the plan, they can choose to file a 5310 to receive a favorable determination letter.

Upon receiving this letter, they can then distribute the plan assets.

My question - if the assets have already been distributed and there is ZERO money in the plan, is there any reason to file a 5310?

What would be the reasoning for filing a 5310 for a plan term if the assets have already been distributed?

Thanks!

[mming]

I can't see a reason for filing a 5310 after the fact. Plans sometimes get audited after they file a 5310 in a timely manner and receive an approval letter, so you probably don't want to file one now. Many plan administrators argue that a 5310 should never, ever be filed since the approval letter won't make you bulletproof. Exceptions apply if the plan is absolutely humongous, or unless there are individuals receiving $1M+ in distributions.

[fiona1]

Thanks. Kinda what I thought. I work for a TPA and we prepare 5310's, but we charge extra for them. I asked the area who does them why we prepare them after the plan has been paid out, and they didn't really say.

[Blinky the 3-eyed Fish]

Whether or not the plan assets are paid out is neither here nor there when deciding whether or not to file a 5310. If choosing to file, the decision is obviously based on wanted the IRS to bless the document and some operation points of the plan like partial term possibility or general testing methodology if not a SH.

Even if the assets are paid out, you still have the same issues as if they weren't paid out. Does the client want some extra reliance or not is the question?

Now there is always the question as to whether or not to pay out the plan assets before receiving the determination letter. Generally there is no problem in doing so unless there is a potential qualification issue that is looming. Unless the plan has been botched thoroughly or perhaps a DB plan in effect for a minimal time, there shouldn't be this problem.

[fiona1]

Thanks Blinky - Let me ask you this then...

When filing the 5310, you are required to give notice to interested parties. Looks like the definition of interested parties are present employees of the employer with benefits under the plan, former employees with a vested benefit, and all beneficiaries receiving benefits.

So if a plan has been paid out and a 5310 has not been filed yet, then there would technically be no one to give notice to - correct?

[Guest mjb]

The only reason to ask for a DL in this case is if there was any uncertainty of what plan amendments were required as of the date of termination if any employees rolled over distrbutions to an IRA. If no distributions were rolled over it wouldnt matter if the plan was not qualified because the distributions would be taxable in the year of termination. One could ask the question of when does a PS plan that provides a nondiscriminatory contribution ever need to pay $1000 for a DL upon termination, as long as all applicable amendments have been adopted as of the date of termination.

If there are no Interested parties then just check yes to the box to the Q that all IP have been notified.

[Guest msladky]

If there was a vesting schedule associated with employer contributions under the plan, the IRS will want to see all distribution activity for the past five years: the data, is in part , used at the IRS to determine if distributions were properly administered. So, if vesting was not properly calculated, that could present some real issues if all assets had already been distributed including unused forfeitures.

I would wait to distribute assets after receipt of the DL.

[Guest mjb]

Plan cannot refuse to make distributions to employees who have incurred a distribution event before DL is issued ( i.e., termination of employment).

[GBurns]

I thought that this was a terminated plan that had "ZERO" assets and no participants.

How then does the issue of " Plan cannot refuse to make distributions to employees who have incurred a distribution event before DL is issued .." arise ?

In my rather limited experience the term "interested parties" applied to eligibles, participants, beneficiaries, providers, fiduciaries, in fact anyone who has, had or should have any sort of involvement with the plan. After all, there could very well be a beneficiary (or estate) that thinks that there was money due etc, an eligible who had not been allowed to participate but who now thinks that they should get some of the money being "given out", Or, as I have seen, an investment provider with an "overlooked" account balance. There might be some difficulty in unilaterally deciding that there are no "interested parties".

If you "just check yes to the box to the Q that all IP have been notified." when none have been notified, How do you defend that action if something happens?

[namealreadyinuse]

I don't think that the IRS will rule on a zero assets trust because the issue is moot. I think it is treated like a PLR and can't be hypothetical/academic.