No P No trustee

[Guest padmin]

Takeover safe harbor 401k plan form Citistreet has no named trustee in document. Assets invested in Travellers (group annuity). Form 5500 marks insurance but not trust and sch P has never been filed. Citistreet syas that since assets invested in insurance this is correct. Does anyone have a point of reference for this approach?

[Nate X]

They are required to file a Schedule P. See IRC 401(f).

[R. Butler]

Schedule P is never mandatory.

[Guest padmin]

A little more info...according to Citistreet plan is backed by a guaranteed insurance contract. Do we not still have a trust? Is a trustee required?

[Nate X]

As R. Bultler stated, Sch P is not mandory, but it would be required to be filed to start the 3 year statute of limitations. The fact that the contract is backed by a guaranteed insurance contract has nothing to do with this. Sorry I shouldn't have been clearer earlier.

[WDIK]

Sorry I shouldn't have been clearer earlier.

Do you work for the government or a law firm?

[jpod]

I always thought that Schedule P was inapplicable (and meaningless) if there was no trust. If the plan is funded through an insurance or annuity contract, the potential income tax liability rests with the employer/holder.

[E as in ERISA]

The only purpose for which I've seen the Schedule P used is the determination of who signs the form to keep the statute of limitations open during an IRS audit. And in my experience the IRS doesn't appear to have a problem with an insurance company doing that.

[jpod]

E: If there is no trust, there's no trust to tax, so there's no SOL period that would commence. If things go bad, the employer/holder of the insurance/annuity gets taxed, and the employer/holder will file its own 1120 or 1040 or whatever, and the filing of that tax return starts the relevant SOL period. While filing a Sch. P couldn't hurt, it can't possibly accomplish anything either.

[E as in ERISA]

Tell it to the IRS. It insisted the insurance company sign the consent to the extension.

[E as in ERISA]

Remember that in an IRS audit the plan is not likely to get disqualified unless the problems are egregious or not corrected according to the IRS' satisfaction. So the audit is really a negotiation between the employer and IRS regarding the corrections and a penalty paid by the company. Everything else is just a formality.

[jpod]

While I agree that sometimes it's better just to do what the IRS insists you do in the context of an audit, but just out of curiousity, who had to sign the Schedule P for a trust that didn't exist?

[Nate X]

As stated in my first response:

IRC 401(f) Certain custodial accounts and contracts

For purposes of this title, a custodial account, an annuity contract, or a contract (other than a life, health or accident, property, casualty, or liability insurance contract) issued by an insurance company qualified to do business in a State shall be treated as a qualified trust under this section if -

(1) the custodial account or contract would, except for the fact that it is not a trust, constitute a qualified trust under this section, and

(2) in the case of a custodial account the assets thereof are held by a bank (as defined in section 408(n)) or another person who demonstrates, to the satisfaction of the Secretary, that the manner in which he will hold the assets will be consistent with the requirements of this section. For purposes of this title, in the case of a custodial account or contract treated as a qualified trust under this section by reason of this subsection, the person holding the assets of such account or holding such contract shall be treated as the trustee thereof.

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A fiduciary of the plan should sign the Schedule P.

[jpod]

401(f) has absolutely nothing to do with the issue raised by the original poster.

[Nate X]

It appears that Citistreet is arguing that no Schedule P was filed with Form 5500 for the plan above because the money is in vested in a group annuity at an insurance company (as opposed to holding the money in a qualified trust). I’m assuming that Citistreet is actually preparing Form 5500 for the client.

Under IRC 401(f), assets in a retirement plan held at an insurance company are treated as if they were held in a qualified trust. So this invalidates the argument that plan assets held at an insurance company are treated differently than assets held at an insurance company.

Now this is not to say that the Schedule P should be in the name of the insurance company, but that the plan itself should file it in order to protect itself under the statute of limitations. The plan is not required to have a named trustee since the assets are held at an insurance company.

[jpod]

There is no such thing as a SOL for a plan, because a plan is not a taxpayer. A trust is a taxpayer, but there's no trust here. The employer is a taxpayer, but the employer files its own tax return. Same for the employee/participants who could be liable for back taxes in the event of plan disqualification.

If an IRS agent insisted that someone on behalf of the insurance company sign something, I'd say "fine," and keep my mouth shut, because that would not extend or toll the SOL for any taxpayer who could get hurt as a result of plan disqualification.