Final 5500-EZ and plan termination

[Guest kpsunil]

Hello,

I have a 1 participant MP and PS plans with Fidelity. I am planning to terminate the plans (unfavorable business conditions.) I have been talking to Fidelity about this and they have asked me to do 2 things

-- Write a letter to IRS stating that the plan is being terminated (And Fidelity said you don't have to mail it!! That makes me wonder?)

-- File a final 5500 within 7 months.

Does that sound right? I haven't seen the 7 month requiement any where in the forum. I will be happy to file the final 5500 next year in 2008 for plan year 2007. Is that good enough?

Thanks in advance

[Bird]

I think they want you to take some action terminating the plan. If your business is a corporation, it should be a corporate resolution, if you are a sole proprietor a letter to yourself or certificate of actions or some such thing should suffice.

Depending on plan language, you may (probably) have to make a money purchase contribution for the year. That plan's contributions are required, not discretionary.

Your plan documents should contain all of the latest required language. If you're using Fidelity prototypes, you'd probably expect that they are current; that may or may not be true.

Final tax returns are due 7 months after the end of the year in which you terminate the plans. If you terminate and distribute all assets by June 30, then you effectively have a short year ending June 30 and the returns are due Jan 1 2008. For return purposes, the plans exist until you distribute all assets, so if you terminate now and don't finish distributing until December, then the returns are due July 2008.

Good luck. For better or worse this is not really a do-it-yourself job. I can pretty much guarantee that you'll do something wrong; whether the IRS cares or not might depend on what it is. (e.g. if you are married, you need spousal consent for a distribution, at least from the money purchase plan. That is potentially a big deal.)

[WDIK]

-- Write a letter to IRS stating that the plan is being terminated (And Fidelity said you don't have to mail it!! That makes me wonder?)

I am not familiar with this approach recommended by Fidelity. You should adopt some resolutions that put your intent to terminate the plan in writing.

-- File a final 5500 within 7 months.

For a one-participant plan you would file Form 5500-EZ. The filing deadline is 7 months from the final distribution of plan assets.

I haven't seen the 7 month requiement any where in the forum.

If the combined assets of both plans exceeded $100,000, you should already have been making filings.

[Jim Norman]

Your plan documents should contain all of the latest required language. If you're using Fidelity prototypes, you'd probably expect that they are current; that may or may not be true.

How can the documents be up to date? AFAIK IRS has not issued EGTRRA opinions on any prototypes, even Fidelity's. Presumably Fidelity amended their protos with good faith amendments for the various post-GUST requirements, but even so, they are not model amendments on which IRS gives reliance. Also, there are no model amendments for PPA.

[PLAN MAN]

As we know, terminating plans are required to be amended for all relevant law and regulation updates in effect as of their termination date. Under PPA, some provisions are optional and others are required. If the plan sponsor has made any changes to the operation of the plan in accordance with PPA, then a plan amendment is necessary to reflect these changes. A good faith effort should be followed to adopt any amendment. (who knows what the IRS will require?)

SunGard Corbel has a good article on this issue, "Terminating a Defined Contribution Plan in 2006 or 2007:

Do I Need to Amend for PPA?" see: SunGard