Profit Sharing Plan Termination

[Guest bernverd]

A profit sharing plan had forfeitures needing to be allocated for 2002 but were never made to the individuals' accounts. The plan terminated in 2004 due to company merger (this doctor group joined another doctor group and adopted their 401(k) Plan) and still no forfeiture allocation. In 2006, all assets were removed from the plan. In 2006, they used the forfeitures to pay plan fees for the terminated plan instead of transferring to the individual accounts. Are these forfeiture amounts still considered to be receivables? And are they receivables to the new company created when the two companies merged?

This profit sharing plan also had 3 HCEs overcontribute in 2003 creating a liability since there was to be no employer contribution for that year. These HCEs have rolled their money into the 401(k) plan. Does the liability follow them to this plan?

Thanks

[Mike Preston]

Ouch. This one screams for you to engage ERISA counsel immediately. If the old plan is not a qualified plan at the time of its termination then the new plan is at risk for accepting the funds. While the IRS may be forgiving if a plan accepts monies from a non-qualified plan that is unrelated, they are much less likely to be forgiving in the case of related entities.

From the story you tell, the old plan sponsor played fast and loose with the rules. Is it possible that the two picadillos you mention are just the tip of the iceberg?

I challenge your assertion that "there was to be no employer contribution for that year". If they deposited funds into the plan, then there was an employer contribution. To state otherwise is a very dangerous path to follow (qualification wise). The only escape is if you can fit the fact pattern for a mistake-in-fact contribution (very narrow interpretation, as far as the IRS goes). Something sounds very fishy.

[david rigby]

Mike's comment about "tip of the iceberg" is exactly what I was thinking. Also, get a handle on what magnitude is in question: how many $ for 2002 forfeitures? how many participants?

[Guest bernverd]

Pax, in answer to your question of $$ and participants. The forfeiture amount in 2002 was about $3,700 going to 9 participants. The liabilities that were carried for 2003 for the HCEs contributions were a little over $13,000.

As far as I can tell, this plan has always had issues which were brought to the attention of the trustee with no action on his part. Hence, the forfeitures still needing to be allocated. He at one time refused to give a participant her contribution because she no longer worked there (standardized plan). He eventually made her contribution but only after a long fight.

Mike, if you're saying that indeed there was a contribution for 2003, then it would be necessary to provide a contribution for the others that were in the plan at the time, right?

I'm basically concerned about the current plan they are in since the trustees (doctors) seem to want to run this plan according to the plan document.

So Mike, you're saying the best way would be to have them seek counsel? The problem being for me right now is that it is the middle of September and the 5500 is due in a month. Do you think this can be resolved by the date of filing?

[Mike Preston]

Yes, it would be necessary to make a contribution to those who should have received one.

Did you leave out a "don't"?

The 5500 is the least of your worries.

[Guest Mark15ftl@hotmail.com]

A profit sharing plan had forfeitures needing to be allocated for 2002 but were never made to the individuals' accounts. The plan terminated in 2004 due to company merger (this doctor group joined another doctor group and adopted their 401(k) Plan) and still no forfeiture allocation. In 2006, all assets were removed from the plan. In 2006, they used the forfeitures to pay plan fees for the terminated plan instead of transferring to the individual accounts. Are these forfeiture amounts still considered to be receivables? And are they receivables to the new company created when the two companies merged?

This profit sharing plan also had 3 HCEs overcontribute in 2003 creating a liability since there was to be no employer contribution for that year. These HCEs have rolled their money into the 401(k) plan. Does the liability follow them to this plan?

Thanks

I'm currently looking into the same question as it applies to my situation.