Unrealized gain - Terminated plan

[Lori Friedman]

Plan A terminated by transferring all of its assets/liabilities to Plan B. The transfer occured on the last day of Plan A's year.

There's a substantial unrealized gain for the year. But, I believe that a terminated plan can't report an unrealized gain; there's $0 asset FMV at the end of the year and, thus, no unrealized gains or losses.

1. Do you agree?

2. If yes, how do you treat the unrealized gain on Schedule H? I can't report it on Line 2b(4) because the amount wasn't, well, realized. Do you simply plug the amount to "other" interest?

[Jim Chad]

Lori:

I would think the gains were "realized" at the moment of transfer. And I would put them in realized gains. FWIW

[david rigby]

Uhhhh.... terminated or transferred?

If assets are sold (and then distributed), all gains/losses are realized. If transferred, perhaps not all realized.

Could this have been a merger, rather than a termination?

[Lori Friedman]

Plan A and Plan B were related (multiemployer pension plans for the same international union). Plan A transferred 100% of its assets to Plan B. Plan B is the surviving plan, and all of Plan A's participants are now participating in Plan B.

No, the assets weren't sold; they simply packed up and moved to a different address. That's why there's no realized gain. That's also why I have no idea how to disclose Plan A's pre-transfer unrealized gain for the year. The assets transferred at FMV, so the unrealized gain is embedded in the amount of the transfer.

[Jim Chad]

I have been trying to think of an example that would be more clear of what I was thinking. Sometimes, shares of a mutual fund are distributed to one terminated employee as an IRA rollover. This may be done to save him having to pay the front load on those shares if he had to buy them again. The 401(k) Plan would treat this as if the shares were sold, gains realized, and cash paid out.

Or maybe another example would be when a traditional IRA is converted to ROTH. The accounting shows the gains to be realized. I know the gains aren't realized. But I think the accounting is done as if they are.

[SheilaD]

At the moment that B transferred the assets to A, I believe that B realized all of it's gains. B transfered an asset with a fair market value of X to plan A. Since the transfer had a value of X then B must realize the difference between its cost and the value at transfer.

[Lori Friedman]

Thank you so much for your good analyses. I'm now very comfortable about treating the book gain as a realized gain.