Termed DB plan finds old money

[Guest JMar]

A client of mine had a DB plan that it froze and terminated in the late 1980's. All money was merged into a DC profit Sharing/401(k) plan. Recently, some stock that is being held at BoNY has been idenified as belonging to the Termed DB plan. Clearly many of the participants form the DB plan that was termed 20+ years ago are going to be impossible to locate. What can be done with they money from the sale of the stock and any dividends that it pays? The total market value of the stock is less than 1,000 dollars.

Thanks to anyone who could comment on this situation.

Jmar

[AndyH]

Investment return does not affect DB payouts. I'd put it into the plan that contains the residual db money and treat it like an investment gain, so it will get allocated like any other gain. If the account is self directed then I'd use it to pay expenses.

[Andy the Actuary]

Please do not take this as a snide response as it is meant in all seriousness. This is a question that probably shouldn't be posted. The amount is small and you will likely find no reliable guidance on this. How much would your client being willing to spend to get "the perfect" answer? There are certain situations -- especially where amounts are small -- that the most prudent course is to use your best judgment and move on.

[Guest JMar]

Hi Andy,

I can certainly appreciate that and I take not offense. You are right that such a small amount does not warrent much time dedicated to research, which is why I'm posting on the free Benefitslink site instead of consulting an actual ERISA attorney which would probably cost more than the found money. My gut reaction was to liquidate the stock, and allocate the dollars to all existing participants equally as an ER contribution. I'm only concerned that upon audit, the DOL or IRS will not feel that was the most prudent decision and then I'll be on the hook for having made a poor recommendation. I was really hoping that someone else had encountered a similar situation and to see how they handled it. The other poster's suggestion to uses the funds to off set costs is valid as well. Thanks for your thoughts!

Please do not take this as a snide response as it is meant in all seriousness. This is a question that probably shouldn't be posted. The amount is small and you will likely find no reliable guidance on this. How much would your client being willing to spend to get "the perfect" answer? There are certain situations -- especially where amounts are small -- that the most prudent course is to use your best judgment and move on.

[Effen]

The DOL / IRS may find trouble with it no matter what you do. They are clearly in "revenue generating" mode.

That said, I agree with Andy, however you said you were considering allocating as "ER contribution". That I would NOT do.

If you are going to allocate it, you should treat it like an investment gain, not a contribution. I don't think the ER should take a deduction for it.

I guess another alternative is to take it as a reversion and pay the excise tax.

You could always call the IRS and ask them for their opinion. They probably won't give you anything official, but they might be helpful.

[david rigby]

I agree with Effen. However, the orginal post used the words "terminated" and "merged". That is technically possible, but unlikely. Before communicating further (with anyone), it may be prudent to identify the correct sequence of events.

BTW, this is not necessarily correct with respect to DB plan terminations, depending on plan provisions:

Investment return does not affect DB payouts.

[AndyH]

I agree with David (just so we can all hold hands). But it's a reasonable enough assumption for me due to the dollars involved.

[Guest Kabert]

The easiest thing to do here, of course, would be to use the found assets to pay expenses in the current plan. It's a drop in the bucket. But, I'd want to at least a little due diligence first to find out what the circumstances were that led to this situation. For example, did the transfer to the DC plan purposely not take the stock because the plan administrator didn't want to account for stocks (as opposed to investment funds); was the remainder a tail-end amount, such as a small amount of interest that was paid after the company had requested a complete distribution of the account; were all participants in the DB plan located and paid out (or received annuities)? I think you're right to be concerned about audit issues - -and not just IRS/DOL, but also your annual audit. It seems to me that since Enron/Worldcom, etc., auditors are getting tougher and asking more questions. Thus, if you want to follow the straight and narrow approach, you could take the amount as a reversion and pay the excise tax and file the excise tax return, along with a cover letter that explains the situation.

[Guest mjb]

Hi Andy,

I can certainly appreciate that and I take not offense. You are right that such a small amount does not warrent much time dedicated to research, which is why I'm posting on the free Benefitslink site instead of consulting an actual ERISA attorney which would probably cost more than the found money. My gut reaction was to liquidate the stock, and allocate the dollars to all existing participants equally as an ER contribution. I'm only concerned that upon audit, the DOL or IRS will not feel that was the most prudent decision and then I'll be on the hook for having made a poor recommendation. I was really hoping that someone else had encountered a similar situation and to see how they handled it. The other poster's suggestion to uses the funds to off set costs is valid as well. Thanks for your thoughts!

Please do not take this as a snide response as it is meant in all seriousness. This is a question that probably shouldn't be posted. The amount is small and you will likely find no reliable guidance on this. How much would your client being willing to spend to get "the perfect" answer? There are certain situations -- especially where amounts are small -- that the most prudent course is to use your best judgment and move on.

A few years ago a client received a check for 100k from an ins co that had demutualized. Upon review it was discovered that the check was for a group annuity contract for a small group for which there were no records that the plan was in existance under ERISA. The employer determined that the accrued benefits under the GA were paid to the employees and proceeded to depost the check as a contribution to its DB plan.

You have three options:

1. treat the check as a reversion and pay the applicable taxes where the cost of filing the forms will be as much as the amount involved.

2. deposit the check to the current plan to be used in accordance with the plan terms where it at least it will benefit someone.

3. drive youself crazy reading the different opinions posted on this board.