Employer goes out of business

[Moe Howard]

A small employer with only 3 participants in a PSP goes ot of business. Each of the three participants still have an account balance in his/her PSP account.

The business no longer exists, the former owner has moved to Flordia, and the three plan participants have found employment elsewhere.

I realize that plan still exists because it has assets. The three participants seem to have no desire to request a distribution. And the former owner (who is also the sponsor/ administrator) tells me that he does not have to file any more 5500's because the business no longer exists.

Can anyone tell me the consequences to the owner (fiduciary) if he fails to continue to file 5500's for the PSP, as long as the PSP still has assets? I want to inform (scare) him into realizing that just because his business has closed, he still has fiduciary duties.

The owner tells me that the plan automatically terminated when the business closed. He is wrong, isn't he ?

Also, would the $1,000 per day penalty for not filing have to be paid personally by fiduciary or from the plan's assets?

Thanks

[david rigby]

The owner tells me that the plan automatically terminated when the business closed.

This is probably correct, but the owner may be confusing "terminated" with "liquidated".

As for fiduciary liability, try the EBSA website. Also, search for the term "orphan plan".

[Guest Sieve]

Actually, the Plan does not officially terminate when the Company goes out of business--even though, as a PSP, in most instances there continues to be no obligation to make contributions. Still, as long as assets remain in the Plan/Trust, then required language amendments must be made. There usually is an officer or shareholder around who would be responsible for adopting requirement Plan amendments.

Filing a Form 5500 would be necessary as long as the Trust contains assets. Any penalties for not filing Forms 5500 (or for paying to file under DFVCP) would have to come from the fiduciary--i.e., either the company or, perhaps, its officers/owners--and could not, under any circumstances, come from Plan assets (although the costs to prepare the Forms 5500 could be paid out of Plan assets).

[Guest Emily Sharp Rains Esq]

Upon the plan's termination, the named plan administrator (fiduciary) is legally responsible for filing the final 5500. If the plan's assets have not been distributed, a 5500 must be filed for every year assets remain in the plan. If the plan does not identify a plan administrator either the plan trustee or employer sponsor are responsible for reporting and are liable for failure to file.

If the plan is abandoned, a qualified termination administrator (QTA) may facilitate the termination of the abandoned plan. The QTA may receive a fee for this work. To perform this work, you must confirm that the plan is abandoned, send appropriate notice to the plan sponsor including but not limited to: QTA’s contact info, plan name, plan account number and other identifying plan information, a statement that the plan will be terminated and distributed within 30 days, notice that the plan's termination will be furnished to the DOL, and a statement explaining that the plan sponsor (or applicable party) will be personally responsible for costs, civil penalties, and excise taxes as a result of their act or omission.

Please note that the above information is not intended to constitute legal advice but is provided for informational purposes only. I always recommended that you consult with a qualified professional regarding the proper application of the law.

Good luck.