Final Distribution of Plan Assets

[Guest lawdawg]

So I know you file a final Form 5500 once final distribution of all assets has occurrd. My question is what does this mean? Does final distribution occur when the checks are cut or is it when all checks are cashed? I've always thought it was the latter since you have money in the trust's clearing account until checks are cashed. However, I also see quite a few TPAs taking the position that once checks are cut you should file the final Form 5500.

[pmacduff]

FWIW, we wait until the checks have cleared. We have had checks come back for any number of reasons and, as you mentioned, like to see the Trust zeroed out completely before filing the final return. Granted we are in the small plan market but have not had any problems with this method.

Some vendors don't show the liqudation until the checks clear. So if you didn't wait what would happen if you passed the next plan year end and still had $$ in the Trust account? Seems to me that doesn't qualify as having made all distributions from Plan Trust.

my 2 cents.

[MSN]

We're one of the TPAs that takes the position that the money is disbursed when the check is issued. The position is supported by the constructive reciept doctrine. If you issue a check for a cash distribution on 12/31/09, the participant has to include the amount as taxable income in 2009, even though they won't be able to cash the check until 2010 due to mail delay...I don't see a reason to apply different rationale to distributions resulting from plan terminations than you do to regular distributions, but am interested in what others are doing.

[WDIK]

In the case of a termination and final filing, I prefer a confirmation that checks have been cashed to ensure that no assets will revert back to or remain in the trust.

If it is not a final filing, I am comfortable reporting distributions based on the check issue date.

[Locust]

Some bank/trustees, when the check is cut, transfer the funds to a payment account that the trustee does not consider part of plan assets, and when the check is cashed, the payment comes from this account. For escheat purposes the bank now holds the funds. When a plan is terminated, this can be a helpful distinction.

[Guest Sieve]

Bear with me, since I'm no CPA. But I don't understand, so maybe someone can educate me . . .

If a plan files Forms 5500 on a cash-basis, then on what basis can a constructive receipt theory permit zeroing out the trust following plan termination if there are outstanding checks? I thought a financial statement was based on a snapshot, & I don't see how a snapshot with outstanding checks can result in a zero. (Constructive receipt, after all, is a theory used to determine when something is includible in income and/or deductible, and is not--I thought--used to determine when something shows or does not show on a financial statement.)

Also, if ERISA requires plan assets to be held in trust, on what theory can assets be transferred out of trust and then held elsewhere until checks are cashed? And, if they are required to be held in trust, shouldn't those assets (representing checks not yet cashed) be taken into account when preparing the Form 5500?

Do the answers perhaps depend on whether or not there's an institutional Trustee?

[Bird]

Sieve-

Any financial statement prepared on a cash basis will use "the books" as opposed to the bank statement, so checks written but uncleared are included in the period's records. That is, you are correct about the "snapshot" concept but it applies to the books, not to statements prepared by the financial institution.

As for checks going into another account before being cashed, I think that's more of a paper concept than a physical one.* That is, if you have a brokerage account at XYZ Co., and you tell XYZ to write some checks on Dec 29, they're going to show the money leaving that account on Dec 29. But in reality that money is being paid from their general account. If a check isn't cashed they might re-open the account and re-deposit the money, or at least contact someone to find out what to do about it. That's a different scenario from writing a check from a supply of checks that are given in advance; in that case of course the brokerage firm knows nothing about it until they are presented for cashing.

I don't know if that makes sense but I know exactly what Locust is talking about and it's not a concern...for me anyway.

For the record, I'm not an accountant so take it all FWIW.

*I guess you could say that about any monetary transaction these days!

[R. Butler]

We issue the final 5500's once the check is issued. In many cases it could anywhere from 3-6 months before we know that a check has not been cashed. I suppose we could call the investment borkers to verify that checks have actually been cashed, but we don't.

We are not concerned about money reverting to the plan sponsor or remaining in trust because we don't request to be issued to a participant in these cases unless we are positive that we know where they live. If for whatever reason the participant doesn't cash a check the money it will escheat to the state.

[WDIK]

In many cases it could anywhere from 3-6 months before we know that a check has not been cashed.

Certainly ample time as the Form 5500 is not due until 7 months after the final distribution.

[ishi]

WDIK - can the final 5500 be extended through a 5558?

[WDIK]

Yes, but remember that the filing deadline corresponds with the final distribution date (probably resulting in a short plan year), not the normal plan year.