Terminating An "Orphan" Plan

[Guest JuliaB]

On behalf of a client (small investment company), who is the directed trustee, we are submitting an "orphan" 401(k) plan to the IRS for a letter of determination on its termination (5310).

The principals of the company went out of business in July of 1997, when the SEC and other government agencies seized corporate records and files. I do not know what happened to corporate assets. Two of the principals are currently incarcerated and the other is on the lam somewhere in South America (just a guess).

The only contributions ever made to the plan were elective deferrals, and there are currently 8 participants (including one of the principals) with account balances.

It has come to light that some of the elective deferrals were never remitted to the trust.

Questions:

Who should pay the 8717 filer fee ($225)for the submission? We are advancing the fee until this is sorted out. Our client is currently on the hook for our legal fees. This seems unfair.

Is there any way of attaching the account balance of the remaining principal prior to distribution or will our client and the other participants have to sue her after her account has been distributed? (She has the largest balance - probably enough to cover the filing fee and all missing elective deferrals.)

We are using a current (9/13/99) termination date on the submission. However, the plan provides that there is a deemed termination upon corporate dissolution. Should we have used a retroactive termination date?

Has anyone had any luck with the DOL pursuing such a situation and suing the principals for missing elective deferrals, fee, etc.? In corresondence, they appear to have given up on the situtation.

In providing records of all actions taken to terminate the plan, our client had drafted a "Record of Action" rather than corporate resolutions. They do not want to be in any position of assuming further responsibility/liability. Will this be acceptable to the IRS, given the situation?

Any thoughts would be appreciated.