"Found" Assets

[Rob P]

The current owners of a firm purchased the firm about 5 years ago. At the time of purchase they took over and continued to maintain the firm’s existing PS/401 plan. The plan was originally established in the mid-70’s and maintains a single “pooled” investment account.

The current owners just received a call from the prior owner’s son who just “discovered” an investment account in the name of the plan which apparently has not been known about since the late 70’s. The “discovered” investment account only has about $14,000.

We’ve been administering the plan for roughly 10 years and have never accounted for the account.

The forensic accounting costs alone would significantly exceed the balance in this discovered account, and I don’t believe any records exist going back earlier than the mid-90’s.

Can we just allocate it as a gain today? The only problem is that the prior owner’s son is asking how much of this balance belongs to his father (the prior owner was fully paid out several years ago).

Any thoughts or ideas on how the client should proceed would be appreciated?

[JanetM]

Just a couple thoughts. How large is the firm? How many have worked there and participated since the asset was lost?

If the firm is small, with low turnover, you can estimate the assets allocation based on head count since payroll records are not available. (assume this was straight PS until late 80s or early 90s). Go back as far as you can with available records and see what you can reconstruct.

IMHO if the lost asset is small percentage of current assets and info to fix isn't available just put into forfeiture account and use going forward.

The key is not spend $100 to allocate $10. My experience with DOL and IRS is that a common sense method that is cost effective and does not discriminate in favor of HCE/Key/owner will be deemed okay.