non-eligible plan asset of no value

[Effen]

I have a plan where the plan sponsor went through an asset sale a number of years ago. The plan has been frozen forever and is significantly overfunded. The corporation that sponsors the plan doesn't really exist anymore, yet the plan still holds shares of the company. The auditor has determined the value of these company shares to be $0.

Company stock would clearly be a non-eligible asset and therefore preclude the sponsor from filing a 5500-SF, however, the sares have no value. Since they have no value, do you think they would be permitted to file the SF?

[Ron Snyder]

Your message is confusing. The plan is "significantly overfunded", but has no sponsor.

And yet you're worried about whether you can use the short form 5500?

I would be worried about the IRS's view of a wasting trust and how shut it down prior to 1 year from the termination of sponsorship by the sponsor.

[Effen]

No, it has a sponsor. The company still exists, but in name only.

Lets say XYZ corp manufactures soap and sponsors a plan. At some point the sole owner of XYZ corp sells all of the assets used to make to soap to Zest, Inc. XYZ corp. still exists, but after all the bills are paid, all they have left is the plan. The owner of XYZ still maintains the plan, and the plan still holds some shares of XYZ corp in the trust. However, XYZ corp isn't worth anything because at this point, it is just a corporation whose sole asset is the plan. The plan is very overfunded, but the owner is content to sail around the world and doesn't care much about the plan and doesn't need the money, so it just sits, and we continue on with a plan full of vested terms and retirees.

So, do the worthless XYZ corp shares preclude me from preparing an SF?

[K2retire]

The plan is not an asset of the corporation. It is a separate legal entity for the sole benefit of the participants.

[Bird]

The plan is not an asset of the corporation. It is a separate legal entity for the sole benefit of the participants.

I'm not sure about that, from a valuation standpoint. It sounds like there is at least a potential reversion to the employer which should be recognized when valuing the company, unless the company has taken action to state that benefits will be increased to use up the overfunding. I think I would be willing to come in and buy the company for somewhat less than the overfunding, minus applicable reversion taxes and penalties.

I think that argues against an SF filing.

[Belgarath]

I don't believe the value of the securities matters a fig. The instructions say that you may not file an SF if the plan holds any employer securities at any time during the year. I'd take that at face value, and say no dice to an SF.

[Effen]

Thank you both. I think Bird makes a good point. Since the plan has excess assets, there is a potential reversion to the corporation and therefore it has some value, so it is hard to argue the stock is completly worthless.

We'll probably prepare the full 5500, even though the Schedule I will show $0 for non-exempt assets.

[Ron Snyder]

You might consider showing the value at $1 or other small amount, since you acknowledge that the stock is not entirely worthless.