trying to terminate an old plan

[K2retire]

A not for profit employer established a 403 b plan with group annuity contracts for participants. Subsequently, the assets of the employer were purchased by another entity and the employer was liquidated. The new employer (a for profit company) is attempting to terminate the plan.

There are two groups of contracts, those established before 2009 and those established in 2008 and 2009 intended to recognize the change in rules. The insurance company will not allow the pre 2009 participants to be forced out of the plan. We would like to use the FAB relief to exclude those contracts from the plan, but due to a clerical error, one participant's 2009 and 2010 contributions were deposited to the pre-2009 contract rather than the new contract. This participant has since taken a full distribution, so there is no way to correct the error. The CPA auditing the plan says we are now required to include all of the participants covered by that contract, and show their balances as remaining in the plan.

Does anyone have any suggestions about how to resolve this issue? It seems unbelieveable that an employer that no longer exists can have ongoing responsibilities to prepare Form 5500 for an unlimited number of years into the future.

[mbozek]

A not for profit employer established a 403 b plan with group annuity contracts for participants. Subsequently, the assets of the employer were purchased by another entity and the employer was liquidated. The new employer (a for profit company) is attempting to terminate the plan.

There are two groups of contracts, those established before 2009 and those established in 2008 and 2009 intended to recognize the change in rules. The insurance company will not allow the pre 2009 participants to be forced out of the plan. We would like to use the FAB relief to exclude those contracts from the plan, but due to a clerical error, one participant's 2009 and 2010 contributions were deposited to the pre-2009 contract rather than the new contract. This participant has since taken a full distribution, so there is no way to correct the error. The CPA auditing the plan says we are now required to include all of the participants covered by that contract, and show their balances as remaining in the plan.

Does anyone have any suggestions about how to resolve this issue? It seems unbelieveable that an employer that no longer exists can have ongoing responsibilities to prepare Form 5500 for an unlimited number of years into the future.

This is what happens when accountants get involved in plan administration. Reg 1.403b-10(a) provides that a plan is terminated when the benefits are distributed. In a group annuity contract benefits are distributed when the employees receive certificates of insurability under the contract b/c there is no other way to distribute benefits under the contract. There are no tax consequences to the employee for delivery of the certificate. When all covered employees recieve a certificate of insurability the plan will be terminated.

[K2retire]

Thanks!

[mbozek]

Thanks!

The rule on distribution of annuity contracts is found in Rev. rul 2011-7.