5500s - Zero Participant Counts and Balances at Beginning and End of Year

[Guest RayLovesTrini*]

Ok folks - looking for some brains on this one. Just came over to a company and I am trying to do some clean up. the 12/31/2010 PYE Filing had a zero balance and zero participant count EOY. Turns out the 2011 Form 5500 was filed as a zero beginning and zero ending count and a zero beginning and ending balance. 12/31/2012 would appear to be the same way.

As the 12/31/2011 was failed to be filed as a Final Return Report I was going to work with the client to get it amended reflecting a Final Return Report.

But now the client has awoke and is saying he may be having participants once again who will contribute during the current year.

My question is - can a Plan exist for that long with zero participants and zero assets? Trying to keep this client however it seems to long to exist this way.

Any help is much appreciated.

Ray

[Jim Chad]

FWIW I don't see a problem with a plan continuing to exist for a few years with 0 dollars and 0 Participants. But if there is any question about the past documents being perfect as far as signatures and dates of amendments etc. this may be a perfect time to end that Plan and start another one.

[Guest RayLovesTrini*]

I can see your point - as I read it the Legal Definition of the Form 5500 is to provide a detailed report of MEMBERSHIP and financial information - so that being said a Plan with 3 ppts who currently have no money in the Plan - yet there are still 3 ppts - is still a Plan. They are still providing the financial reporting - simply said the finances are currently nil. Would you agree on this?

[david rigby]

Not saying this is a problem, just throwing it out there:

top-heavy minimums?

BTW, back in 2010, should the 5500 have been filed with "final"? If so, maybe it can be amended?

[Guest RayLovesTrini*]

Well - Good Point - But we are dealing here with a Prevailing Wage Plan - it happens that at times Top Heavy is an issue but as is usually the case with PW (as it is with this Plan) TH is not an issue - good point though. Problem with 2010 where it "should have" been filed as a final - the 2011 was filed - so that pretty much mucks up the point because although you can ammend a filing I do not believe you can pretend it does not exist. Your thoughts?

[Guest KVAlbert]

Here's one. Client set up the plan in 2011 but made no contribution. Now for 2012 they want to make a contribution. Had the plan started in 2012 it would be top heavy, but it started in 2011. There is an employee that terminated in 2013 that the client does not want to contribute for. It is a new comp plan so if it is not top heavy then I do not have to give an allocation to this employee. So is $0/$0 less than 60%?

Karl

[John Feldt ERPA CPC QPA]

Perhaps this boils down to the definition of the "first plan year" under 416. If you argue that for purposes of 416, the 2011 year is truly the "first plan year", then the plan could be considered as not top heavy in 2012.

On the other hand, if you argue that 2012 is truly the "first plan year" because no funds had been deposited to mark the beginning of the plan's trust yet for 2011, then the plan could be considered as top heavy in 2012.

I don't see any guidance to this specific issue. Would I be able to stand in front of an auditor and say 2012 is not top heavy and keep a straight face? Maybe, but I would rather discuss the situation with the client and see if they think it may be worth getting a legal opinion, but definitely let them decide the route to take here.

Either way chosen, it works out mathematically:

6 / 2 = 3, as proof of this: 2 x 3 = 6

0 / 0 = 59.9, because 59.9 x 0 = 0 (not top heavy)

0 / 0 = 60, because 60 x 0 = 0 (top heavy)

[Mike Preston]

John, I don't disagree witih your advice, but I would point out that your mathematical proofs are not consistent with the language of the Code. To be top-heavy the account balances attributed to key employees must EXCEED 60% of the total. $0 can never EXCEED anything. So, if the first year of the plan is 2011 then it is definitively not top-heavy in 2012.

[John Feldt ERPA CPC QPA]

Okay, and the silly example should have used 60.01% as top heavy, not just 60%.

The dividing zero by zero thing is more tongue-in-cheek for me, not for serious consideration - it's an obvious mathematical logic fallacy.

Your mathematical proof is certainly more pursuasive: can $0.00 exceed 60% of any balance, including zero? Certainly not. Good thing the rule is not equal to or exceeds 60%.