Employer Sponsored IRA Account under 408(c)

[Guest eafrazier]

Client has an Employer Sponsored Individual Retirement Account plan - adopted in 1978. The employer withholds the participants' IRA contributions (all are after tax) and the participant's match is also taxed, and makes the deposit to an omnibus IRA trust. Now it's up to each participant to claim the deduction (annually) to convert this contribution to a pretax benefit.

What happens, however, when a participant doesn't claim the deduction? Maybe due to the fact that the participant couldn't take the IRA deduction for that year and/or subsequent years?

The plan now terminates and the trust holds after-tax IRA money? Where can it be rolled? Is it treated like a ROTH? The Plan doesn't allow ROTH.

Any ideas?