Found Plan Assets After Termination

[Zorro1k]

If a DB plan believed that all assets were paid out after termination and later discovered additional assets but had been operating as if terminated for a few years (no 5500 filings) are the eligible for a correction program or will they be subject to an excise tax? Any thoughts would be appreciated.

[mbozek]

I don't think there is any IRS answer for a problem that is not supposed to happen and I would not want to approach the IRS for a one off answer to this problem because their response would if the plan did not distribute all assets within one year of termination then the plan must continue to operate in accordance with all of the requirements for a qualified plan. What needs to be researched is whether the statute of limitations for paying taxes may cure the tax problem.

Question: where/how were these assets held so that they were not known when the plan was terminated? I advised a plan that had received shares of stock in a demutualized insurance Co and HR director didn't know what to do with the shares so the certificate was kept in a safe for several years and the value of the certificates was not reported as a plan asset.

[jpod]

You say it was a DB plan. What did the plan document/termination resolution say about excess assets? If they were to revert to the employer then I suppose you can take the position that in fact they already reverted but the employer is simply late in paying the associated income and excise taxes.

If the excess assets were to be used in some other fashion this could be a much bigger headache to resolve.

[Zorro1k]

I'm still trying to figure our what the asset was.

There is an unsigned amendment I have which changed the language from reversion to the employer to distribution to participants. I'm trying to nail down if that amendment was signed and what the terms of the plan actually are.

Regardless, I'm assuming since all plan assets have not been distributed that they need to file 5500s going back to the last one which they thought was the final one. I'm hoping that they can take advantage of the delinquent filer VCP which has a fee of $10/day capped at $1,500 for a small plan.

[jpod]

To reiterate, if the plan/resolution provided for a reversion, you may be able to take the position that the assets already reverted (they just weren't recognized by the employer as belonging to it). If that is the position taken then all plan assets were distributed/reverted and therefore no more 5500s and no more qualification compliance necessary.

[david rigby]

Before you go the direction of "...file 5500s going back to the last one which they thought was the final one", take a step back.
- Are we talking about significant dollars?
- Were all plan expenses paid?
- Did these "found" assets exist at the time of the original plan termination, or might this be a "dividend" on a plan-owned investment?

[Zorro1k]

Amount is $18,000. Plan is a small group of doctors. All expenses have been paid. I don't yet know the answer to the last question.

[mbozek]

An unsigned amendment is not evidence that the plan amendment was ever adopted or if it was adopted that the excess amount was not paid out from the plan. Need to do forensic examination of plan records including checks to see what became of the $18,000. I would not assume that 5500s need to be filed without knowing where the 18,000 is.

In what bank account is the $18,000? DB plan checking account?

What is the last banking record that recorded the $18,000?

Was the account closed?