Plan termination - assets returned to plan sponsor

[cpc0506]

Client decides to terminate their plan. Client owed top heavy contributions to the plan for 3 prior plan years. We instruct client to deposit the funds before anyone can be paid out. Client deposits the money.

5 employees who had no account balance at the Alliance were entitled to part of the overdue funds. Alliance informs client that the social security numbers provided for these 5 employees did not belong to them, so Alliance will not distribute the funds in the name of the participant and returns the company to the client. How the Alliance knew the numbers were fake, I do not know. But fake SSNs are not the only problem the client now has.

What, if anything can the client do with the funds?

If the funds are not paid to the participants, then I think you have to answer questions on the Form 5500 that assets reverted to the company. But this generates an excise tax.

[Lou S.]

Can they open an IRA in the missing participant's name somewhere with the returned funds?

Though with 3 years back TH contribution if they are doing an EPCRS fix they can probably just add this to the VCR application. If they aren't doing EPCRS, I don't have much guidance in this situation.

[cpc0506]

Client has opted NOT to make VCP filing under EPCRS.

[Mike Preston]

Then resign or, before resigning ;-), get an ERISA lawyer's opinion.

[mbozek]

If the 5 participants can be contacted the plan should tell them to obtain a Individual Tax identification number ( ITIN) from the IRS which allows them to request the distributions from the plan because they have established their identity. ITIN is issued to workers who cannot be issued a SSN because they are not legally permitted to work in the US. ITIN allows worker to file a tax return and get tax refund. ITINs look like SS number except that the first digit is 9.

Q- If these people were using fake SSN to be employed they should have obtained a ITIN in order to file their income tax returns. No brainer.

If plan cannot locate the missing participants then the benefits can be forfeited under IRS regulations.

[BG5150]

When is TH actually due? I thought the regs were curiously silent on that issue.

[N369RM]

How does a pension plan pay anyone who has filed a false I-9 with a fake social security number?

How can the plan ever KNOW the application for benefits is really the person?

I don't see how this can be legally done as the Trustees have a duty to protect the plan.