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Lost Plan Document

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Client is surviving spouse.  We believe her to be the beneficiary of a large account held in a "PSP."  Husband and his attorney are both deceased.  Life insurance salesman who sold them on the nonstandardized plan created by life insurance company is senile.  Only papers related to plan date back to 2000.  Those include some 5500s.  We have contacted the insurance company and it cannot produce the nonstandardized plan, let alone the adoption agreement.  We don't think it will ever be capable of being reproduced.  Likely that the plan just went totally silent after about 2001, but no contact we can find in deceased's files from the IRS.  Further, the small 3 person company that sponsored the plan is no longer and no one can be found.

The investment firm holding the account says, "produce the plan document" before it will do anything.  No plan document exists.  What to do?

One take I have is to say, "There is no plan document, hence, it's a after-tax account.  Make a distribution and don't report on a 1099-R.  I've read in this forum about the King case and the issues of "consistency" but, if I can convince the investment firm that it is an after-tax account, perhaps they would distribute the account to the surviving spouse.  I do have an issue with not having a beneficiary designation, it appears.  But, I do have a letter from way back from the attorney indicating that the deceased husband's revocable trust is the beneficiary.

The King case might allow me to argue that if the plan went out of compliance from the get go due to lack of a document, that cash contributed was taxable in a closed tax year.  And, now, the distributions are tax free from the account.  We can't establish that a plan ever existed but there are just a couple of returns that the deceased attorney prepared (1997, 2000 and 2001).  Nothing after.  We have exhausted our search and I have concluded no documentation will ever be found.





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I'm guessing that the document was a non-standardized PROTOTYPE? If so, then even though I believe the insurance company probably CAN find a blank document in their archives, or obtain one from the IRS, they may just not be willing to try very hard. The IRS will certainly have on file a listing of all prototypes sponsored by that insurance company during that time period. So you might possibly at least be able to obtain a blank document. Is there life insurance involved, or just investment funds? If life or annuity, the actual application might have some useful information.

Also, you might consider a formal complaint to the state Banking and Insurance department. This might move the insurance company to a more diligent search. A blank document would at least give you some small amount of information that might be helpful.

Presumably, the investments held under the plan are registered to the Trustees of the "X" Profit Sharing Plan, or whatever it is titled. This is a job for an ERISA attorney - presumably the surviving spouse/estate can apply for benefits, and possibly at some point an interpleader motion can be filed to let the courts determine who is entitled to the funds.

So I have no good ideas here, other than to take this to an ERISA attorney to tell you what can be done, and how to go about it. Way outside of my knowledge base. Good luck!

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12 hours ago, Mike Preston said:

Do the orphan plan provisions of EPCRS help?

Ditto.  We've dealt with plans that go back to 1974 without a plan document and got the DOL to accept an abandoned plan filing.  The question is, who is the QTA?  That may be the stumbling block.

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I agree with the above comments - this seems to be a circumstance for which the abandoned plan program was designed.  

As for using the King case, I don't see its relevance.  The issue there was whether income should have been recognized under the accrual basis of accounting in a year which was then closed under the statute of limitations.  The critical difference was that the doctors in the King case filed tax returns triggering the commencement of the statute of limitations. Has the trust for the plan filed its tax returns?  How about the revocable trust for years after the death of the husband? Another way of looking at it is to ask when a taxable transaction vis a vis the widow take place?  

The more likely scenario would be that the trust continues to be treated as tax exempt and that none of the beneficiaries are taxable until there is a distribution.  IRC section 402.  Different treatment might result if it is determined that the trust was disqualified at some earlier point in time but its hard to say that that would help.  Since the trust presumably was not filing any returns, the statute of limitations presumably did not start to run.  Thus, it's hard to see how this would work to your advantage.

It is not unheard of to go amend a plan to bring it back into qualified status.  Most practitioners would view this as providing the best result rather than filing tax returns for the trust for each open year.  

In short, I think it is just wishful thinking to ignore the separate existence of the trust - especially since the investment firm has a reporting obligation and seems to be holding your feet to the fire on following the terms of the plan and trust. 

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I agree that the likely best strategy is to resurrect the plan using DOL and IRS programs mentioned, and would note that whatever the shortcomings of the insurance company in this case, it will never pay anyone anything without reporting it on a 1099-something. For example, if you convince it to treat the plan as nonqualified (which I have seen happen in a somewhat similar situation), payments to the surviving spouse are reportable on 1099-MISC. Requalification through EPCRS, on the other hand, would allow the surviving spouse to roll over. If there were no other plan participants, just the decedent, you can probably skip DOL and just do a VCP app, get approval of your new plan doc, and be done with it. Since the plan will be terminating, you can even get a DL, so that should satisfy the insurance co.

Luke Bailey

Senior Counsel

Clark Hill PLC

214-651-4572 (O) | LBailey@clarkhill.com

2600 Dallas Parkway Suite 600

Frisco, TX 75034

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A number of years ago, the New Yorker printed a cartoon by Roz Chast that showed a consumer advocate columnist's response to several questions, generally recommending litigation.

Thinking of the financial institution who will not release the funds they are holding, I just quote the following piece of advice given in that cartoon:

"This is what's known as an open-and-shut case.  If you don't sue them, I will."

Always check with your actuary first!

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