5500 required if new profit sharing plan is not funded after all?

[Guest wlank]

A new PSP was established for the 1999 tax year. Yesterday the sponsor decided that he will be unable to fund for 1999. Am I still required to file a 5500?

There are 81 eligible employees. If I file I guess I would show 81 participants, none with account balances, and $0.00 assets at year end.

Seems like I remember that the plan and trust are not really established until a contribution is made.

Any comments appreciated

[Guest Jim Hunzelman]

I dealt with a similar problem a couple of years ago (PS plan with 401(k)set up in December 1997 with intention of making PS contribution for 1997 and starting 401(k) deferrals January 1998). After running numerous PS contribution scenarios for 1997, the client decided in September 1998 not to make a PS contribution for 1997, although the 401(k) deferrals started in 1998. Since we had obtained a TIN for the trust and filed for a determination letter, I didn't feel comfortable not filing a 5500 for 1997. I did what you suggested - filed a 5500 showing participants, but zero assets, zero account balances, etc. The client hasn't heard from the IRS regarding the 1997 form, so I guess they accepted it as filed.

[R. Butler]

I have always handled it in the same manner as Mr. Hunzelman.

[Guest hank]

As a legal matter, the establishment of the "plan" occurred when the sponsor's governing authority (board, owners, partners, whatever) passed a resolution or other evidence of intent to establish a "plan". The fact that no discretionary contribution is made to a profit sharing plan for the year doesn't negate the plan's existence (sorry about those multiple negatives!)

I think a 5500 is required for the plan, even if it shows participants but no assets.

I also seem to recall IRS authority that if contributions to a discretionary plan are not made for several consecutive years, IRS might regard the plan as a "sham" and disqualify.

One year or even two in a row with no contributions is probably all right, but I think three years may be pushing it.

[actuarysmith]

If the plan is a standardized prototype (i.e. not idividually filed with the IRS) and no seperate TIN had been obtained, I would be inclined to just change the effective date of the plan to a later date and skip the 5500.

There has been no discrimination in favor of HCE's by this action.

[Guest wlank]

Thanks for the help. I filed a 5500 this morning.

Bill

[imchipbrown]

It's irrelevant now that there are no more 5500-C/Rs, but for what it's worth, I filed a "C" with no assets for the first plan year. Next year, I filed an "R". IRS rejected the "R". I assume they contended that the second year was actually the first.

[RLL]

There is no "plan" or "trust" under IRC Section 401(a) if no contribution is made (by the due date for filing the sponsor's federal income tax return) for the initial plan year. A trust requires "corpus" (assets) and Section 401(a) generally requires a "trust" (except for certain annuity plans and custodial accounts) in order for there to be a tax-qualified plan. Accordingly, no 5500 "annual return" is required under the IRC.

It is possible, however, that a 5500 "annual report" may be required if there is an employee benefit plan under Title I of ERISA....but I doubt it under these circumstances.

[imchipbrown]

I agree totally with RLL. But, unless he's the IRS Commissioner, I file the 5500. It's just too risky not to. I'm talking about the $25/day, $15,000 max penalty that could be assessed. Better safe than sorry?