New Plan 2018 No Deposits No Reporting

[ldr]

Good day to all:

A doctor (of course) signed the documents to set up a new 401(k) plan in December of 2018 that was effective 01/01/2018.  It was to cover only her, at least to begin, because she had no employees.  She signed everything, we did the document, she paid the bill, and it died right there.  No investment accounts were ever opened; no deposits were ever made.  All requests for information have been completely ignored.

Does this plan really exist?  There is nothing to file because there would only be an EZ if she had over $250,000 in the plan.  It makes me nervous, though - I can't quite wrap my head around a client for whom there is nothing to do, if she really is a client at all.

Have any of you had this happen?  If she ever answers us and says she changed her mind and doesn't want the plan after all, do we need to terminate it as we normally would (resolution, amendment) and file the first, final, and only EZ for it?  Can an employer sign all the papers and pay for a plan and then just walk away from it without further ado?

Thanks as always for your advice.

[Bird]

There's a technical answer to this, and a practical answer - the technical answer is that the plan exists and you have to do everything you would do for an ongoing plan.

The practical answer is, if there is never going to be any activity (and you're not going to get paid), then you just ignore it as if it never happened.  At least that's how I would approach it.  

It's a bit different if you have someone that thinks they are going to use the plan but just doesn't fund it in/for the first year.  In that case we would (and have) filed a return for the first year with 0s.  I think there is an argument that because it had no money a return isn't needed, but then you get into questions about the effective date to use when you start filing returns, and honestly, filing a return is such a small deal that it's easier to just do it than tie yourself in knots trying to figure out how to start reporting in the second year.

[Larry Starr]

28 minutes ago, Bird said:

There's a technical answer to this, and a practical answer - the technical answer is that the plan exists and you have to do everything you would do for an ongoing plan.

The practical answer is, if there is never going to be any activity (and you're not going to get paid), then you just ignore it as if it never happened.  At least that's how I would approach it.  

It's a bit different if you have someone that thinks they are going to use the plan but just doesn't fund it in/for the first year.  In that case we would (and have) filed a return for the first year with 0s.  I think there is an argument that because it had no money a return isn't needed, but then you get into questions about the effective date to use when you start filing returns, and honestly, filing a return is such a small deal that it's easier to just do it than tie yourself in knots trying to figure out how to start reporting in the second year.

While I agree with Bird's technical and practical answer generally, I would be more specific in this situation.

The client hasn't responded at all to your requests for information; I would send a sign off letter saying: "Because she has not responded to our requests, we have no option but to sign her off and we have no more responsibility for her or the plan and she might have requirements that now won't be met.  If she thinks this letter in error, contact us.  Have a nice life!"

[ldr]

Thank you both for your answers.  As it happens, we gave her the benefit of the doubt and sent a letter explaining that due to a complete lack of response from all parties, we are assuming that she did not use the plan in any way for 2018, and that we look forward to helping her with 2019. We copied her CPA and her investment advisor on the letter.  We will see if anyone bothers to respond to us.  

2019 is almost over and census requests and annual questionnaires will be going out again at the end of December.  If once again we get the same total silence from her and her advisors, we will take Larry's "goodbye and good luck" approach.  If we had seen this yesterday we would probably have done it this year.

 

 

[msmith]

I am in agreement with Larry. No responses for Year End Data, etc., I would send a "no responsibility" letter terminating my services.