Terminated Plan, Final 5500, investments remaining

[Janice F]

Plan terminated and final short-year 2017 5500-EZ was filed (single/owner PS plan).  All known assets were rolled over to an IRA in 2017.  It was discovered recently in 2019 that 2 plan investments- stocks worth a fairly substantial amount - still exist.  It was apparently discovered due to dividends being paid this year.  These 2 investments were held outside the main brokerage account but per the client, were/are titled in the plan's name.  Client wants to rollover these 2  investments now to an IRA.  Due to the passage of time between plan termination and now, I'm thinking it would be a failed /excess IRA rollover.  How do we fix this?  Any ideas?

[ESOP Guy]

I don't think the issue is the rollover.  I see no reason the rollover would be an issue.  

I think the issue is the plan wasn't really terminated back in 2017. 

So the question is does the plan need to go back and amend the 2017 5500 and file a 2018 5500 and will need a 2019 5500 for the short plan year until the assets leave the plan in 2019?

If it were a small amount I would say no harm no foul and say just get the assets to the IRA.   But you say it is a large amount. 

I think I would look into what happens if you say the plan wasn't really terminated.   You might have to file the 2018 5500 under the late filing program to keep the late filing penalties to a minimum. 

Like I said the assets were in a plan and are being rolled to an IRA so I don't see why the rollover can't happen.  

As always I am happy to be told I am thinking of this wrong but to me this plan wasn't actually fully terminated in 2017 that is the "primary sin" of this issue.  

[Bird]

I agree with ESOP guy.  No problem with the rollover.  Inaccurate/incomplete reporting (5500) is the primary issue.  I might be willing to have the sponsor tell me not to (re) file and file.  And in theory the plan document may not have been maintained properly; it should have been/should be updated for any relevant necessary changes while the plan was still operational.

[K2]

I agree in part with the others. In particular, I agree that an amended 2017 5500 should be filed, and that 2018 should be filed late under the program. 
 

I’m not as confident to say the plan is not terminated. Off the top of my head, I thought that the IRS considered a delay in distributing  assets of over one year from plan termination date to be too long and that a delay of that magnitude would void the termination.  But I don’t know if that’s a firm rule or just a rule of thumb. 
 

Still, if it were me, I’d restart the termination, update the plan documents, and reissue distribution forms. 
 

Which makes me wonder:  if the plan is not terminated back in 2017, was there a distributable event?

[Bird]

On 10/25/2019 at 4:37 PM, K2 said:

I’m not as confident to say the plan is not terminated. Off the top of my head, I thought that the IRS considered a delay in distributing  assets of over one year from plan termination date to be too long and that a delay of that magnitude would void the termination.  But I don’t know if that’s a firm rule or just a rule of thumb.

I believe the point of that is not so much that it completely voids the termination but that if assets aren't distributed timely - and I agree one year has been cited - then certain aspects of the plan must be treated as ongoing, the primary consequence being that the document may need to be kept up to date (amended if necessary).

Good point about doing new forms; I agree.  But I would not worry about there not being a distributable event.

[BG5150]

Were these remaining assets ever reported on the 5500?  If they were, and if it's a significant amount, did no one notice that the amount of the distributions were way less than the opening balance of the 2017 5500?