Schedule SB for disqualified plan?

[PensionPro]

The IRS entered into a closing agreement with plan sponsor agreeing to treat their DB plan as disqualified.  Plan sponsor filed Form 5500 with an explanation stating the Sched SB is not required due to the provisions of the closing agreement.  The IRS is threatening penalties for non-filing of Sched SB.  Based on the instructions and the regs is a Sched SB required for a disqualified plan?  Thanks!

[Luke Bailey]

PensionPro, does the plan have a minimum funding deficiency? Did the closing agreement address funding? Is the plan covered by ERISA, i.e. by its terms covered someone other than a sole proprietor, partner, or sole owner of corporation, or their spouses?

[Jakyasar]

Logically (if there is one), as long as the plan is active (as of disqualification date), shouldn't the SB be done, even if for a short year? Also, what is the harm doing one other than paying an actuary?

Was this plan covered by PBGC? If yes, how is PBGC taking this? 

As Luke said, does the plan cover and non-substantial owners? If yes, what happens to their benefits?

Thinking out loud.

[C. B. Zeller]

Luke is asking the right questions here - specifically, I think, whether the closing agreement addressed minimum funding. If it said that the plan is not subject to the minimum funding standard, then that's all you need to tell the IRS to bug off. If it wasn't addressed, then I think you still have an argument, but you might have to convince them.

IRC 6059(a) requires an actuarial report (i.e. schedule SB) for each plan to which section 412 applies.

IRC 412(e)(1) says that section 412 applies to a plan which was qualified under section 401(a).

If the closing agreement provided that the plan was not considered to be qualified under 401(a) for the year in question, then I think you can point to this to say that it was not subject to 412 and consequently not required to file a schedule SB.

Hopefully you answered the question on the 5500 about whether the plan is subject to 412 (line 11 on the 5500-SF, or part II on the schedule R) as "no." If you indicated on the 5500 that the plan was subject to 412, that would explain why the IRS thinks you owe them a schedule SB. You might consider filing an amended 5500 in that case.

[Luke Bailey]

7 hours ago, C. B. Zeller said:

IRC 412(e)(1) says that section 412 applies to a plan which was qualified under section 401(a).

Right. I think under 412(e)(1) you're subject to 412 until after plan termination if you the plan was ever qualified.

[PensionPro]

Thank you everyone for your responses and sorry for the late check-in.  The rules outlined are pretty clear and thanks to @C. B. Zeller for the reference to 412(e)(1).  Schedule SB is required if the plan is qualified or if it is subject to ERISA.  We are working with an outside consultant, and still do not have clarity on ERISA coverage.  It is clear that SB is required up to the plan disqualification date.