Plan Termination after Annuity Purchase, no Participants Left

[LarryDavid]

We have a new client that recently purchased annuities for all of its participants (small plan with under 20 participants, all either retired or term vested at time of purchase).  This leaves the plan with zero participants and about $500K in assets that will be used to pay the remaining administrative expenses (final valuation, government forms filing, audit fees, etc.), with whatever is left over after that being reverted to the employer (with applicable taxes due on the reversion at that time).

The client now wants to officially terminate the plan.  Obviously this approach is opposite of what we usually see (i.e., usually we formally terminate the plan first, then move on to the purchase towards the end of the process).

Has anyone ever dealt with a plan termination after all participants have already left the plan?  Does this change the typical IRS and PBGC filing timeline/requirements?

[david rigby]

No big deal.  In my observation, it happens more frequently than you might think.  In fact, the PBGC does not seem to accept the reality of a "matured plan", and they insist on a formal termination.  Final forms (both PBGC and 5500) must be filed but it's OK if they all contain zeros.  This also gives you the opportunity to file a PBGC premium form (all zeros) with "final filing" checkbox.  Make sure you have the proper documentation and bring document(s) up to date.  Also, in similar cases, I've observed that the sponsor elected NOT to file for IRS determination review and just filed final 5500.

 

[LarryDavid]

Thanks David I appreciate the response.  It's nice to get confirmation that this type of situation has occurred before.  

[Jakyasar]

Why PBGC, can't you apply for a determination from further coverage as you have no more participants in the plan? At least it is worth a try, just thinking out loud as I do not know all facts and circumstances.

What is the worst that can happen, make you go thru the frivolous process???

Overfunded part is another story.

[david rigby]

On 4/11/2024 at 4:15 PM, Jakyasar said:

Why PBGC, can't you apply for a determination from further coverage as you have no more participants in the plan? At least it is worth a try, just thinking out loud as I do not know all facts and circumstances.

We've seen it.  The PBGC does not do "matured" or "expired" plan.  They insist on the forms 500 and 501 being filed, even if everything is zero.   I think the PBGC is wrong, but it's not worth fighting.

[Retired, but still reading]

Hopefully most of the $500k is to cover your fees.  I can't imagine the client being elated at the thought of paying a reversion tax on the overfunding.  Have you proposed a qualified replacement DC plan to absorb the overfunding?