Terminated DB Plan

[Guest mo again]

A defined benefit plan terminated in 1998 but didn't distribute assets until 1999. In conjunction with the distribution the sponsor had to make a supplemental contribution to make the plan sufficient. I plan to reflect this contribution on the Schedule I.

There will be no Schedule B with the 1999 Form 5500 since the termination date was in the prior year. How will the IRS/DOL know that there is not one required? They removed most of the questions about plan termination and no longer actually ask whether the plan is subject to 412. I am trying to head off any correspondence from IRS or DOL on this issue.

[rcline46]

If it were a PBGC plan, code 1H helps you. I 5 a is a clue to the IRS, and non- attachment of the B is a good sign. Skip part II of the R since not subject to 412. Don't worry, be happy!

[Guest]

In our office we've simply used a footnote or attachment to say that the plan was terminated in the previous year and therefore no Schedule B is required.Who knows if this approach will work with EFAST,but that is the correct answer regardless of how it's communicated.

I have a question for you. How is your client planning to deduct the contribution? The funding standard account is closed,but if the plan is covered by PBGC 404(g)might apply. Otherwise,I think he's stuck with the 10-year amortization rule of 404(a)(1)(A)(iii).But since he's putting in the whole amount up front does the 4972 excise tax apply on the undeducted portion? Not a pretty picture. Can a majority owner waive some porion of his benefit (or as the IRS says,accept a reallocation to the extent of assets available)?[Edited by sdolce on 09-27-2000 at 09:28 AM]

[Guest mo again]

Thanks rcline46 and sdolce. We will see how far providing clues to the clueless gets me.

sdolce, in our case, the deduction issue is not as critical as it might be, since the necessary contribution was only about $15,000. We were planning to go with the 10 year amortization. I don't think the 4972 tax will apply because the contribution was deliberately both paid and distributed in 1999, so it was not present in the trust at the end of the employer's tax year.

[Guest]

The whole question of deductibility may disappear if your client is covered by PBGC. Check out sections404(g) of the code;1.3.4.2 of Announcement 98-1 (EP exam guidelines);and 755 of GATT. I hope this isn't too late to help you. It's what you learn after you know it all that counts (apologies to Earl Weaver).

[david rigby]

Perhaps this is overkill, but my approach has been to mark and/or stamp a Schedule B as "final". If the B did not get marked as such last year, I do one this year, so that there is a paper trail (you know how those IRS folks are) documenting everything.