Solo(k) Document / Registration Failures? Need guidance please....

Hello. I need help with 2 Solo(k) issues:

First scenario: Client had a Solo(k) at Oppenheimer and utilized their prototype plan document. Advisor moved the plan to Pershing and completed Pershing's retail account paperwork in the name of the Solo(k) (i.e. John Doe Solo(k) plan).  Pershing never questioned the registration and opened the account as a retail account. Since the account was opened as a retail account, the paperwork to utilize Pershing's prototype plan document was never completed. Per Pershing, they are acting only in a custodial capacity. That was in 2011.  Client has received 1099's from the account for the last 11 years and has never said a word about them. Not sure if he has reported them on his income taxes. Would I be correct to say that the plan really does not exist at this point? No plan document was ever issued by Pershing. I don't think we can consider the Oppenheimer document as a valid plan document any longer, since the plan was moved from Oppenheimer. No restatements have been done in 11 years. To make matters even worse, the plan is over $250k in assets and has never filed a Form 5500.  Several issues going on. I specifically need help on 1) Plan document failure - can this be correct? If so, how? 2) Should we request that Pershing re-register this account as a Solo(k)? 3) What do we do about the 1099's? Do we even try to correct those at this point? 4) Failure to file Form 5500 - how should we correct this issue? 

Second scenario: Client completed paperwork to open Pershing Solo(k).  Plan was to use the Ascensus prototype document service. Paperwork was sent to B/D.  B/D sent paperwork to Pershing, who opened the account. Pershing is acting in a custodial capacity only for this plan. B/D failed to transmit paperwork to Ascensus. Ascensus never issued a plan document for this plan. They have no record of the client. Client has been funding the Solo(k) for several years without a plan document.  Is there really even a plan in place? Can this be corrected? 

I appreciate any guidance that you can give to help me get these clients back on track. 

Scenario 1 - you can correct the document restatement failures through EPCRS with a VCP filing and the late 5500s through the IRS late filer program for 5500-EZs. The Brokerage issue is probably tougher to correct but could likely be done as part of the VCP filing correcting the document failures and working with Pershing to re-register the accounts properly.

Scenario 2 - I'm not sure as you have no Plan adopted. Perhaps someone else can chime in on that one. I feel like this has been addressed before in other threads so maybe a search of this website?

Scenario 1- I'm not sure if you can do a VCP. Usually, once a plan transfers, the former custodian would not allow the plan to continue to use their prototype plan document. Also, if I remember correctly, Oppenheimer doesn't exist anymore, didn't Invesco buy them out? And I think Invesco has their own prototype plan document for Solo(k)s so realistically, the plan has been existing without a plan document. Honestly, I'm not sure how you would fix this. The other problem is if the Solo(k) is no longer existing than the "transfer" in 2011 would be a distribution subject to 1099R reporting. Let me know if you are able to fix this because I am really curious how you fix this.

Scenario 2- same as above, not sure how a plan exist without plan documents.

As I understand the Plan in scenario has a document, it's just treated as individually designed and you can't rely on the opinion letter. So they are simply a non-amender.

Depends on the documentation around the creation of the plan, but I think there is at least an argument that you have a plan document, just not a sufficient one.  That would put you more into non-amender territory rather than no plan document ever existed.  Im pretty sure @Luke Bailey has made some creative arguments in the "was a plan adopted" threads on here before.

15 hours ago, RatherBeGolfing said:

Depends on the documentation around the creation of the plan, but I think there is at least an argument that you have a plan document, just not a sufficient one.  That would put you more into non-amender territory rather than no plan document ever existed.  Im pretty sure @Luke Bailey has made some creative arguments in the "was a plan adopted" threads on here before.

I assume RatherBeGolfing is addressing your Scenario2 with this comment. Would need to examine all facts and circumstances, most importantly the paperwork that was completed to open SoloK with Pershing. If a corporation and you have board resolutions or annual minutes, would be helpful. A lot of factors/risks to be weighed, including timeline and statutes of limitations on various tax liabilities.

1 hour ago, Luke Bailey said:

I assume RatherBeGolfing is addressing your Scenario2 with this comment. Would need to examine all facts and circumstances, most importantly the paperwork that was completed to open SoloK with Pershing. If a corporation and you have board resolutions or annual minutes, would be helpful. A lot of factors/risks to be weighed, including timeline and statutes of limitations on various tax liabilities.

@ColeC Follow Lou's advice for scenario 1, that's fairly straightforward VCP and 5500EZ correction program.

Scenario 2 is also VCP situation, and as Luke addresses above, the more paperwork you have around the Plan, the more likely you are to have a "Plan".  Resolution to establish, correspondence regarding plan provisions, payroll deferral election, beneficiary designation, annual plan administration reports, filing a 5500(even if not required!); have all the surrounding paperwork you can "find" available now before going through VCP.

In both instances, clients may balk at the VCP cost, but compare that to the years of tax liability, plus interest and fees they would be exposed to on each filing, especially if max tax bracket.

On 4/26/2022 at 12:56 PM, Nate S said:

In both instances, clients may balk at the VCP cost, but compare that to the years of tax liability, plus interest and fees they would be exposed to on each filing, especially if max tax bracket.

If the plan was never qualified and the money goes back to the employer, not to a participant, you may not have terrible tax consequences.