Bank converting DB account to personal

Hi All,

Thank you for all the insights and valuable knowledge always.

A DB Plan, owner only,  had the assets held in a checking account for about 15 years. It was a checking account in the name of the plan..ie John Inc. DB Plan, and the corporate EIN. The bank now sent a letter that they are converting the account from busniess account to a personal account and in a separate email the bank states that the EIN will be taken off the account and the owner's Social Security number will be used on the new account. Question: Can this be deemed a taxable distribution ( even though it was does against his will), and is it a problem to keep the new account as is with the Social Security number, if the account is still labeled Defined Benefit Plan?  Thank you.

Move the funds before the conversion to personal?Get a new investment vehicle?

Does the plan file a Form 5500-EZ?  If yes, then it is even more important to preserve the plan's EIN.  EFAST2 will be looking for continuity and likely at some point will send out a penalty letter if it doesn't get a filing that shows a final filing and assets going to zero for that EIN.

You may want to try to contact a compliance officer at the bank (not at the branch, and who hopefully know a smidgen about retirement plans), and have a discussion about the bank making an unauthorized change to the plan's EIN.  You may want to salt the conversation by saying "IRS" and "compliance" a few times.  You actually may be doing them a favor.

If this does not go well, then definitely follow Lou and David's advice!

Thank you Lou and David. Is the bank allowed to do this? Meaning how can they just go ahead  without  permission from the client and "execute" this taxable distribution?

31 minutes ago, Paul I said:

Does the plan file a Form 5500-EZ?  If yes, then it is even more important to preserve the plan's EIN.  EFAST2 will be looking for continuity and likely at some point will send out a penalty letter if it doesn't get a filing that shows a final filing and assets going to zero for that EIN.

You may want to try to contact a compliance officer at the bank (not at the branch, and who hopefully know a smidgen about retirement plans), and have a discussion about the bank making an unauthorized change to the plan's EIN.  You may want to salt the conversation by saying "IRS" and "compliance" a few times.  You actually may be doing them a favor.

If this does not go well, then definitely follow Lou and David's advice!

Thank you Paul I....The 5500- EZ were mailed, not efiled, and used the corporate EIN on the filing, as is required. The EIN is still in effect, just the bank will open the new checking account under the social of the plan sponsor (ie the owner and sole participant in the DB Plan). 

The bank is not changing the corporate EIN just using his social going forward on the account, as opposed  to the EIN that was used until now on the account. The bank does not prepare the 5500EZ.

He does not want to terminate the plan, rather the bank on their own is converting the account from a business account to a personal account.

Would the bank listen if we csll them and state that they are not authorized to force a tax liability (distribution) and they must keep the account the way it was for the past 15 to 20 years?

It seems a many banks do not want to deal with pension accounts anymore

Thank you.

The best course might to move the money to an institution that will retain it's tax qualified status. If they convert it to his SSN and a personal account it's going to trigger 1099-R reporting on the income under his SSN which can cause him tax problems at year end and possible backup withholding issues.

Whether they can do it I don't know as I'm not knowledgeable about banking regulations but it sounds like they are going to do it whether your client wants it or not so the easiest solution might be to move the funds before that happens.

Don’t try to fight the bank, just move the money. It’s not worth the risk. 

For what it is worth I am with the others.  I don't understand the desire to fight the bank.  They are treating their customer awfully.   Why does your client want to reward such bad behavior by still doing business with such a bank?

I do not believe  bank has an authority to force the change from EIN to SSN.   They can definitely terminate servicing the account altogether though.  Talking to the bank is likely to yield nothing, just move the money as others said.  Schwab for example would set it up in couple of days and you client can invest in bank products (cds and such) using the brokerage platform.   Arguing with a bank might be worth only to waive any kind of termination/transfer fee. 

Curious, is there no trustee, I mean how can they move the assets without anyone signing off to it? Am I missing something here?

16 minutes ago, Jakyasar said:

Curious, is there no trustee, I mean how can they move the assets without anyone signing off to it? Am I missing something here?

I'm guessing here but it sounds like the Bank is getting out of that business and just unilaterally converting accounts to what they still do. Doesn't make sense to me but that is my best guess.

I would then say, they are overwriting the trustee duties which I am assuming here. In this case, I agree with all, take the money and run somewhere else in order avoid any taxation and many other issues that may arise since this is a DB plan subject to QJSA

Re trustee - it’s an owner-only plan. Usually the owner is the trustee, no? The bank is just the custodian. 
 

They still shouldn’t be allowed to switch the account type though.
 

Move the money quick.