Contribution to Plan before Effective Date

Someone had setup accounts at the recordkeeper and allowed an inbound rollover to hit in mid-December before the plan went live January 1.  There is no guidance on this issue because it should never happen, but here it is.

My thoughts tell me this would call for a 5500 in the year the plan first received any monies.  The part I'm not sure about would be the trust and plan effective date being after that first rollover hit.  There was technically no plan in place at that point.  An amendment wouldn't really make sense here either... Has anyone ever heard of this situation before?

I have never heard of this situation before, primarily because I have never heard of a financial institution setting up an account in the name of trustees of a plan without the institution having documentation that the trust exists. 

If the account was not titled in the name of the trustees, then consider making an argument that the plan's trust did not receive the assets.  If the account still does not yet have any indication that it is owned by the trust, then this argument would also say the rollover has still not yet been made to the plan.

It will be interesting to see others comment on this situation.

NOT ADVICE

what about the 60 rollover rule?

If the trust didn't exist - and the rollover $$ was deposited to an account in December, and then the account converted to a trust account in January, its less than 60 days... 

Thank You both for your replies.  I like the approach regarding the rollover being deposited to an account that isn't technically associated with the trust (It does not exist).  Although, it was held at the recordkeeper and documented as if held by this trust.  The institution did not request any documentation to set it up.

When I pull the trust report from the recordkeeper, there is a beginning balance on 1/1 and this was their first 5500.... so, I believe that the 5500 displaying a beginning balance will most definitely trigger an audit. I can't write in 0 as beginning of year asset value because that would most likely be seen as fraudulent.  My mind is racing to find a way to handle this in a clean and compliant manner and attempt to keep the IRS out of the situation.  Unlikely...

Keeping this thread going would be neat to see if there is any feedback out there, but I think this is a case for an ERISA attorney.

Agree that I would likely bring in an ERISA attorney, but I would expand on Paul's comments regarding the financial institution. Ask them how they intend to make this right. They are the ones at fault here.

I back up Bill Presson.  The recordkeeper is clearly at fault and should be held accountable.  You may need an attorney to help, but that could be expensive.  I'd press for the recordkeeper to pay your legal expenses.  One thing for sure, the recordkeeper is incompetent and the plan's fiduciaries would be breaching their fiduciary responsibilities if they go ahead and use this recordkeeper after the mess is cleaned up.

By any chance was the employee who did the rollover in - a decision maker ? 
Owner, director, trustee, HCE etc? 

Depending on the structure of the service provided by the recordkeeper/custodian - I wonder who approved the rollover. For smaller plans - the participant might fill out a form to let the plan know they are submitting a rollover, and the plan administrator, trustee etc might have to approve that before the custodian or recordkeeper will actually process the incoming dollars. 

In my experience - when plans are brand new - there aren't a lot of rank and file employees chomping at the bit to get their money into the new plan. The ones who are best positioned to immediately do a rollover in are the ones who have known about the new plan the longest, typically the decision makers or power players at the sponsor. 

Edit to add: who prepares/maintains the plan document? if a bundled provider it is typically the recordkeeper as well. If is someone else - the recordkeeper might not have any idea when the plan document is actually signed or effective, and just goes off their provision intake form. Not saying that is right. Just saying I see it done that way. 

Overly legal argument, but I would think no trust can exist until the plan is effective. i.e. You can't deposit into a plan until there is a plan. This might be an indirect rollover.  The rollover wouldn't be complete in my mind until you had a effective plan document. However, this is not advice.