Terminated Plan - 5500 Error - Pointing Assets Transferred to Acquiring Plan

Have a company (a) that acquired company (b) via a stock acquisition.  Company B terminated the plan prior to acquisition.  It has been found that company b filed form 5500, but stated in part VII that assets were both distributed to participants, as well as transferred to A's plan in 13c(1).  Would it make sense to have company b amend this return?  Further any issues with company a ignoring even though company b administrators work for them?       

It's unclear if a mistake was made from your post.

What actually happened to the assets? 

Did some rollover to the new plan but they reported those as transfers and the money that went to participants that didn't go to the new plan reported as distributions?

Did they actually get elections from everyone for distributions?

As for ignoring, since they acquired the stock, they acquired any issues should the IRS ask. But if the only "error" is the money leaving was reported on the wrong line I'm not sure how much liability there would be. OTOH, if they double reported it and the asset flow doesn't balance, you'll probably need an amended return anyway.

Thanks Lou.  Assets were & still are currently being distributed to terminating plan participants.  While some assets could/did roll over to the acquiring plan, it was participant directed vs a merger.  Where there is still assets in the plan Part VII I'd expect 13b would be no, and 13c(1) should be blank.  (As Plan A won't annotate Plan B's assets in the audit package as a plan merger.) 

Since there is still plan asset balances, would it just make sense to amend the return proactively vs a wait and see?      

Given the line number references in the original post, it looks like the Company B filing was a Form 5500-SF.  There are questions that will help to determine if there is no problem or if there are several issues to be addressed.

• In what plan year was the plan terminated?  Was this 2024 or 2025?
• Was the Final Return box in Part I B checked?  if yes, then the ending balance on Part III line 7 must be zero.  If there are still assets in the plan, the Final Return box should not be checked. Subsequent final filing for the Company B plan will be needed when the assets do go to zero.
• Is there an entry in Part III Line 8j indicating that assets were transferred to another plan? Since termination was before the acquisition and if participants needed to elect to rollover their account to the acquiring company's plan, there should be no entry here and there should be no entry for Part VII Line 13c(1).
• Are the "transfers" into Company A's plan are in fact rollover contributions?  If yes, then there should be no entry in Part VII Line 13c(1).  The instructions are clear: "Note. A distribution of all or part of an individual participant’s account balance that is reportable on Form 1099-R should not be included on line 13c. "  The rollovers would be reported to participants as rollovers out of the Company B plan and Company A should show them as rollover contributions into the Company A plan.  There would be no need for Plan A to annotate the rollover contribution as a plan merger.

Please share any additional information that may color the issues.

1 hour ago, kadvisor said:

Thanks Lou.  Assets were & still are currently being distributed to terminating plan participants.  While some assets could/did roll over to the acquiring plan, it was participant directed vs a merger.  Where there is still assets in the plan Part VII I'd expect 13b would be no, and 13c(1) should be blank.  (As Plan A won't annotate Plan B's assets in the audit package as a plan merger.) 

Since there is still plan asset balances, would it just make sense to amend the return proactively vs a wait and see?      

Since it sounds like you still need to file a final return, filing an amended return to correct the asset data seems like the simplest and and most correct course of action. Whether they do that now or concurrent with the final return is up to them.

21 hours ago, Paul I said:

Given the line number references in the original post, it looks like the Company B filing was a Form 5500-SF.  There are questions that will help to determine if there is no problem or if there are several issues to be addressed.

• In what plan year was the plan terminated?  Was this 2024 or 2025?
• Was the Final Return box in Part I B checked?  if yes, then the ending balance on Part III line 7 must be zero.  If there are still assets in the plan, the Final Return box should not be checked. Subsequent final filing for the Company B plan will be needed when the assets do go to zero.
• Is there an entry in Part III Line 8j indicating that assets were transferred to another plan? Since termination was before the acquisition and if participants needed to elect to rollover their account to the acquiring company's plan, there should be no entry here and there should be no entry for Part VII Line 13c(1).
• Are the "transfers" into Company A's plan are in fact rollover contributions?  If yes, then there should be no entry in Part VII Line 13c(1).  The instructions are clear: "Note. A distribution of all or part of an individual participant’s account balance that is reportable on Form 1099-R should not be included on line 13c. "  The rollovers would be reported to participants as rollovers out of the Company B plan and Company A should show them as rollover contributions into the Company A plan.  There would be no need for Plan A to annotate the rollover contribution as a plan merger.

Please share any additional information that may color the issues.

Hi Paul, 

Correct.  Is a short form.  This was actually for 2023 plan year.  Filing was completed on extension  Answers to your bullet points below. 

• Was not the final return, and was not elected on the 5500.  Still haven't seen 2024, and am under impression there are still assets in the plan.
• No entry in Part III 8j, thus no reason to have entry in 13c(1)
• Correct that transfers are really rollovers.  Which once again points to no reason to add company A

While I'd expect this to not a big deal on the error, I'd like to see zero inference that company A had involvement with the company b plan or that any piece of the plan merged in.  I'm guessing by default company A, (by way of purchasing company b) has some administrative tasks to do to completely close the books on plan b.  

@kadvisor I agree - clean it up now or a few years from now some agent will show up and say the plan violated the successor plan rules.  Then everyone will be scrambling to put together an explanation.