Can Plan just disappear?

New solo 401(k) Plan was signed/adopted 5 years ago.

No contributions have ever been made.

Only filing ever done was to create a Trust EIN.

'Plan Sponsor' would like to "disappear" the plan and start a SEP this year.

I'm just processing what steps to take.

Even if there is no doubt that the signature on the plan documents is true, was a plan ever established?

If one assumes a plan was established, and if the plan sponsor’s written act provides the plan’s discontinuation, termination, and final distribution, would anything preclude delivering to the one participant a certificate of the distributee’s rights under the plan?

Might the plan’s administrator or trustee in good faith find that the value of that distribution is $0.00?

Might a Form 1099-R tax-information report state the amount distributed as $0.00?

If a plan was established, always was a one-participant plan, and always had plan assets no more than $250,000, might a Form 5500 report and return have been excused for all years other than the plan-termination year?

Might the plan’s administrator file a zeroes Form 5500-EZ return for the year that includes the distribution of the participant’s rights?

After considering the expense of those or other steps, might the plan’s sponsor or administrator reconsider one’s analysis about whether a plan was established?

If a third-party administrator believes the plan sponsor’s analysis is incorrect, might that not matter because the TPA might not be associated with any tax return that includes an incorrect position? (And the TPA won’t have provided incorrect advice.)

This is not advice to anyone.

5500 EZ's must always be filed in the year the plan is terminated and distributed, so you would be filing both a first return and a final return in one filing

The DoL - EBSA keeps track of 163,000 defined benefit and defined contribution plans.   Your client never did anything to consumate the deal between a Plan Sponsor and a Participant or an Alternate Payee.   

I bet your guy cannot even find the plan documents after the fire. 

If I set up a C Corportation and never issue stock, open a bank account, apply for an EIN or do any business at all, then I am the tree that fell in the forest and there was nobody there to hear it, so and it didn't make a sound. 

If my fiancee and I obtain a marriage license from the clerk but never marry, do I sill have to pay her alimony?

The client should have a meeting of the Board.  Void, vacate, annul, rescind, abrogate, invalidate and declare the Plan Documents null and void nunc pro tunc (now for then).

Pax vobiscum 

The correct way to do it is as David D suggests. Resolutions and amendments to terminate the plan and file a first and final $0 5500-EZ.

How fmsinc describes it is likely what most people do. Just pretend like the plan never existed. No one ever elected to defer, the sponsor never funded plan. It's not the correct course of action but the odds of the IRS auditing a solo-k that never put any money into and presumable never took any tax deductions is probably quite small. But if you are a member of one of the alphabet soup organization you are problem subject to one or more code of ethics standards.

The penalty for plan disqualification wouldn't be anything since there is no money so no disallowance of deduction or tax on trust income since there is none, but there is potential penalty of $250/day up to $150,000 should the IRS decide to press the issue. I'm not sure they would but they could.

If a trust account was never opened, was the plan really established? Don't have time to research that right now so just a thought.

We're going through this now, the employer Plan Sponsor has a change of mind after signing the Plan Documents, no Trust Account established, no funding.  It is our interpretation that a Plan is established based on our reading of guidance that we can find from the PGGC addressing Title IV, "A plan is covered … upon the date of establishment or the effective date, whichever is later. Thus, your plan is covered on the date of establishment, which is normally the date on which the plan documents are executed.”  Although this applies to PBGC coverage we feel this is a good interpretation of when a Plan is established.  Additionally, ERISA Section 402(a)(1) requires a plan be established and maintained under a written document.  In this case since we do have a written Plan Document there is a Plan and therefore needs to be formally terminated.  This may be an ultra-conservative view and would appreciate if anyone else has a different view.

Lou S., thank you for mentioning professional-conduct standards.

About the “alphabet soup” associations’ codes, does any call a member to do something beyond a duty to provide correct advice?

If a client receives and considers the professional’s advice but decides to do what the professional believes is contrary to law, does the professional have any further responsibility?

Not to aid and abet the actions that the client chooses to pursue that the advisor  has declared unlawful?

It depends. Inter alia, see “zugzwang” and, for fun, the definition of “lawyer” in The Devil’s Dictionary.

QDROphile, thank you.

My question presumes an adviser has advised her advisee to do the right thing. And that the adviser is not a preparer of, or otherwise associated with, a tax return or other act that supports an incorrect thing.

Others’ observations?

Unless you’re also in the business of providing tax or legal advice we only provide a recommendation to seek such professional counsel.

Give me a call.  I know a guy who can help someone or something 'disappear' 😉