Employer Out of Business

An employer has already gone out of business due to the business impact of coronavirus. All employees have been terminated. They had over 200 participants at the end of 2019. Are they able to submit their final 5500 without an audit? The business is shuttered and there is presumably no one still employed to even have the auditors in. How is this to be handled?

Employed or not, the plan fiduciaries remain fiduciaries until the plan is completely shut down.  That said, they may not be willing to continue to function in that capacity post termination - but if the DOL get's involved, they could change their mind.

I believe the audit is still required - along with other responsibilities in administering the plan, and then shutting it down (properly).  How are distributions being handled?  Even in those cases where we handle distributions without employer intervention (non-fiduciary outsourcing), we consider that authority to cease when the employer does, and suspend distributions.  That usually triggers DOL intervention - and after a sufficient time (if the fiduciaries can't be found) the Abandoned Plan Program becomes the option, depending on who holds the assets, and then the 5500 issues become easier to resolve.

Don't forget the audit costs can be paid from the plan.  That might not be popular but there is a way to get the auditor paid to do it.  It is just a matter of the fiduciary doing their job.

I am about to send out the final distribution forms for a company sold back in 2015.  For a number of reasons the ESOP is only being shut down now.  The former CEO has had to handle all of this and not get paid since 2015.  He is the only one left.  He got the big bucks while CEO and got a healthy balance from the ESOP this is the other side of that coin. 

That the plan’s sponsor is defunct, or even legally dissolved, does not change the plan administrator’s responsibility to file an annual report.  Or to engage an independent qualified public accountant to report on the plan’s financial statements.

If the retirement plan’s administrator is a corporation, even a dissolved corporation has powers to wind up the corporation’s duties and obligations.

If the plan’s administrator is in a chapter 7 bankruptcy proceeding, the chapter 7 trustee “shall continue to perform the obligations required of the [ERISA § 3(16)(A)] administrator.”  Bankruptcy Code (11 U.S.C.) § 704(a)(11).

Don't overlook the (apparent) partial termination in 2020.

There is a lot of information on the IRS website regarding orphaned plans.  In one case, which involved a Chapter 7 where no one remained with knowledge of the Plan  (not an orphan plan), the 5500 was filed late and without an audit.  Significant penalties were proposed, and the Plan appealed to  the Office of the Chief Accountant at the DOL.  Ultimately we were able to get the penalties waived as well as the audit requirement.   Had the chapter 7 liquidation concluded before the plan was terminated, it would have fallen into the IRS and DOL definitions of an orphan plan.

In KHN's case, the Plan fiduciaries continue to have responsibility for the Plan and could be sued for breach of that responsibility by a participant or the DOL.