Have met with a prospective client that implemented paired profit sharing/money purchase plans in 1994. The money purchase contributions were made for 1994 through 1996. The prospect has had a net losses since 1996, and the client's CPA advised them that since they had net losses, they were not required to make their money purchase plan contributions. The prospect took their CPA's advice.

The prospect would like to fix their plan's defects. I have reviewed the requirements of Rev Proc 2001-17 and the instructions for Form 5330, but am concerned that 5 years of minimum funding deficiencies would be hard to justify.

Does anyone have any thoughts on this situation? Thanks for your assistance.

OK this does not address your question, but my thought is that I would not pursue this as a client. The term "black hole" comes to mind.

Thanks, Pax. Not taking on this client was one of our first thoughts as well.

We have provided the prospect with a list of information necessary to assist them with their plan issues, the first item on the list being the plan documents. Surprise, surprise, the client doesn't have a copies of the adoption agreements. Unless they are able to dig hard and unearth them, they don't have a plan at all, and any deductions they took for MPP contributions made in the past are invalid.

Assuming they cannot find their adoption agreements, what are your thoughts on implementing a brand new 401(k) plan? We would require the client to absolve us in writing of any responsibility for the previous mess, of course, but I am curious as to whether anyone has experience with a similar situation and what they did.

As always, thanks for your thoughts.