Money Purchase Plan term'd in 2003. It was thought that all assets were distributed and final Form 5500 was filed for 2003. It has just come to our attention that one insurance policy still exists in the plan name. A 1099 was issued for the rollover of this policy, but the insurance company never re-styled assets to an IRA for the participant.

Since the assets were not distributed, what do I need to do to bring plan into compliance?

prepare for interim amendments
file 5500's using Delinquent Filer VCP
Anything else?

Thanks!

Spencer,

It sounds as though the last assets have now been rolled out of the terminated plan, but it was long after the 2003 termination effort. I take that from the fact that you've now received a Form 1099-R as to that lingering life insurance policy asset. If that is the case, it might be too late now to do updating amendments--other than through EPCRS filing. See Basch Engineering, TC Memo 1990-212, 59 TCM 482 (April 25, 1990).

If there are yet any assets held in the name of the plan trust, then you might have an easier time of EPCRS with just interim amendments having been missed but there yet be trust corpus and thus a plan to update. That would yet require a VCP filing, but likely a lesser user fee.

And, as you mention, the delinquent f5500 filer program would need to be pursued too. Was a "final" f5500 filed for 2003 (or 2004) showing no assets?

Perhaps one reason the policy was not "re-styled . . . to an IRA for the participant" is because IRAs cannot hold life insurance. The IRA custodian could not accept the policy.

So, you have no choice but to amend the "final" return, file subsequent Forms 5500 under DFVCP, and then go in to VCP to correct the lack of plan amendments (asuming the plan still contains the life ins. asset). Then, distribute the policy, file a final Form 5500, and amend & re-issue the 1099-R for the year of ultimate distribution of the policy (2009?). The individual should amend his/her 1040 for the year of the original issuance of the 1040 (although, unfortunately, that year probably has closed which may, therefore, require payment of yet more income tax--and potential age 59-1/2 excise tax--on the distribution).

Thank you both so much for your help.

The 1099 was issued in 2003 in error (by the insurance agent). The insurance policy still has a cash value so there are still plan assets. I will advise our client that we will need to pursue DFVCP and VCP as a nonamender and advise him to consult his accountant regarding the effects on his personal tax returns.

p.s. Just to clarify, assets should not be distributed until the plan is brought into compliance?

I would advise against payout until compliance corrections completed, except for any minimum required distributions if the participant is age 70 1/2 or older.