The enactment of EGTRRA may result in the merger of a plan sponsor’s money purchase and profit sharing plans. It may be useful to examine the most efficient means of reporting such activity on Form 5500.
The merger document must be carefully scrutinized to identify whether or not the merger date is linked to the physical transfer of assets. Most ERISA practitioners prefer to effect the merger as of a specific date without regard to the administrative issues relating to the transfer of plan assets. Suppose Plan A is merged with Plan B effective as of the close of the 2001 calendar plan year, and that Plan A is the surviving plan. Effectively, the merger documents legally transferred to Plan A all assets and liabilities of Plan B immediately after the close of the 2001 plan year. As of January 1, 2002, Plan B has no assets or liabilities. The 2001 Form 5500 for Plan B, the disappearing plan, must be prepared so the EFAST system expects no further filings for Plan B. In essence, Plan B is terminated December 31, 2001 as far as EFAST is concerned.
The preparer of the filing for Plan B’s final return will check box (3) at Line B on Form 5500, and show a zero participant count at lines 7a through 7g. Further, the asset values as of the last day of the plan year as reported on either Schedule H or Schedule I must be zero. In some cases, it is appropriate to show the full amount of plan assets as a payable on these schedules in order to reduce the assets to zero. Also be sure the information reported on Schedule SSA is up-to-date, including the reporting for those terminated participants that were previously reported and whose benefits have been distributed prior to the plan merger.
Lines 4k and 5a of Schedule H and lines 4j and 5a of Schedule I (relating to plan termination) must be completed as though the plan was terminated. At line 5b of either schedule, report the transfer of assets to Plan A.
In contrast, the 2001 Form 5500 for Plan A will reflect nothing relating to the merger. Instead, Plan A records the transfer of assets and liabilities as of the first day of its 2002 plan year and also reports on its 2002 Schedule SSA any previously terminated participants with vested benefits from Plan B whose deferred benefits have been transferred to Plan A. Reporting in this fashion is consistent with what appears on the report of an independent accountant (for large plans). Some preparers, nonetheless, are uncomfortable with Plan B reporting a transfer of assets to Plan A without a corresponding entry on Plan A’s filing in the same year. In those circumstances, it may be appropriate to use a footnote on Plan A’s Schedule H or Schedule I to disclose the merger.
Important note: the reporting suggestions above must not be used to report a traditional plan termination. The Form 5500 must be filed until all plan assets have been distributed if the plan is terminating. The final Form 5500, including any required report of an independent accountant, is due seven months after the end of the month in which the assets are fully distributed.