Form 5310 is required to be filed with the IRS when a group decides to terminate its qualified retirement plan. This applies to defined contribution as well as defined benefit plans. We have divided these applications to terminate into two files: CLOSED (already granted permission to terminate) and OPEN (have not yet received permission to terminate). The time period represented here is from January 1, 2001 to January 31, 2016. Both files will be updated on a monthly basis. Each month those that receive permission to terminate will be moved to the CLOSED file and new groups just applying to terminate their plan will be added to the OPEN file.

Learn More: 5310 Data Is the Key to Plan Rollovers  |  What Plan Sponsors Need

5310 Data Is the Key to Plan Rollovers

How can you use FreeERISA.com to tap the lucrative rollover market in your area? Specifically, how can you use the data to identify plans that are candidates to make distributions to participants-because the plan is terminating?

In today's market, vast numbers of plans are terminating because of changes in ownership, liquidations, mergers, adverse business conditions, adoption of a new plan, or other reasons. In most cases, these plans are required to vest all participant balances at termination, while giving participants proper notice of their options for receiving distributions. It's possible that hundreds of participants per company could be looking for professional rollover guidance-if only you could find them soon enough.

In a two-part series, we'll help you take advantage of this opportunity. This first part focuses on how to use our online database of IRS Form 5310 filings to identify terminating plans in your market. Next month, in Part II, we'll cover ideas for getting access to those plans' participants, so you can contact and counsel them.

FreeERISA's Form 5310 Database

One of the most valuable FreeERISA resources is our Form 5310 database, which contains timely information unavailable anywhere else on the Internet. To use the data effectively, you need some knowledge-beginning with why companies file Form 5310.

Form 5310, Application for Determination for Terminating Plan, is submitted by defined contribution and defined benefit plans that want to terminate, many months before the plan distributes assets to participants. Filing this document often is among the "first steps" in a long chain of events leading to termination. Since the act of filing 5310 is a matter of public record, it effectively announces to everyone, including participants, the intent to terminate. (Note: The full 5310 filing is public record only for companies with more than 25 participants. However, every participant has a right to inspect his/her plan's full filing and supporting documents.)

This filing is not always required by the IRS to terminate a plan. It seeks a favorable determination from the IRS that a plan is tax-qualified at the time of termination. Without this ruling, the plan's trustees and administrators face enormous liability-since actions taken during termination or before could disqualify the plan. Once a plan is closed, there may be few effective remedies for correcting deficiencies. Also, several IRS districts have targeted for increased audit surveillance terminated plans that have not filed 5310. Therefore, 5310 is filed by virtually all responsible plans with intent to terminate, unless administrators or trustees have strong reason to believe the plan is tax-qualified for other reasons.

In today's era of turnkey prototypes, retirement plans can be like a "roach motel"-easier for companies to get in them than out. The 5310 is among the complex document to file, requiring on average 62 hours to understand, prepare and assemble (including necessary recordkeeping), according to an IRS estimate. Once the 5310 is filed and a processing fee is paid, the plan's trustees and administrators can only cross their fingers and hope for a favorable IRS determination. If the response is favorable, they then can proceed to notify employees, arrange for the distribution of accounts, and terminate the plan. If the IRS returns an unfavorable determination, the plan may spend many more months remedying deficiencies, or else challenging finding in court.

Using the Database

The FreeERISA Form 5310 Database is very current, often including filings made as recently as about 30 days ago, and they are of two types: 1) Companies listed in our "Open" 5310 data have filed for a determination but not yet received an IRS response; 2) Companies in our "Closed" data have had their cases closed by the IRS. Whether or not the determination was favorable, the IRS is no longer evaluating their application. In most cases, "Closed" cases indicate a plan that is proceeding toward (or has already completed) termination. Technically, however, a plan does not "close" until the last dollar has been distributed to participants.

How should you use the 5310 database in prospecting rollover candidates? Here are a few ideas:

• Develop a regular routine for checking the "Open" data for your state. New filings are added regularly. Since these filings are public, time is of the essence in contacting the company and its participants. The sooner you identify a termination candidate, the better.
• Don't assume that all distributions must await a "Closed" status or favorable termination. Some employees may have the option of taking distributions before the plan terminates, and a public announcement of "intent to terminate" can motivate them to move money. An intent to terminate often signals an event such as a downsizing, merger or bankruptcy that may cause workers to leave the company before the plan terminates.
• You can access 5310 "Open" data by state and sort each list by sponsor, zip code, EIN plan number, number of participants, and control date.
• Once attractive rollover candidates have been identified, you can further research facts about their plan by looking up their most recent Form 5500 filing on FreeERISA. When 5500s are available for companies filing 5310s, you will see a blue link in the 5310 database. Click it to access the 5500 and any attached forms filed by the same plan. Our 5310 database reveals the number of participants in each plan, for example, but not total plan assets. For that and other detailed data, check the 5500.
• You will need to cross-reference the 5500 to obtain the name of the plan's trustee and/or administrator. As soon as you identify an attractive company in the "Open" 5310 database, make an introductory phone call to this person. Say that you have detected the 5310 filing in publicly available data, introduce yourself, and indicate that you would like to help the company and its participants make this transition successfully and smoothly. Ask for an appointment to present your qualifications and services.
• Ask the company if plan participants have been made aware of the filing. If so, ask how. If not, urge the company to make a proactive positive announcement. Explain that otherwise participants will find out, and rumors will spread. The announcement should indicate clearly the reason for the termination. It also should emphasize that participants will be given education, information and choices-when the termination is approved.
• Don't delay even one day in making this call. Your goal is to be the first financial advisor to call a decision-maker at the plan, right after the 5310 is filed. You won't be the last!
• Make a commitment to check the 5310 "Open" data for your state at least once each week. Build it into your routine. Teach your assistant or secretary how.

Next month, we'll discuss valuable professional services that you can offer to plan trustees, administrators and participants after the 5310 has been filed. We'll also discuss tactics for reaching and counseling potential rollover recipients-with or without the company's blessing.

Note: You can download Form 5310 and also the instructions in the "Forms and Publications" section of www.irs.gov.

Prospect Among Terminating Plans by Solving "Notification" Problems

Last month, we offered ideas on how to use FreeERISA's 5310 database of terminating pension plans to generate leads in your market. This month, let's focus on ideas for contacting those leads and turning them into participants you can counsel and rollover assets you can capture. Keep in mind that many "5310 terminations" occur when a company changes from one type of plan to another, such as converting from a defined benefit or money purchase plan to a profit-sharing or 401(k) plan.

From a plan fiduciary's perspective, there are two separate areas of responsibility regarding terminations. One involves handling money. The other involves notifying participants of their rights and options.

In terms of handling money, a plan technically does not terminate until the last distribution is made. However, this event occurs at the end of a long chain of complex requirements involving participant notification. Two recent developments have made this chain even more difficult for plans to manage.

• EGTRRA and related IRS regulations have created a new excise tax, which applies when a plan administrator fails to provide timely notice prior to the effective date of any plan amendment that provides for a significant reduction in future benefit accruals. The excise tax is assessed at the rate of $100 per participant per day. It applies to all plans subject to Section 204(h) notification requirements of ERISA, including defined benefit and "individual account" plans subject to minimum funding requirements. For details, see Federal Register Volume 67 No. 78, page 19713, 4/23/02.
• Revenue Ruling 2002-42 holds that when a money purchase plan is partially terminated and its assets are converted to a profit-sharing plan, the notice requirements of 204(h) do apply.

Section 204(h) notification is one of the most difficult compliance burdens in pension law, because it mandates that notification be made within a "reasonable time" (usually 45 days prior to an amendment's becoming effective) and in a manner "calculated to be understood by the average participant." It's not enough to post notices on bulletin boards and company Web sites. Section 204(h) also contains "receipt requirements" that specify acceptable delivery to each individual.

Aside from 204(h), which does not require action on the participant's part, terminating defined contribution plans must notify participants of their right to receive plan money in four ways:

• Outright distribution.
• Rollover to a new company plan, if one if offered.
• Transfer or rollover to an IRA.
• Transfer to an annuity, for participants who do not choose one of the three options above.

A participant in a terminating defined contribution plan is generally entitled to immediate vesting of all employer contributions, and the participant may not be forced to roll over money to a new company plan. In selecting the "default choice" of an annuity, the plan administrator or trustee is subject to ERISA fiduciary requirements. Participants may not elect an IRA rollover within 30 days of the time they have been notified by the plan of their ability to make a direct IRA transfer, unless this right is waived.

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What Plan Sponsors Need

Given these complex rules, what do most companies want in their "participant notification" campaign?

1. They need help from professionals who fully understand all applicable laws and regulations.
2. If a terminating plan is being replaced, they usually want participants to elect a transfer of assets to the new plan, while also understanding their rights and choices.
3. If the terminating plan is not being replaced, they usually want participants to make direct transfers to an IRA of their choice, based on professional guidance. They don't want the fiduciary responsibilities of making an annuity default choice.
4. Some companies don't want "salesmen" involved in this process. They want objective, unbiased communicators and educators.

Given the complexity of notification requirements, especially 204(h), you should team up with an ERISA attorney to deliver the participant communication that terminating plans need. The attorney should prepare a time line of all important notification events and deadlines and review all participant communications prior to release. You should work closely with the company to implement the time line and coordinate communications.

What You Want from the Company

In return for helping companies manage the notification process, you want them to give you one or more of three advantages:

1. A list of plan participants with some contact information (phone or address).
2. Help in communicating information about your services.
3. An introduction or endorsement from a top company executive.

These advantages can be offered in many forms. For example, some companies provide a full list of current participants with "census data" such as plan balances. Others may hand you a plain company directory. Some companies allow qualified financial advisors to meet participant groups in the cafeteria during the lunch break. Others won't go beyond posting an announcement of your meetings held off-site. Your role in managing the notification process is valuable, and you should negotiate advantages that give you an opportunity to meet participants directly, so you can do the job right. Emphasize to company executives that it only takes a few discontented participants to stir up trouble all over the company. Your job is to increase the level of confidence and satisfaction among all participants.

Going Around the Company

If a plan with 100 or more participants in your market is terminating, and you can't make inroads with the company, don't give up! Participants need your help to make sound retirement decisions, and their interests don't always align with those of the sponsor. In some cases, you can gain valuable rollover clients and do the best job for them when you don't work with the sponsor's blessing.

The most ethical way to reach employees directly is to be referred to them by another individual (such as an existing client) and contact them at home, not work. Do a great job counseling one individual on all choices available. Once you know that person is satisfied with your services, ask for referrals to others. Soon, you can build a referral network among many participants in the same company. Workplace referrals can be powerful, especially if there is resentment against the company for terminating a plan or providing too little communication.

In some cases, companies put pressure on workers to sign releases or waivers so they can accelerate the notification process. Whether or not you have the company's blessing, let participants know that they should not sign any such documents before they clearly understand all rights and options available. Offer to spend 30 minutes explaining rights and options to every participant, down to the lowest paid, and you will gain respect and referrals.

The Participant Is King

Despite the new notification requirements, the needs of the individual participant continue to fall through the cracks in plan terminations. In many cases, that happens not because companies are insensitive or greedy but because they are short-handed and time-pressured. Your job is to make each individual participant the "king" of the termination process. Your message should be that nothing is more important than having each participant depart the plan informed, confident and satisfied.

If you will use FreeERISA's 5310 database to identify terminating plans in your market, and then do that job and deliver that message, your work will be appreciated and rewarded with rollover business.

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