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Multiple plans run by common interest


Guest mlmarvin

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Guest mlmarvin

A new client asked me to take a look at his retirement programs....I've uncovered a problem and would appreciate any advice inre solutions. He runs two businesses; in business A, he is the sole employee and he has a combo money purchase/profit sharing plan, to which he contributes the maximum.

In business B, he is a 50% owner, and in 2004 the company started a SIMPLE plan for its employees. He does not participate in this program.

This apparent control group violation doesn't appear in the paperwork for the DOL Voluntary Fiduciary Correction Program.

What are the appropriate steps to correct this error? Can the company that set up the SIMPLE (AG Edwards) be held liable for failing to ask about the existence of other retirement programs?

I have directed him to not make any 2005 contributions into any of the plans until this is resolved, but would appreciate any other thoughts.

thanks, mlm

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You need to visit with an ERISA attorney to determine if there is a controlled group situation here. With only 50% ownership in B, unless other owners of B are related to him and unless there are affiliated service group issues, I just don't see it - based on what you have said, anyway.

I'm more concerned with the fact that he doesn't participate in the SIMPLE. Do you mean that he just doesn't defer? That isn't the same as not participating.

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Guest mlmarvin

Thanks for your response. When I say he doesn't participate, I mean he doesn't defer. He co-signed the paperwork to authorize the retirement program for his employees but retained his MPP/PSP plan that was part of his own company because he could put more $$$ in. The two companies are closely related in terms of what they do, and he is an active employee in both. Perhaps I misspoke and was referring to affiliated service group rather than controlled group.

Are you suggesting there is no way to move forward on determining the corrective actions without the use of an ERISA attorney? Thanks again.

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Of course you can take actions without full appreciation of the applicable law and without the assistance of someone who does. You can also represent yourself in court and prepare your own will. I guess you can't pilot your own airplane without a license. You have to make choices of risk and reward, all relative to complexity.

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Having a bad day, huh Qp?

"No way" is a strong statement, but in this case I'd suggest it is wise to do so. Without trying to be too blunt about it, it is pretty obvious that you, alone, do not have a mastery of the applicable law and regulations that govern this area. If you did, you would not have confused the controlled group issue with the affiliated service group issue.

However, with that said, if you provide enough DETAILED FACTS here, maybe somebody, even QDROphile, may give you enough information to make a determination. The facts that you need to provide, at a minimum, are the bueiness entities involved (are they corps? partnerships?), what they do, how they do it and exactly how they interact. This may be more information than you are willing to disclose on a public venue.

If so, consider hiring somebody familiar with these matters, who may be able to give you comfort in very little time.

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Guest Pensions in Paradise

This question doesn't relate to your affiliated service group problem, but why does business A still have a money purchase plan? I thought those dinosaurs were killed off a few years back.

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Guest mlmarvin

Thanks for comments...my question inre the ERISA atty was whether self-help was even an option. The question is not just complexity but cost/benefit of retaining counsel, and the questions I client might reasonably have would include--

1. What happens if I don't do anything?

2. Can this be done by someone in my office (ie is it more admin than legal interpretation)?

Ideally, one wouldn't need an ERISA atty to respond to those questions. Guess I touched on a sore subject.

To answer your follow-on questions, Mike P, these two companies work out of the same office and do exactly the same work--political consulting. The 2nd company was formed when the client had an interest in joint venturing with another individual but didn't want or need to give up his own company. Both are S-corps, one an LLC and one an LLP. They do not share clients per se, but all their clients are in the same industry and all are seeking the same consulting/lobbying services.

The PSP/MPP was put in place in the mid 1990s (when it wasn't a dinosaur) and before the partnership was established. My involvement initially was scheduled to be a consolidating of those plans into a SEP going forward until I discovered this issue.

I'm not trying to circumnavigate an ERISA attorney, just trying to give as much information to the client as possible to allow him/them to make an informed choice. Thanks for your reasoned response.

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You ARE trying to avoid the issue of an ERISA attorney, and in this case, I think that is silly. Even when I ask, you still don't provide specifics. Yes, both are SCorps and one is an LLP and the other not. Which is which? The mere fact that you don't know that you need to be precise when you lay this out is precisely why you need an ERISA attorney.

The stakes are high. Complete disqualification of the MP/PS plans. How much in there? Poof. Gone. Between income and excise taxes, along with penalties (even though penalties don't get paid from the trusts). On your watch?

Does the public consider them one entity, and they internally just split them up the way they want? Is there one phone being answered? Two separate phone lines? Answered by the same person? Who pays that person? What is the arrangement for that person, 1099 or W-2?

Who owns the other 50%? Related in any way? Is it a real ownership?

There are just way too many facts that need to be pinned down to determine what is going on, once you identify the fact that they are practicing out of the same location.

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Guest mlmarvin

Sorry for apparent vagueness. I mentioned he was sole employee/owner of one of the companies, so that company is not eligible to be an LLP. The point I'm failing to enunciate clearly here is that I believe there is an ASG violation and I want to identify appropriate steps to redress, not to learn whether there was a violation in the first place.

I had assumed this was a problem that had occured many thousands of times in the past and there were some standard steps one went through to rectify, but it appears as though that is not correct.

If I discover an error in a client's tax return, I don't automatically recommend they contact a tax attorney (though that often happens), but rather give the client a range of options that may include self-correction, CPA consultation, etc. That was my purpose in posting here--to identify a range of options that may include self-correction, if that is the way the client wants to go.

To address your follow-on Qs, yes the public considers them as one entity; there is one phone answered by the same person and paid W-2 income from both companies.

Thanks for your continued interest.

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Guest Pensions in Paradise

Based on what you have provided, the client should consult with counsel.

Anyway, assuming the two entities are an affiliated service group, there are two problems which jump out at me. First, the two entities cannot sponsor a SIMPLE at the same time they sponsor a qualified plan. Second, the qualified plans should have covered the employees of business B.

And the DOL Voluntary Fiduciary Correction Program isn't the correct place to look, it's the IRS Employee Plans Compliance Resolution System.

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Guest mlmarvin

Thanks very much. You have confirmed the original concerns. And thanks for the IRS directions, which I will convey to the client (with strong recommendation that we work with counsel).

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