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7 hours ago, Mike Preston said:

Crickets from MoJo.  Is arm waving really all he has?

Maybe like me he thinks the subject was deeper than first appeared, but the depths have been adequately plumbed, at least for now?

Luke Bailey

Senior Counsel

Clark Hill PLC

214-651-4572 (O) | LBailey@clarkhill.com

2600 Dallas Parkway Suite 600

Frisco, TX 75034

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I don't think so.  He left the impression that his "cite" is his own 40 years of experience.  I've got 41 years in pensions but you don't see me responding to a request for a citation (and my request was easier to satisfy than an actual citation) with me saying that my experience substitutes for one.

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3 hours ago, Mike Preston said:

I don't think so.  He left the impression that his "cite" is his own 40 years of experience.  I've got 41 years in pensions but you don't see me responding to a request for a citation (and my request was easier to satisfy than an actual citation) with me saying that my experience substitutes for one.

Yes, but in your case it does!  In his, it is obvious to all of us, it does not!

Lawrence C. Starr, FLMI, CLU, CEBS, CPC, ChFC, EA, ATA, QPFC
President
Qualified Plan Consultants, Inc.
46 Daggett Drive
West Springfield, MA 01089
413-736-2066
larrystarr@qpc-inc.com

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I avoided even opening this thread because the title looked boring. Then it kept showing up with new posts so I just now opened and read through this. I'm actually quite stunned with some of the positions taken here. My votes, FWIW:

1. If $100k is deposited to a pooled account early in a plan year, it's not allocated as a contribution until the plan says it's allocated. Generally that's the last day of the year.

2. If the $100k earns $5k, that $5k is allocated as earnings and not as additional contributions. (Occasionally, we'll have clients park this $100k in a business account outside the plan. If the $100k earns $5k in that situation AND then $105k is contributed to the plan, THEN the $105k is allocated as contributions).

3. If the $100k loses $5k, the $100k still has to be allocated as a contribution, and the loss is allocated as a loss of earnings. This is generally considered a bad thing.

 

WCP

William C. Presson, ERPA, QPA, QKA
bill.presson@gmail.com
C 205.994.4070
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53 minutes ago, Bill Presson said:

2. If the $100k earns $5k, that $5k is allocated as earnings and not as additional contributions. (Occasionally, we'll have clients park this $100k in a business account outside the plan. If the $100k earns $5k in that situation AND then $105k is contributed to the plan, THEN the $105k is allocated as contributions).

In this example, the $100k is a corporate asset until contributed as $105k right?  

 

 

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1 hour ago, Bill Presson said:

I avoided even opening this thread because the title looked boring. Then it kept showing up with new posts so I just now opened and read through this. I'm actually quite stunned with some of the positions taken here. My votes, FWIW:

1. If $100k is deposited to a pooled account early in a plan year, it's not allocated as a contribution until the plan says it's allocated. Generally that's the last day of the year.

2. If the $100k earns $5k, that $5k is allocated as earnings and not as additional contributions. (Occasionally, we'll have clients park this $100k in a business account outside the plan. If the $100k earns $5k in that situation AND then $105k is contributed to the plan, THEN the $105k is allocated as contributions).

3. If the $100k loses $5k, the $100k still has to be allocated as a contribution, and the loss is allocated as a loss of earnings. This is generally considered a bad thing.

 

WCP

Yeah I didn't look until yesterday either for the same reason.   Agree with the above, regardless of deposit date, a contribution isn't allocated until the plan says it's allocated.   The earnings or loss mentioned in (2) [when deposited to the plan] and (3), are allocated as earnings to the entire plan, not just the recipients of that $100K contribution.  

Which I think agrees with Mike and Larry too.   

 

I carry stuff uphill for others who get all the glory.

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2 hours ago, Bill Presson said:

I avoided even opening this thread because the title looked boring. Then it kept showing up with new posts so I just now opened and read through this. I'm actually quite stunned with some of the positions taken here. My votes, FWIW:

1. If $100k is deposited to a pooled account early in a plan year, it's not allocated as a contribution until the plan says it's allocated. Generally that's the last day of the year.

2. If the $100k earns $5k, that $5k is allocated as earnings and not as additional contributions. (Occasionally, we'll have clients park this $100k in a business account outside the plan. If the $100k earns $5k in that situation AND then $105k is contributed to the plan, THEN the $105k is allocated as contributions).

3. If the $100k loses $5k, the $100k still has to be allocated as a contribution, and the loss is allocated as a loss of earnings. This is generally considered a bad thing.

 

WCP

I with these conclusions, but it's odd that there does not seem to be any guidance specifically on this issue. My guess is that in the absence of guidance or high visibility for the issue, it is done both ways without incident in actual plan administration, and maybe if there is any further discussion, that is where it should be concentrated, i.e., what folks' experience is as to what is done in practice. I think the legal arguments against allocating the $5k earnings based on compensation are that (a) it is likely contrary to the plan document, although the document is unlikely to cover the transaction with specificity and (b) allocating the $5k as a contribution is a prohibited transaction as a use of plan assets for the benefit of an interested party/disqualified person.

Luke Bailey

Senior Counsel

Clark Hill PLC

214-651-4572 (O) | LBailey@clarkhill.com

2600 Dallas Parkway Suite 600

Frisco, TX 75034

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2 hours ago, Bill Presson said:

(Occasionally, we'll have clients park this $100k in a business account outside the plan. If the $100k earns $5k in that situation AND then $105k is contributed to the plan, THEN the $105k is allocated as contributions).

In this case, I think the $5k would be taxable gains, and the business would get a deduction when they contribute it to the plan.

Free advice is worth what you paid for it. Do not rely on the information provided in this post for any purpose, including (but not limited to): tax planning, compliance with ERISA or the IRC, investing or other forms of fortune-telling, bird identification, relationship advice, or spiritual guidance.

Corey B. Zeller, MSEA, CPC, QPA, QKA
Preferred Pension Planning Corp.
corey@pppc.co

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3 hours ago, Bill Presson said:

I avoided even opening this thread because the title looked boring. Then it kept showing up with new posts so I just now opened and read through this. I'm actually quite stunned with some of the positions taken here. My votes, FWIW:

1. If $100k is deposited to a pooled account early in a plan year, it's not allocated as a contribution until the plan says it's allocated. Generally that's the last day of the year.

2. If the $100k earns $5k, that $5k is allocated as earnings and not as additional contributions. (Occasionally, we'll have clients park this $100k in a business account outside the plan. If the $100k earns $5k in that situation AND then $105k is contributed to the plan, THEN the $105k is allocated as contributions).

3. If the $100k loses $5k, the $100k still has to be allocated as a contribution, and the loss is allocated as a loss of earnings. This is generally considered a bad thing.

 

I gave you a "like" - since that's what I've been saying from the beginning...

Ed Snyder

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48 minutes ago, Luke Bailey said:

I with these conclusions, but it's odd that there does not seem to be any guidance specifically on this issue. My guess is that in the absence of guidance or high visibility for the issue, it is done both ways without incident in actual plan administration, and maybe if there is any further discussion, that is where it should be concentrated, i.e., what folks' experience is as to what is done in practice. I think the legal arguments against allocating the $5k earnings based on compensation are that (a) it is likely contrary to the plan document, although the document is unlikely to cover the transaction with specificity and (b) allocating the $5k as a contribution is a prohibited transaction as a use of plan assets for the benefit of an interested party/disqualified person.

Luke, I agree with the conclusions, but don't agree that there isn't guidance. There is. It's in the document. It says exactly what to allocate, how to allocate, and when to allocate.

William C. Presson, ERPA, QPA, QKA
bill.presson@gmail.com
C 205.994.4070
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32 minutes ago, Bill Presson said:

Luke, I agree with the conclusions, but don't agree that there isn't guidance. There is. It's in the document. It says exactly what to allocate, how to allocate, and when to allocate.

Bill, I agree, which is why I said one of two legal issues would be not following your plan document. I guess the question is, if this answer is obvious to just about everyone (and it did not seem to me to be so in the early stages of this thread, but I may have misinterpreted some posts), then that's it. If there is a significant minority of folks who do it the other way, then there may be a need for guidance.

Luke Bailey

Senior Counsel

Clark Hill PLC

214-651-4572 (O) | LBailey@clarkhill.com

2600 Dallas Parkway Suite 600

Frisco, TX 75034

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To recap, this thread is discussing two different issues:

1) In a balance forward defined contribution plan where allocation of contributions takes place on the last day of the plan year amd where EOY employment is required to receive a portion of the contribution, is it prohibited for a plan sponsor to make a contribution before the last day of the year?

2) Whether a balance forward plan or an individually directed plan and assuming a deposit before the end of the year is not prohibited, do the earnings which accrue on those deposits attach to the contribution in some way? Given that the earnings in question do not constitute annual additions.

My answer to (1) is a very strong NO. MoJo seems to be a very strong YES.  

My answer to (2) is a bit nuanced. In a pooled environment, strong NO.  In an individually directed plan I can go either way.  

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9 hours ago, Mike Preston said:

To recap, this thread is discussing two different issues:

1) In a balance forward defined contribution plan where allocation of contributions takes place on the last day of the plan year amd where EOY employment is required to receive a portion of the contribution, is it prohibited for a plan sponsor to make a contribution before the last day of the year?

2) Whether a balance forward plan or an individually directed plan and assuming a deposit before the end of the year is not prohibited, do the earnings which accrue on those deposits attach to the contribution in some way? Given that the earnings in question do not constitute annual additions.

My answer to (1) is a very strong NO. MoJo seems to be a very strong YES.  

My answer to (2) is a bit nuanced. In a pooled environment, strong NO.  In an individually directed plan I can go either way.  

IAWMP

I carry stuff uphill for others who get all the glory.

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