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Interesting exercise, but to be honest, I would never dream of questioning or "calling out" the service of the daughters, based upon the statement by the CPA that they don't work there. I feel like that crosses a line (what line, I'm not sure) but I frankly don't think it is my business to question that. Now, if the CLIENT had told me the daughters don't actually work there, that's a different circumstance altogether. Then I'd just resign as TPA. Can't correct egregious fraud under VCP! P.S. - question for the CPA's out there- is the CPA violating any professional ethics by telling this to the TPA?

But, this is really "hearsay." Just because the accountant said this doesn't mean it is true, and you have actual knowledge that fraud is being committed. I reiterate my opinion that it is not your problem. (I will also say that nearly every standard census gathering sheet that I've seen or the engagement letter, etc., would all say that you are relying on the accuracy of the information provided by the client)

Interesting. So, absent this (alleged) action, the taxable income of the owner (or perhaps the company) would greater, but each daughter's income generates more FICA tax. Is that about it?

From a professional responsibility point view, Circular 230 and the code of conduct for most professional organizations make it pretty clear that you can't perform services to the client based on information you know to be false or incomplete.

The next obvious question is if they report a 1,000 hours how do you know the don't ever work for the company? Are they telling you the census data is false? They could be doing that but it seems odd. I say that because if they know they aren't working but reporting 1,000 hours that pretty much is admitting they know they are breaking the rules by sending false data because they know you need that data to make it all work. Then I guess the question really might be what is your obligation knowing the data is false?

No. No.

...and then amend the plan to everyone in their own group?

"I won't be able to individually target young NHCEs because they are also lumped together (just 3 tiers in plan overall...hundreds of people). " Have you considered letting the test fail and then adopting an 11(g) amendment which does exactly what you say you can't do?

Just so we all learn together, let me ask what BenefitsLink mavens think about a variation on the hypothetical situation: Assume the TPA is not a signer or preparer of any tax return. The TPA performs all requested work using the data set its client furnished. In delivering the TPA's report to its client, the TPA includes written explanations calling out that the owner's daughters' service and compensation information seems doubtful. The TPA explains that the results would be different if the work assumed different amounts. The TPA explains that the plan might be misadministered (and might be tax-disqualified) if a contribution was determined from an amount that is not really compensation for services rendered. The employer/administrator receives the report, confirms that it understands the TPA's advice, and makes no change. The employer and administrator file the plan's Form 5500 report and all tax returns of the employer and business assuming the daughters' false compensation and contribution, and the business's deductions and other tax treatments based on them. By explaining correct information to the TPA's client, has the TPA's employee done what her profession's ethics rules ask of her? Is there something further the TPA's employee must do? Is there something further the TPA's employee should do? What, if anything, must the TPA's employee refrain from doing? For each of these questions, why?

"Some (but a growing number - especially for California participants) name the service provider (not the plan - because except for a DRO, the plan can pretty much ignore the court under ERISA preemption) as parties to the divorce action and then are automatically enjoined from distributing participant balances pending further order of the court." Mojo - can you educate me a bit on this? What are the requirements for validly "naming" someone as a "party" to a divorce action? If the service provider has no discretionary authority, then would it have any actual effect regardless of whether they are named or not? If there is discretionary authority, then wouldn't the service provider be a fiduciary, which is generally what we seek to avoid at all costs! I'm not a lawyer, and I really have no idea what the intricacies are... Thanks.

Your knowledge is from a third party (the accountant) -- is he an actual employee of the business? Who signs the 941/940 federal payroll tax reports? I would think he (and they) have much more liability than you do. However, I wonder if some type of statement that they provide with the data about it "being accurate and true to their knowledge" would provide you any more protection? Or would that just prove that you had your suspicions? But someone can have another FT job and still work in the family business from home, consulting, etc. So not totally ruling out the fact that they might actually do some work at least... Our company has a few of these types of employees that one would never see "at work" but work from home, etc.

Trying to apply some subtle humor here (probably too subtle and too negative). I meant socializing with the client after they are sentenced to prison for tax fraud. As a fellow inmate. Is it really worth your while to provide services to so sketchy a client?

Not a lawyer and not someone who practices in the small plan 401(k) arena. Just wondering - if the daughters have not ever worked for the company, not even for 5 minutes, what is being reported for hours? In the other discussion thread, at least the owner's wife would go in an do something useful on occasion. How could the company justify anything paid to the owners daughters here as compensation? Wouldn't the 401(k) contribution be limited to what was actually being paid as compensation for services rendered (as opposed to what could only otherwise be characterized as distribution of profits or even diversion of company assets by the owner). How is any aspect of this not, at best, tax fraud? As a taxpayer, I have no reason to want them to be able to do this.

Here is the similar discussion:

Yes, it is tax fraud. I responded to this in your other post. But that's the client's problem, not the TPA's.

Well, that's tax fraud. But that's the client's problem, not the TPA's.

"Use extreme caution" does not have much meaning. How about "understand the law and follow it"? Despite the the incorrect informal position of the Department of Labor, receipt of a draft domestic relations order is no basis for restricting rights of a participant unless the written QDRO procedures expressly provide otherwise and specify exactly what happens on receipt of a draft.

Thanks, J Simmons. I accept that. I had the wrong opinion of what "accrue" means. (For now, I don't know what it means.) So, send the DRO back for clarification about the earnings.

The are out of luck for deferrals. S-corp dividends and not eligible comp for qualified plans; just their W-2 wages. They can allocate a PS enough to give them a total of $53,000 (+6,000 if they are over 50). But who knows how much more it'll cost for the staff?

Kind of related I would prefer if I only see one copy of each topic. For example currently if I go to All Activity I see this topic once where the original question was asked, then a second time where you replied and I assume after I add this I will see it a third time. I haven't found a filter to get it such I just see this topic once. If there is a way to just see it once it would be great and any insight how to set the filters to do that would be helpful. Thanks

Mike Preston is 100% correct (of course!). Put another way, while you may be doing an allocation that happens to yield the results of a safe harbor formula, that formula is not in the document, so you have to general test. That should pass the general test, with the caveats noted.