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No. Would potentially apply if the plan fiduciary has ANY ulterior motive for the investment. She's investing OPM (other people's money). If has no ulterior motive, and is simply doing it because she thinks it will make the most money for her and the other participants at reasonable risk, then maybe no PT, but is the investment prudent? Anyway, the fact that this is a 50/50 investment with a friend suggests that there may in fact be an ulterior motive/judgement clouding interest that would result in a PT under 4975(c)(1)(E) and parallel ERISA provision.

Thanks, Bill. I came to that conclusion after I posted this. I just may credit the regular employee with the $500 so the deduction is intact.

Believe me, I am trying but to no avail but the year is still young.

Before doing anything else, they should amend the plan to a 401(k) and start deferring the maximum. That would likely eliminate the deduction issue going forward and give them additional contributions.

5500Nerd, maybe I'm missing something but it sounds to me like you have, and still have, just one plan, that is, the "mega-wrap ERISA Plan," and the change in funding source is not going to change that or the plan year. You're probably 100 or over, so will still need a CPA audit for 2020 for portion of year had the trust. Hey, there is going to be a December 31 this year, right? You're making me nervous.

They're not asking for the ADP distributions done in 2020 to be listed on the 2019 5500 as well? That would at least balance the distributions. Of course, they could always change their mind by December 31 and do a QNEC. (That tempers my desire to see it listed as payable, because the expect refund doesn't "have" to be actually paid.)

That was 5 years ago. I don't remember what I was doing 5 hours ago.

Benefitsrock: The arrangement is not subject to income tax. See Private Letter Ruling 199921036. Here, the benefits are entirely self-funded. "Federal tax cases have held life insurance contracts to exist in situations where there is not a standard commercial life insurance contract between the insured and the insurer." "Taxpayer's death benefits are paid from Taxpayer's general account, rather than from a particular fund. Under Taxpayer's representation that it has ample funds to pay Plan benefits, this difference with Odom should not affect the result." Conclusion: "Amounts received as death benefit payments from Taxpayer are amounts received under a life insurance contract that are excludable from gross income under 101(a)." Don Levit