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At least from the individual-account plan, and perhaps from the defined-benefit plan too, the partners might consider a spin-off in which a new plan for Joe’s new firm accepts a symmetry of assets and obligations allocable to Joe and those who follow Joe into Joe’s firm. The partners ought not do a spin-off until Mary, with her lawyer’s and her actuary’s advice, and Joe, with his lawyer’s and his actuary’s advice, each finds that the split is fair. If the partners agree on a spin-off, might they prefer transfers-out with December’s year-close and transfers-in with January’s beginning?

There are several issues at play here. 1) While the plan might not be underfunded on Funding Target basis it still can be underfunded on Plan Termination basis (Total of Accumulated Cash Balances is more than the current assets in the trust). This is for an actuary (plan actuary or an independent actuary you might hire) to review and explain. 2) 110% limitation applies to top-25 highest paid ever. It might or might not have an impact on your spouse. This is for the plan actuary to determine. Please be aware there is quite a bit of latitude how to calculate 110% test (funding basis, plan termination basis, etc.). The test needs to be satisfied AFTER the payout. Most likely your spouse (as individual participant) is not able to "manipulate" the process in your favor since this would be a plan sponsor/plan administratior function. 3) Allocation of pension expense to individual partners is definitely governed by the partnership agreements, review that carefully, ideally with legal assistantce. 4) It sounds like you are going to challenge the existing processes/administrative processes. If so, the plan's actuary might find herself in an akward position facing a potential conflict of interest. The plan's actuary job is to assure the proper administration of the plan in accordance with the legal plan document and the current laws. I personally would probably turn that type of inquiry from an individual partner down. You might want to consider hiring your own actuary for evaluation of the best options form your perspective. 5) Keep in mind that your spouse does not need to take the money upon termination. She has a right to simply leave it in and wait until the funding improves and keep earning interest while waiting. If she is responsible for underfunding of the plan or not mostly likely it would be on the partnesrship agreement level.

Because the way you value liabilities and assets for the 5500, might not be the same as if you terminated the Plan and had to pay out all participants. The IRS mandated interest rates for valuing the Funding Target might produce a number that is higher or lower than the sum of all hypothetical balances in plan which might be different still form the actual assets in the Plan. Also if the Plan is using Actuarial Value of Assets instead of Market Value of Assets to smooth out losses, the Assets reported on the 5500 for calculating that "overfunding" might be more that what is currently in the Plan. That is a long winded way of saying, it's complicated.

A new plan(s) will be needed, presumably for Joe's company. A spin-off, as suggested by Peter Gulia, feels better to me, although I'm not sure if there is any significant difference between that and treating the employees as terminated and then letting them roll over. Well, having said that, there are two issues that come to mind - vesting, and retention of assets. A spin-off keeps the assets under Joe's control; a termination of employment and distribution of assets means the employees can take the money and run. A SH plan generally needs 3 months but I think there is an exception for a new company just started. I agree that an end-of-year spinoff is the way to go, with a minor quibble; I don't think one plan can release assets on Dec 31 and the other receive them on Jan 1. It should be simultaneous. Depending on the assets, it might be wise to liquidate in December in preparation.

I believe that nothing has changed since the attached ASPPA ASAP was written. The short answer is "before the end of the year in which it is effective" with a caveat that you should consider anti-cutback possibilities. There are also limitations on how frequently you can go back and forth (I think) which are not discussed. 06-07 When Do You Have to Amend to Change 401(k) Testing Methods.pdf

1.416-1 T-22 T–22 Q. In the case of an employer who maintains a single plan, when must the determination whether the plan is top-heavy be made? A. Whether a plan is top-heavy for a particular plan year is determined as of the determination date for such plan year. The determination date with respect to a plan year is defined in section 416(g)(4)(C) as (1) the last day of the preceding plan year, or (2) in the case of the first plan year, the last day of such plan year. Distributions made and the present value of accrued benefits are generally determined as of the determination date. (See Questions and Answers T–24 and T–25 for more specific rules.) See T-23 for rules relating to aggregated plans, but answer is still the same.

Insurancegirl555, I have had a couple of experiences with DOL penalties. The first case was a physician who had ignored prior DOL requests for late returns. I do not recall whether he had previously received from IRS. The good Dr. had also let the time lapse for asking for the statutory penalties to be reduced for reasonable cause (i.e., had missed the deadline for requesting a hearing with Administrative Law Judge. The DOL was adamant that it had no authority to reduce the penalties once the period for requesting a hearing had passed. I had a fairly long conversation with the guy at DOL in DC who was in charge of the division that enforced the nonfiler penalties and understood his rationale and his explanation of precedent. The total penalties were about $125k. Luckily, the Dr. had a professional corporation and the DOL did not try to pierce it. Based on the argument that the PC had little in assets, we got the penalty down to around $40k or $50k as I recall, to be paid over a period of time. In the second case there was plenty of time to file a reasonable cause letter. The issue was that the plan needed an audit and the auditor had not properly performed its engagement. We wrote a detailed explanation to DOL and got the potential penalties substantially reduced. Don't recall the exact numbers, but 75% or 90% reduction, if I remember correctly, like maybe from $50,000 down to $5,000 or $10,000.

I’ve seen practitioners arrange a transfer as of midnight between December 31 and January 1, with the receiving plan’s administrator and its professionals finding that beginning that plan’s Form 5500 reporting with January 1 is good-enough reporting. I’ve also seen transactions in which everything happened within December, and others for which everything happened on January 1 or 2. I’ve never needed to consider which choice of transaction date or what reporting is correct. Other BenefitsLink neighbors can explain the reporting. As with any transaction, a decision-maker shouldn’t conclude anything until one has collaborated advice from one’s lawyers, actuaries, accountants, and other professionals.

I think you need the change before the end of the plan year. I think the rule on time limit Bird mentions was maintaining the current method for 5 years before you can switch. Though I think that was if you wanted to switch to "prior year", I don't think the same restriction applied to changing to "current year".

It would be helpful to learn some more about the prior TPA and about the corrections. When you say the plan document was created in the name of the prior TPA, does this mean that the prior TPA was the Plan Sponsor and the client was participating in that plan (think PEO or PEP, for example)? Or, was the situation simply the prior and new TPAs both use the same document provider and there is a concern that somehow the document provider will not allow the new TPA to amend the plan (which is highly unlikely, but is more an operational question for the document provider). When you say there are certain errors in the original document that need to be corrected retroactively, be very careful about these "certain errors". If they have anything to do with eligibility, vesting, benefit accruals or other protected benefits, then very likely the either the plan will have to live the consequences of the errors for the period the provisions were in effect, or the plan will need to get a blessing from the IRS (file a VCP) for any proposed changes with a retroactive effective date. My Spidey Sense says there is a lot more happening here.

The regulations only provide for permissive disaggregation of otherwise excludable employees using the maximum permissible age and service requirements of age 21 and 1 year of service.

This sounds like you're hoping to apply the flexibility allowed for top paid group determinations, but I don't believe that's provided for in the coverage rules. The only leeway I've seen on that one is when you fall back on the plan's entry dates under liberalized eligibility, as opposed to the straight reading of the rule (where you go six months out from the one year anniversary, even if the plan had dual eligibility and someone snuck in July 1 even if it that were earlier than statutorily required).

I have to say that I don't understand this, sorry. But yes you can restate it in either scenario. My initial thought was that maybe it didn't have to be restated at all (if prior TPA did not sponsor it) but if you need to correct some errors then sure. I'm not sure of the significance of the prior doc being from the same vendor; it's a red herring.

There is no requirement that the top heavy minimum contribution be 100% vested.

Yes, but would appear to meet the requirements for the exemption for a 3-day or less interest-free loan under PTE 80-26. Agree that pulling the funds back if the employer ACH fails seems problematic on at least a couple of points.

Are you actuarially increasing the post NRA benefit and asking what years should be used to determine the 100% of the pay limit? As David said, if the plan was really "hard frozen", I think you would limit it to the average compensation used before the freeze. However, nothing legally wrong with using the current average compensation for that purpose, but would probably require a plan amendment. Consider that any time you amend the plan the effect of the amendment needs to be non-discriminatory, therefore, if the only person who would benefit from the change is an HCE, then the amendment would be difficult to justify. However, if the amendment would benefit NHCEs, then the amendment would likely be fine.

What does the partnership agreement provide about how the partnership’s funding of the cash-balance pension plan is allocated among the partners? Even when public law governs the partnership’s funding obligation to the pension plan, the private law of the partnership agreement might govern the allocations of those and other expenses among a partnership’s partners. A partner might want her lawyer or her certified public accountant (or, perhaps better, their collaborative work) to check the partnership’s accountings and allocations of expenses against the partner’s and her professionals’ independent reading of the partnership agreement. And if those professionals are not pension experts, they might bring in an actuary’s or a lawyer’s work to discern how much of the partnership’s funding obligation is incremental because of a particular partner’s or other individual’s benefit, which might, in turn, help discern how much is allocable to the partner under her partnership agreement.

Is she an HCE? is she eligible for a distribution right away up separation or does the High 25 rule apply that would delay her payout until a future year? when an HCE takes a distribution from a small Cash Balance plan the plan needs to be pretty well funded / over funded so that the benefits for the NHCE aren't jeopardized by the distribution.

In accounting terms, assets are a balance sheet item and compensation is an income statement item. So the phrase "personal assets are not eligible compensation" is frankly nonsensical. If the business is a sole proprietorship, then "personal assets" are indistinguishable from "business assets" and could be used to make contributions. Whether there is business income to support the contributions is an entirely different question. If the business is a corporation, then there is absolutely no way that a participant can make a "personal contribution" (other than as an after-tax contribution and there is no way that will work here). If the business is a sole proprietorship, then if the income warrants it, a contribution might be able to be made from just about any assets under the owner's conrol; whether it is an individual 401(k) contribution or a "company" contribution would have to be determined under the facts and circumstances present, including income. But income for a sole prop is generally determined on the last day of the year, and for whatever reason it is being term'd before that, so arguably there is no income from which to make any type of contribution. Given the post-termination date nature of the discussion, I'd suggest you say "no" and move on.

These above comments and observations are accurate. Whether or not to have an audit for a plan year where it is not required is a business decision for the plan sponsor after taking into consideration the potential of returning to the plan being required to have an audit. One factor to take into consideration when the expense of the audit is being paid from the plan. Consider whether it is appropriate to charge the cost of a plan audit to the plan if an audit is not required.

How is the adviser, or her affiliates or friends, being compensated with respect to your new 401(k) plan? If it is based on assets under management, you would understand why she would want the IRA assets in the fold. Also, there are some providers that have a minimum threshold expectation of volume before accepting a small plan because they get compensated based on assets, such as 12(b)(1) fees. But you should have been told all of this in contemplating the arrangement.

Not! Those of us on the admin side have learned to take what advisors say with a grain of salt, or many grains. Often wrong but never in doubt. You can (should) terminate the SIMPLE but it's ok to leave it alone. Those accounts are essentially just IRA accounts with special funding rules. They are controlled by the employees and you can't force them to "merge" anyway.