May two qualified plans in the same controlled group be permissively aggregated (combined for testing purposes) if they both share the same plan year end but one of them has a different plan year beginning because it is a short plan year? For example, may one aggregate a plan with a 1/1/2011 - 12/31/2011 plan year with a plan with a 7/1/2011 - 12/31/2011 plan year?

It appears that even if one is performing ADP / ACP testing, through cross references one lands at Treas. Reg. 1.410(b)-7(d)(5) and the definition of plan year in 1.410(b)-9. The safe interpretation is that "same plan year" means both the beginning and end of the two plans' plan years are identical, not merely that they end on the same date, but I'm curious whether others have intepreted it differently or whether there is any other IRS or Treasury guidance on the issue.

A participant received a distribution of his entire $10,000 account balance on September 1, 2011 which was not rolled over. As such, the participant received a $8,000 check and $2,000 was withheld for federal income tax withholding purposes. The original reason for the distribution was on account of termination of employment. A 2011 Form 1099-R was properly prepared to report this distribution and the federal tax was withheld and remitted to the IRS.

However, in February, 2012, it was determined that the participant did not have a termination of employment in 2011 (just a change of divisions). Under Section 5.01(3)© of Revenue Procedure 2008-50, it appears that the correction method would be to take reasonable steps to have the amount returned by the participant to the Plan. My question is....what is the amount that the participant should repay to the plan? $8,000 or $10,000?

1) If the participant repays the full $10,000 to the plan, how is the $2,000 of federal tax withholding treated since that $2,000 has already been remitted to the Treasury - - is it just "extra" federal tax withholding that is considered/counted when the participant completes his 2011 Form 1040? Further, is it "fair" to ask the participant to repay more than what the participant received in hand?

2) If the participant only repays $8,000 to the plan, would the IRS consider the error to be corrected even though the participant's account has not been put in the same position as if the error hadn't occurred?

I am assuming under either scenario that the 2011 Form 1099-R would need to be amended to reflect a lesser taxable distribution.

Hello. I have a plan the has always had an audit done b/c they had over 100 participants. For the 2011 plan year their headcount for the beginning of the year has dipped below 100. So they would not need an audit for 2011 correct? We can file as 5500-sf? Also, does this mean that they have to go over 120 again in future years to require an audit be performed again? Based on anything I read this seems correct, just want to be sure I am not missing something. Thanks.

A company maintains a defined benefit pension plan which was closed to new participants in 2007. An employee who once participated in the plan left work prior to 2007. He was rehired in 2009 and was allowed to participate in the plan once again because of his prior years of service. Does this raise any compliance/legal issues? Any authority covering this situation?

I have a small PS/401k plan getting ready to undergo an IRS audit. The plan document was prepared by Morgan Stanley Smith Barney (MSSB) and our TPA firm does the recordkeeping.

The local MSSB broker who handled the EGTRRA restatement recently switched brokerage firms, and another branch office of MSSB took over. No one in the takeover MSSB office can find the EGTRRA document or any amendments. I know that the EGTRRA restatement was done since I have a draft copy of the restatement with changes marked on it.

Any ideas on how the IRS will react to the client not having the current documents?

We have a plan with an 11/30 year end that, in December we were notified they were moving the plan recordkeeping, administration and compliance to Payroll Company. The assets moved at the end of December. The client is now looking to us to provide the 11/30 valuation and annual returns -- no problem. The problem is that they also need a short plan year 12/1/2012 - 12/31/2012 valuation and return completed since Payroll Company has amended their plan to be a calendar year end. I asked for a copy of the document indicating the short plan year but they cannot provide this to us.

1. Can we retroactively amend the plan to 12/31 year end just to incorporate the short plan year language? This makes little sense to me since they have already "amended" the plan using the payroll company's prototype.

2. I have tried to explain that this was missed when the payroll company took over. The payroll company contends that the payroll company "does not need to amend our document to reflect the change since the plan started with us 1/1/12 and the plan year will be 1/1/12-12/31/12 . (Payroll Company person), the Document Analyst advised that there was discussion during the technical review of the plan with (plan sponsor) and (advisor) on the plan, that you should have made your prior provider aware that they would need a short plan year from 12/1 to 12/31 for the prior plan. Therefore, the (Payroll Company) plan is in compliant."

3. So the client wants us to:

(1) prepare the 11/30 year end reports,

(2) amend the document to accommodate the 12/31 year end change,

(3) prepare the 12/31 short year end reports.

Any thoughts on this? We are a "non-fiduciary" TPA with no ties to the assets. This may be as "compliant" as it gets for the client -- uh, former client.

The DOL regs require a that a participant be furnished a notice of a description of a change at least 30 but no more than 90 days before the effective date of the change. Does anyone know exactly what that notice must include? I don't see that the regs require you to include all of the annual disclosure information. Can a plan just say we are replacing Fund A with Fund B or do they actually have to include all of the required information just like the annual notice?

A small non profit currently has a 403b plan and would like to change investment providers. The preferred provider will only allow a plan for this size on their 401-k platform. Is there a provision that would allow the 403b to be amended to a 401k prior to changing providers or does the 403b have to be terminated and a new 401k plan started and what are the steps? Any help is appreciated.

Can a company have a 401k plan AND a SEP IRA plan at the same time?

The searches only yielded "multiple employer plans" so pardon if this is a rehash of old topics. Anyway...

Company has a 401k, wishes to get rid of it. Can they stop allowing contributions into the 401k, and instead establish a SEP IRA which will accept all the new contributions moving forward. There doesn't seem to be a lot of literature out there about this. Any help / references / code would be appreciated. Thanks

Suppose you have two 401(k) plans sponsored by one company (no QSLOB exists). Assume the plans are not top heavy and they have nondiscriminatory classifications.

As far as Employer Contributions:

Plan 1

- Covers all employees hired before xxxx date

- Provides 15% to owners, 5% to all others

Plan 2

- Covers all employees hired after xxxx date

- Provides 2% to all participants

- There are no Key or HCE's in this plan

It is our understanding that the 5% gateway would not have to be provided under plan 2 as long as each plan passes 401(a)(4) and 401(b) independently.

Plan 2 passes both independently. Plan I will pass 401(a)(4) independently but requires the average benefit percentage test to pass coverage. Per 1.410(b)-7(e) all plans that could be permissively aggregated under paragraph (d) must be aggregated for this purpose. Paragraph (d) last paragraph indicates "if an employer treats two or more separate plans as a single plan under this paragraph, the plans must be treated as a single plan for all purposes under section 401(a)(4) and 410(b)".

Does this mean that you must treat both plans as one for 401(a)(4) and 410(b) just because one plan needed the average benefits percentage test to pass coverage?

Thanks.

Has anyone dealt with the issue of a fiduciary liable for breach of fiduciary duty waiving his share of benefits from restorative payments to the plan? The result would be a smaller restorative payment, but would still restore participant accounts properly. A DOL agent commented that he had seen guidance disallowing this type of waiver, but I have not been able to find anything. I'm sure he would like to disallow it because it would also reduce the amount of any penalty. I did find some PLRs that approved restorative payments with this structure but nothing from the DOL. Any thoughts or citations?

Has anyone dealt with the issue of a fiduciary liable for breach of fiduciary duty waiving his share of benefits from restorative payments to the plan? The result would be a smaller restorative payment, but would still restore participant accounts properly. A DOL agent commented that he had seen guidance disallowing this type of waiver, but I have not been able to find anything. I'm sure he would like to disallow it because it would also reduce the amount of any penalty. I did find some PLRs that approved restorative payments with this structure but nothing from the DOL. Any thoughts or citations?

Has anyone dealt with the issue of a fiduciary liable for breach of fiduciary duty waiving his share of benefits from restorative payments to the plan? The result would be a smaller restorative payment, but would still restore participant accounts properly. A DOL agent commented that he had seen guidance disallowing this type of waiver, but I have not been able to find anything. I'm sure he would like to disallow it because it would also reduce the amount of any penalty. I did find some PLRs that approved restorative payments with this structure but nothing from the DOL. Any thoughts or citations?

Referring a potential client where to invest their funds is not my area of expertise so I'm hoping to get some thoughts. Small nonprofit with no HCE's would like to set up a new 401(k) plan (no current existing plan), no employer monies currently intended to be contributed, just 401(k). Setup cost is not just a concern, like for everyone, but a major concern. is there a recordkeeper out there who will also set them up on a plan document with an adoption agreement that i can point them to?

The plan document reads as follows:

"Highest Average Monthly Compensation: The highest average monthly compensation paid to you during a 60-consecutive-month period during your entire employment history. 'Compensation,' for purposes of this Plan, includes regular base salary, overtime, incentive and performance bonuses, paid sales incentives and tax-deferred contributions, up to the amount eligible under current IRS guidelines."

The amount eligible is limited by the annual compensation limit established by the IRS. Does the IRS spell out what to do for partial years and how the limits apply or is this up to each plan as to what to do? How does the limit apply for an individual who leaves the company September 30th who every single year prior to that point always reached the limit? If we take calendar years 2005 forward with the last date of employment being September 30th 2010, does the fact that the 2010 annual limit is $35K larger than the 2005 limit impact the calculation of the highest average monthly compensation? The highest average monthly compensation has a maximum of $18,833.33 for calendar years 2005-2009 and $19,416.67 for CYs 2006-2010. Is there a pro-ration done so that the average used in the example would be $19,270.83?

Thank you for any assistance you can provide on this.

Client with a 401(k)/Safe Harbor Match/Integrated PS Plan - 7 participants in total. Eligibility is 6 months for 401(k)/Safe Harbor Match. Eligibility is 1 year for PS. Plan is Top Heavy. 4 HCEs and NHCE 1 are eligible for all sources. Two other NHCEs have entered plan for 401(k)/Safe Harbor Match, not eligible for Profit Sharing yet. Of these two employees, NHCE 2 contributes to 401(k) and will receive a Safe Harbor Match, satisfying the Top Heavy requirements for him. NHCE 3 does not contribute to the 401(k), will receive 0% Safe Harbor Match and needs a contribution to satisfy the Top Heavy minimums.

Here is a summary:

HCEs 1, 2, 3, 4 Safe Harbor Match =3%, PS >6%

NHCE 1 Safe Harbor Match =3%, PS =6%

NHCE 2 Safe Harbor Match =3%, PS =0% Not eligible for PS

NHCE 3 Safe Harbor Match =0%, PS =0% Not eligible for PS

My thoughts are that NHCE 3 could receive a 3% PS contribution to satisfy the Top Heavy requirements. Could this be the normal PS contribution or would it have to be a QNEC? If it is a PS contribution would it trigger NHCE 2 to be entitled to it as well? If one or both are entitled to the PS contribution does it have to be the same as NHCE 1 (6%). If it has to be a QNEC, are all 3 NHCEs entitled to it? The goal is to obviously satisfy the Top Heavy minimums with the smallest Employer contribution while also satisfying all legal obligations.

Please advise.

Thank You

Hi everyone,

I have a client who hasn't made their 2009 or 2010 minimum required contribution. We told them they could have their account fill this out for them or us, they chose their accountant both years. After the 2010 missed payment, they had a compliance check performed by the IRS stating that they should have paid an excise tax. If you can believe, the client never paid their excise tax. I know, knock me over with a feather.

On this form, do we have them pay 10% of line 39 from the schedule SB or line 40. Line 39 is the 'Unpaid minimum required contribution for currect year' and line 40 is 'Unpaid minimum required contribution for all years.' I have looked and looked and can't find anything. I asked around, get shrugs and guesses but know one knows for sure. And the instructions for the 5330 are the least helpful item yet.

Does anyone have a cite to how this is filled out?

Frizzyguy

The firm I work for has a TPA service and also a financial advisory division. Prior to moving to our services a few years ago, a client had permitted a group of owner-employees to establish self directed brokerage accounts. We have no knowldege of whether or not other employees were ever given this option. The current enrollment materials make no mention of this option, instead listing only the funds available on the platform where the other accounts are held.

As part of a self correction for one of the accounts that was set up incorrectly, and allowed an inappropriate distribution, we're establsihing policies and procedures for participants wishing to establish such accounts. (The money was repaid as soon as we saw the statement.) A couple of problems have come up in the process:

I know that both of those issues are a problem, but I need help finding a succinct reference to why they can't do what they want (especially the financial advisor who is considerably higher up the food chain here than me).

My client recently funded a QNEC for 3 participants covering a total of 46 pay periods. We are now at the point of calculating the earnings. If we were to calculate the earnings by participant and trade date, there are 111 total trade dates that need to be accounted for. I have two questions:

If the client uses the highest earnings rate in the plan, is it based on the entire plan's fund lineup, or since this plan has auto-enroll with a default into the Target funds, would it be based on the highest return within one of the default funds

Or, can we use the midpoint method to calculate the earnings and base it on the current allocations for the participants?

Here are the facts:

Participant rolled over her regular 401(k) (non Roth) balance to a Roth IRA

Participant may later this year want to recharacterize her Roth rollover to a regular IRA rollover

Is this allowed? Or is it necessary for the funds to go from the 401(k) to a regular IRA then convert to a Roth IRA and then recharacterize back to a regular IRA?

Thanks.