Is there any prohibited transaction issue with the distribution to a disqualified person of real property that is mortgaged? It's not considered a loan between the plan and disqualified person as long as both the real property and its mortgage are distributed, correct?

I know this has been discussed previously, but I cannot find a thread exactly on point. Here's the situation:

Small Company with owner and spouse on payroll.

RMD for both for 2011 is due by 12/31/2011.

Plan allows for in-service distributions after 59 1/2.

Owner is transitioning the business to his son so he and the spouse rolled the majority of their accounts out of the Plan and into IRA accounts last month.

It seems to me that the RMDs for 2011 should have been made from the accounts before the rollover was done. I know that if they retired then the RMDs should have been made before the rollover, but what about these 2 owners who are still on payroll and will still be making contributions to their plan accounts? I think the broker planned on making the RMDs from the IRA accounts.

At this time there is not enough in the plan accounts to process the minimums and I'm not sure if they will have enough by the end of the year.

Thoughts?

It was discovered during a favorable determination request that the existing plan number is 001, while 5500s have been filed (probably since about 2002) using 002. We want the numbers to be consistent going forward, but I am concerned that if the CPA files the next Form 5500 as 001 that it will take years to get the IRS to rescind the proposed penalties generated by a letter asking where Form 5500 is for Plan 002.

I'm looking for suggestions as to the best way to go about changing the Plan # on the 5500. Should we amend 5500s going back X years, include a cover letter with the next Form 5500, or what? Any thoughts, suggestions, war stories?

An accountant called about a plan (no tpa) that got audited. The latest plan document the client has is 2003 ( a GUST prototype). The voluntary program for nonamenders is not available if the plan is under audit.

Any idea how steep the penalties run for a one participant plan that has missed GUST and EGTRRA?

I have a participant with a deemed loan of (was deemed 2 years ago) in a plan that only allows for one loan. He would like to take another loan. The loan was deemed with (and the 1099-R showed) a balance of around $5,000. For simplicity, let’s say that the outstanding loan amount is now $5,050 due to interest that has accrued since the loan was deemed. I know that interest continues to accrue for purposes of determining the maximum loan amount, but I am having trouble determining if he will have to repay the $5,000 that was the original deemed distribution to clean the loan off the books and take a new one, or $5,050 which would include the interest that has accrued for the time the loan was deemed.

Plan fees were paid from forfeitures, although the plan provides that fees are to be paid from participant balances. This was done last year.

Forfeitures are to be used for making additional nonelective discretionary contributions or discretionary match contributions.

It is possible to "reverse" the expense so that the fees are paid by the participants, and the forfeiture account is restored (with interest).

If this is done, could the restored forfeitures be used for additional employer contributions?

Is this an acceptable self correction? It would appear to be, but what are consequences to watch out for?

Thank you

A 403(b) plan showed under 100 participants on its 2009 Form 5500-SF, but should have showed 145 eligible participants (the employer did not report everyone to their recordkeeper).

For the 2009 Form 5500:

a) Should they wait to file an amended 2009 Form 5500 when the 2009 accountant's opinion is ready? or

b) Should they file an amended full 5500 now with an attachment stating that the audit is being prepared and will be provided when it is complete (and explaining what happened)? or

c) Wait for the audit to get done and file under DFVC and pay the $1,500 fee to possibly avoid penalties that a complete return was not filed timely for 2009?

For the 2010 Form 5500:

a) Should they file on October 17, 2011 using the full participant count but with a short attachment explaining what happened and explaining the audit will be sent as soon as it's available? or

b) not file the 5500 until the audit is ready and perhaps file using DFVC (if cheaper than the regular late filing penalty)?

Any recommendations?

The owner of a 1-participant owner-only profit sharing plan wishes to terminate her plan (not making any further contributions) and roll over plan assets to an IRA.

Plan currenlty holds some precious metal and coins as investments, but not enough to warrant using one of the "self-directed IRA custodians" willing to hold such "non-traditional" items.

These assets could obviously be sold and cash proceeds rolled over. However, if the owner prefers to retain these items, would it be a "prohibited transaction" for her to sell the precious metals and coins from the plan to herself for (readily ascertainable) FMV?

The plan may end up simply distributing these assets next year as part of her RMD, but wanted to make sure we had considered all "viable" options.

Thanks!

With regard to "$1,000 or more" criterion under the 408(b)(2) service provider fee disclosure, is that $1,000 or more paid from plan assets/participant accounts - or does it also include fees billed directly to and paid by the employer?

If on the 2009 5500 SF there was an active participant count shown of 48 and 27 balances and was filed.

After a check, it's really 50 actives with 28 balances.

If the plan gets audited, how much trouble, in reality, will they get in? (Not how much trouble could they get in. I understand there are serious consequences for filing returns with wrong info.)

The error is clearly not enough to put the plan under/over the threshold for large/small plan filer.

Anyone have experience with being "caught" with this error?

The 401(k) plan document allows the timing for making deferral elections changes to be set by the employer under an administrative policy (outside the plan document).

The employer (a few hundred employees) would like to design a salary deferral procedure that has employees elect their deferral percent or amount from each paycheck (but such deferral election does not apply to any wages paid as a bonus).

For bonuses, the employer wants to apply something like a negative election, stating that the employee can only elect to defer from each bonus by making a special deferral election before each bonus is paid. Thus, an employee cannot make a standing election to say "please defer 3% from all future bonuses", instead they need to fill out an election each time.

They intend to announce the bonus amounts well ahead of their paydate to allow such special deferral elections to be made.

Although it seems like a lot of extra work for HR/payroll to plug these special elections in for each bonus, could this procedure be acceptable for a deferral policy?

Can anyone recommend how to report a fidelity bond that is set to fluctuate for 10% of the plan assets up to $500,000.

I asked the question here :

http://benefitslink.com/boards/index.php?showtopic=49527

Recordkeeper's failure to notify us that certain new hires were to be automatically enrolled.

We are in agreement on the correction method, but they are saying that they will fund it in the participants accounts. That doesn't seem right to me. Shouldn't the employer be the one to fund it and be reimbursed by the recordkeeper ?

Thanks !

Does anyone have a used copy of the study guides - or tests - for DC-1 and DC-2 that they would sell for a discounted price? I would like them to include the PPA information, as the guide in our office is older than that.

Thank you!

Elections to defer from bonuses were not implemented for almost 10 years. The employer is doing a VCP correction. After they calculate the missed deferral and re-run the ADP test, the ADP fails. The plan allows correction of the ADP by returning the excess to all HCE. My question is: what is the missed deferral opportunity? Is it 50% of the missed deferral or 50% of the missed deferral reduced by the excess contribution? EPCRS deals with situations where the 402(g) limit or other plan limit is exceeded. In those situations the missed deferral opportunity is 50% of the reduced missed deferral. Thanks for any clarifications.

I am running an ADP test for a short plan year (4-1-10 to 12-31-10) and there is someone who has ADP compensation of $233,000 during these 9 months. I'm trying to determine what compensation to use on the test. Do I need to prorate the 401(a)(17) and limit the compensation to $183,745 ((9/12)*245,000)? Or is the 401(a)(17) limit not prorated on a short plan year?

How is everyone treating a davis bacon plan, with a safe harbor match, that is top-heavy? Are you treating the TH exemption as invalidated because the plan no longer consists solely of SH and deferrals? Something about that conclusion doesn't feel right to me.

Does anyone have any thoughts about whether a plan sponsor that performs services to the plan and is properly reimbursed for it's direct costs (i.e., the salary of an employee whose sole responsibility is to perform administrative services to the company's plans) is considered a covered service provider requiring a written disclosure?

My first reaction is that it should not, because the administrator is the sponsor, and already knows the services to be performed and related charges. There is also no unknown conflict of interest that might be revealed by the disclosure. On the other hand, it's not the administrator but rather a fiduciary committee approves the actual charges to the plans. I'm not sure that it matters that the committee is comprised exclusively of plan sponsor executives and employees.

Has anyone considered this question or have any thoughts?

Hi there, I accidentally posted this to the Roth IRA and IRA forum instead of the 401(k) forum, maybe I will have better luck here:

So if you do rollover your loan from a prior plan to a new plan. Old plan allows transfer out and new plan will accept the loan note coming in.

How can you “catch-up” interest that you technically owed to the prior plan during the period where you couldn't make a payment to the old loan because you were terminated and they don't accept payments?

If there are three months that lapse between payments, and you are still within the original term cure period, wouldn’t you only be able to rollover your outstanding principal balance?

Example: 06/01/11 – Balance is $15,000. Interest rate is 1% monthly (for ease, $150).

Transfer to new company and set-up new loan

Principal balance as of 09/01 is $15,000 still. There has been missed interest for June, July and August.

You establish your loan and reamortize into new company 401(k) for a payment in September. Can the new company accept payments for missed interest that you owed to the prior plan? Or can they only establish $15,000 and charge 1% monthly going forward not to exceed original loan term length?

So technically, you missed $150 in interest to the prior company for June, July and August because you weren’t able to pay the prior company since you were terminated. Can that missed interest get incorporated into the new company payments? Or would they only be able to establish the $15,000 in principal as of 06/01/11 (the balance as of the last payment you made).

That 3 months of missed interest is a taxable distribution to you, you owed it to the prior company, but had no way to pay it to them because they won’t accept after termination partial loan repayments, only all or nothing payments were accepted there and the new company should only establish the principal?

Anyone know IRS regulations that talk about this? I have looked at Publication 575 and that doesn’t quite do it for me.

Thanks!

I was wondering if anyone could tell me or point in the right direction to find out what exactly must be included in a defined benefit plan's "pension benefit statement" to active participants?

Thanks!