We are advising a client (along with bringing in outside experts) regarding an overfunding of a sole proprietor DB plan. Long story short, the actuarial was unable to accurately anticipate the aggressive nature of our client's investing and currently has a nearly $1mm overfunding situation. The actuarial has suggested that the sole proprietor take "catch up" distributions to eat up the overfunding, however the client has reached out to us to brainstorm some additional options due to income tax impacts. To complicate matters, the business is wrapping up operations within the next year or so and may exist in a "slowed down" state for a number of years beyond. 

I realize the option of a Qualified Replacement Plan (QRP) exists, but I believe that the overfunding amount will remain suspended until used for contributions (which may be impacted because of the lower amount of income). The issue with the suspension is that in the case of untimely death of the sole proprietor, my understanding is that it automatically reverts. 

Beyond that, I have read that using the money for health benefits is possible, but the topic is less popular and murkier based on my limited research. 

Any thoughts or suggestions on avenues to explore? My intent is to have a thorough discussion with the client and "spit ball" ideas in coordination with the actuarial. 

Thanks to all. 

Good afternoon to all,

Have any of you ever calculated the earnings on a series of slightly late deposits (between a few days and 6 weeks each) for a client and found that some participants are only going to get a very little bit of money? I just had to do this for a school with about 45 participants.  While 19 of their 26 deposits during the year were late, they weren't THAT late, and the total interest on the late deposits per person just isn't much. Some will get a few bucks but many will get less than a dollar.

Why did I bother with it?  Because some of the employees found out that deposits were being made tardy and demanded to know what our client was going to do about it.  He's in the unhappy position of having to prove that the rules have been followed to the letter.  So he will have to pay us more than the interest and penalties involved to find out what he owes.

The toughest part to figure out is what to do when the participant has already terminated employment and been paid out.  How does our client manage to pay someone as little as 13 cents after they are gone?  Do these tiny payments have to funnel through the platform provider or can the school just write a check to the terminated employees and mail it to them?

Your thoughts, ideas and experiences are greatly appreciated, as always.

Some participants in ERISA plans have hired registered investment advisors (RIAs) to manage their retirement plan accounts -- selecting investments from the plan's menu, rebalancing the investments, considering in-plan and out-of-plan assets collectively, etc.  The plan sponsor/fiduciaries do not endorse any RIAs to plan participants.   Assume that the plan sponsor has permitted RIAs to access participants' accounts, and further, to deduct the RIA's asset management fees directly from the accounts. 

The Deseret Letter  (DOL advisory opinion 2005-23A) does not directly address the fee deductions.  The question is whether the plan fiduciaries will have co-fiduciary responsibility and liability for ensuring that the RIA's fees were reasonable, and if failure to monitor the fees is a breach of fiduciary duty. 

Is there any DOL, IRS, or other guidance on this topic?  Thank you.

Nonprofit (501(c )(3)) plan sponsor provides a lump sum numberto each employee representing an amount which can be contributed to the HSA or, if not, to the 403(b ) plan.  It has always been my opinion that such a choice makes this money, when contributed to the 403(b ) plan, an employee contribution because of the old cash or deferred rules.  The employer would like it to be deemed an employer contribution.  We could insert a Non-Elective provision with individual groups and test it, but I am just not certain that the fundamental question and answer are correct.

Please share your thoughts!  Thank you.

Patricia Neal Jensen

I have a plan that was created in 2018 and is short, spanning only November and December 2018.  While they do not have any ER money that is attached to a vesting schedule at this time, my question is this:

Are hours that count towards a year of service also prorated for a short plan year?

Group:

Client has extended a number of SOL time limits in current audit.

A former advisor was involved over last few years of TEGE audit.

TEGE auditor now wants to extend 3 years of audit (2014, 2015 and 2016)

to June 2021.

I have been trying to obtain copies of which extension form was used:

either 872-A or 872-H (to extend time for Trusts).

Q:  Does a termination form 872-T apply to both of these extension forms?

Q:  Where do I find form 872T?  I have tried searching IRS websites

and other sites but to no avail.

Q: Is 872T a notice placed on your own letterhead?

Thoughts and comments appreciated.

Warmest,

Joe Dadich, Esq.

Plan year starts with 2 participants. During plan year, Participant #2, who is not a spouse and is already terminated, takes a full distribution. So plan year ends with 1 participant.

So, is this the year that the plan switches to 5500EZ? Or wait until the year it starts with 1 Participant?

(technically speaking, plan will file SF as one-person plan)

A client called because they were pressured by their platform to approve a distribution and agreed to it.  Unfortunately, their document is written so that there is a one-year wait on distributions (because there are usually errors in deposits that we have to reconcile after the end of the plan year).  But let's say that we are confident that this particular person has no deposit errors, so the distribution was 'correct' in the amount (vested amount, deposits, etc.), just about ten months too early.

I know that they have violated the terms of their document.  But what is the downside/correction?  It's not really an "overpayment", is it?  I'm not seeing anything remotely applicable in EPCRS 2018-52.  Thanks.

I've got a plan that transferred to us from another recordkeeper last year.  The prior recordkeeper just came to us stating that they had a stale check attributable to this plan and asking us to confirm wire instructions to move the funds to us.  This is the first time I've seen a recordkeeper attempt to transfer stale check assets to a successor provider, but maybe it's more common than I think.  Are other providers accepting stale checks in situations like this and how are you handling this?  Are there any issues rejecting the stale check being transferred? 

Hi.  We have received a check for around $500 from an investment fund where we are unable to determine what participant it applies to.  The check is made payable to the plan.  Apparently the SEC ordered a settlement under an administrative proceeding.  Certain investors received settlement proceeds if they were affected by market timing activity in 2001-2003.  We have not been able to figure out what participant account to apply the check to.  

What should we do?

I would be interested in reading comments from our QDRO legal beagles:

http://hr.dickinson-wright.com/2019/05/24/surprise-a-qdro-can-apply-to-a-welfare-benefit-plan/

Took over a plan that the document excludes highly compensated employees from receiving the safe harbor match.  The plan now wants to change and give the safe harbor match to everyone.  Can I amend mid year or do I need to wait until January 1, 2020.  Thanks.

A non-governmental 457(b) plan is terminating.  However, the plan document was never updated for PPA, HEART, and WRERA.  I understand that any plan correction cannot be through VCP, but the plan sponsor has option for the IRS to review their 457(b) plan document or consider any other document form issue by requesting a private letter ruling?

In a related issue, in distributing assets upon plan termination, what procedures can the plan sponsor implement when distributees cannot be located?

Our document software creates an SPD for delivery to participants.  I know it's not required but of course it is a good and thorough explanation of the plan so I would typically have clients distribute (whether exempt or not).  I have a new client where the provisions are quite complex and vary depending on which group of employees you are "disclosing" to, which makes production and distribution of the SPD's a bit more challenging.

So I know they are not required to use an SPD (they have informal informational sheets).  But are there benefits to distributing a complete SPD to all Participants which clients may wish to avail themselves of?  One thing that comes to mind is reducing the risk of an employee saying "Geeze if you had told me that.."

A single participant retired from a qualified, ERISA DB plan at age 55 with a life annuity with 10 years of payments (120 months) guaranteed. He named his sister as beneficiary. 3 years after the annuity starting date, he got married.

I presume the spouse has no right to the guaranteed benefits if the retiree dies before 120 payments have been made, correct? Any guaranteed payments will go to the named beneficiary (the sister).

Are there any issues if the retiree wants to change the beneficiary? I presume he could contact the plan sponsor to make this change - but I'm not certain if it would violate a code or regulation. I don't believe it would change the benefit amount - as the calculation of the life annuity with 10 years guaranteed does not factor in the beneficiary's age/sex. Does it create a new annuity starting date?

We're assuming the plan document is silent on the matter. It doesn't prohibit a retiree to change the beneficiary after the ASD, but it doesn't specifically allow it either. 

I am having difficulty interpreting part III. What is a lay-man's understanding of the difference between part 9 experience rated and part 10 non-experience rated? Are experience-rated fully insured while non-experience rated self insured?

Many thanks!

supposedly this is to be voted on this week. some of the provisions in the modified Bill are

Min Distributions increases to 72 in 2023 and age 75 in 2029

‘‘(I) for calendar years before

2023, age 701⁄2,

 ‘‘(II) for calendar years 2023, 2024, 2025, 2026, 2027, 2028, and 2029, age 72, and ‘‘(III) for calendar years after 2029, age 75.

I guess this overrides the DOL by saying if you self correct too bad DOL 

(b) LOAN ERROR.—The Secretary of Labor shall  treat any loan error corrected pursuant to subsection (a)  as meeting the requirements of the Voluntary Fiduciary

 Correction Program of the Department of Labor.

You can be late by 6 months for min distributions  

(d) REQUIRED MINIMUM DISTRIBUTION CORRECTIONS.—The Secretary shall expand the Employee Plans

 Compliance Resolution System to allow plans to which  such system applies and custodians and owners of individual retirement plans to self-correct, without an excise  tax, any inadvertent failures pursuant to which a distribution is made no more than 180 days after it was required  to be made.

 catch up may start at age 50 but if you are 60 you get even more

SEC. 121. HIGHER CATCH-UP LIMIT TO APPLY AT AGE 60.

(a) IN GENERAL.—

(1) PLANS OTHER THAN SIMPLE PLANS.—Section 414(v)(2)(B)(i) is amended by inserting the following before the period: ‘‘($10,000, in the case of an eligible participant who has attained age 60 before the close of the taxable year)’’.

 don't have to keep giving notices to people who aren't deferring, etc

‘‘SEC. 111. ELIMINATING UNNECESSARY PLAN REQUIREMENTS RELATED TO UNENROLLED PARTICIPANTS.

1. IN GENERAL.—Notwithstanding any other provision of this title, with respect to any individual account plan, no disclosure, notice, or other plan document (other than the notices and documents described in paragraphs (1) and (2)) shall be required to be furnished under this title to any unenrolled participant if the unenrolled participant receives

 you may have to let long time part timers into the plan to defer but no top heavy, etc.

‘‘(i) NONDISCRIMINATION RULES.—In the case of employees who are eligible to participate in the arrangement solely by reason of paragraph (2)(D)(ii)—‘‘(I) notwithstanding subsection (a)(4), an employer shall not be required to make nonelective or matching contributions on behalf of such employees even if such contributions are made on behalf of other employees

eligible to participate in the arrangement, and‘‘(II) an employer may elect to exclude such employees from the ap1 plication of paragraphs (3), (11),(12), (13), and (15), subsection

(a)(4), paragraphs (2), (10), (11), (12), and (13) of subsection (m), and section 410(b).

‘(ii) TOP-HEAVY RULES.—An employer may elect to exclude all employees who are eligible to participate in a plan maintained by the employer solely by reason of paragraph (2)(D)(ii) from the application of the vesting and benefit requirements under subsections (b) and (c) of section 416.

.............

I didn't see anything in the Bill that eliminates 3% safe harbor notice or allows you to add safe harbor after the fact, but maybe that is buried elsewhere.

Is the Plan Sponsor required to provide to a participant the specific funds or stocks they are investing in for a pooled Profit Sharing Plan?

New DB plan set up and client funds corporate contribution into an ambiguously defined savings account.   What makes this a retirement account or not?    Is intent relevant?  Is it automatically not a valid deposit if the account was identified in the name of the business owner (and later corrected)?   Or does it specifically need to be identified in the name of the plan or owner as Trustee?