What exemption does a mutual fund company use to invest the assets of its' own employee plan into its' own mutual fund and still receive full management compensation (expense ratios)?

I don't see anything in 4975(d) exemptions. While PTE 96-62 allows individual requests of party in interest exemptions, it doesn't apply to anyone but the applicant.

There are 3 PTEs that seem to cover the situation, but I’m unsure of the application.

1. PTE 1977-03 Open-End Mutual Funds In-House Plans: Permits the purchase and sale of open-end mutual fund shares by a plan which only covers employees of a mutual fund, its investment adviser or principal underwriter, or an affiliate. There are two key points that make me think this does not apply:

a. “…the investment adviser for which is also a fiduciary with respect to the plan (or an affiliate of such fiduciary) and is not an employer of employees covered by the plan

b. The plan does not pay an investment management, investment advisory or similar fee with respect to the plan assets invested, in such shares for the entire period of such investment

2. PTE 1977-04 Open-End Mutual Funds Investment Advisor Permits: the purchase and sale of open-end mutual fund shares by a plan when a plan fiduciary is also the investment adviser for the investment company marketing the mutual fund.

3. PTE 1979-13 Closed-End Mutual Fund In-House Permits: the purchase and sale of shares of closed-end mutual funds by plans which cover only employees of either the mutual fund, its investment adviser or an affiliate.

It does seem to be the season for the oddball situations to creep in.

Suppose you have an employer who sponsors a 401(k) plan. Doesn't do anything, doesn't contribute, but it is still a plan that is "maintained" by the employer.

Now the employer establishes a SEP, using the IRS 5305 model SEP document, and contributes to it for, say, 2014. It just comes to light now, when the CPA starts looking at all the employer's "stuff."

I read this as an employer eligibility failure. So it can be fixed under VCP, and it appears to me that the "fix" is to immediately cease contributions, while of course also making sure that all eligible employees received their contributions - if not, make appropriate corrective contributions with interest.

Anyone ever seen/done this? Am I missing anything? Seems like a very reasonable solution/correction, without too much "pain" involved for the employer (which is why I want to make sure I'm not missing something!)

I'm doing research on client attrition rates for TPAs - does anyone know of any studies that have been done? Also, could you respond to what you think it is?

a 5-10%

b 10-20%

c 20-30%

d over 30%

Welcome any thoughts on this. Frozen plan has participant with max years of service who is still working at age 69 so well beyond normal retirement age of 65. When he hit NRA, benefits did not commence and are being adjusted for delayed retirement but will soon hit compensation cap for high 3 under 415(b)(1)(B). Actuaries advise that the plan should start distributions as of the date he hits the 415 cap as no suspension notices provided / contemplated. 1.415(a)-1((f)(7), however, seems to speak in terms of distributions needing to commence at normal retirement age. I can see how that makes sense if a 415 limit exists as of the NRA but am unclear about the authority / practice for commencing as of the date the 415(b)(1)(B) limit is reached due to post-NRA actuarial adjustments. Appreciate any thoughts or guidance on this.

An odd one here. Employer established a 401(k) plan several years ago. At the time, it was a 1-person corporation. He rolled in some money that first year, specifically to be able to take a participant loan.

Fast-forward to several years later. He now has employees who should have been eligible under the terms of the plan, BUT, he has made no deferrals or contributions of any sort, other than repaying his loan.

When I look at Appendix A of RP 2013-12, the correction under .05 (2)(b) is to correct for the "missed deferral opportunity" based on 50% of the "missed deferral."

Since the "missed deferral is based on the ADP, which in this case is Zero, then it would appear that there is no correction required! An odd result, but that's where I end up. Any other thoughts?

Have a 1 participant traditional DB with approximately the following:

Rollover account: $500k assets

Funding Account: $950k assets

PVAB $500k

The one participant business owner is 68 and has participated 10 years.

The AFTAP was not done timely so benefits are frozen.

He would like to take an in-service distribution of $100k. We know he cannot do that with his pension benefit. Is there any chance he can take this from his rollover account inside the DB plan?

Thanks.

Anyone get this issue, where the accountant is throwing the 2014 staff contributions on line 19 of the 2015 Schedule C before sending it our way to finish the pension calculations? (Amounts deposited in 2015 but FOR 2014.)

I didn't think it was a legitimate option, but would be willing to hear comments on it.

I've typically grossed the net earnings back up by that prior-year number and started from there, providing them with the contributions for 2015 as what really should go on line 19.

But if there is indeed flexibility on that, then I suppose it's okay. (Although I'd be more likely to frown if he tries to deduct the 2014 employee amounts with his 2015 owner amounts on his 2015 return.)

Thanks.

-bri

So, a "sole" 401(k) plan hired an employee in 2014. He did not realize his plan's eligibility requirements were no service or age requirement per his AA. The employee became a participant on the hire date. That is what you get for cheap. Anyway, the PS portion with earnings is a costly and easy fix. What about the missed deferral opportunity? There are no other NHCEs and no ADP rate to use. Would you assume zero, assume the same deferral rate as the only HCE, or assume a rate to pass the ADP test? This seemed like an easy SCP; however, I am now leaning toward VCP and maybe even anonymous VCP.

Although done through payroll deduction, not part of 125 plan. These should be included in income, and 401(k) deferrals should be withheld from these amounts unless specifically excluded, right?

I have a new client who came to me for PPA restatement and tossed in admn that his accountant had been doing for him. He is a PC sponsoring a profit sharing plan, with no 401(k) provision, and no employees. For the last few years he has made 401(k) elective deferrals from his S-Corp wages, and has made employer contributions up to max deduction amount each year. Would you treat the 401(k) contribution as an "excess allocation" under EPCRS and refund the deferrals back to the guy? I'd love to be able to amend retroactively under VCP, but am not sure this is a 401(a) failure that would allow me to do so. Given that he's made the 401(k) contributions over the last 4 years or so, it would be an expensive correction if I can't amend retroactively.

Company B is merged into a subsidiary of Company A in January 2015. For the employees whose employment is terminated as of the closing date in mid-January, is there an obligation to do 1095-C reporting as to them?

They ways clients can find to mess things up...someday I'm gonna write a book.

Client establishes a 401(k) plan for 2015. Had a SEP for 2014, and swore they didn't make any contributions for 2015. Now we find that they did, in fact, contribute to the SEP for 2015 - made two contributions FOR 2015 in January and February of 2015.

Don't know yet if this is a prototype SEP document that would allow contributions to another plan - if so, no problems. But that would be too easy.

Let's assume it is a 5305-SEP, or a mutual fund company clone that has same language so that no other plan can be maintained.

I'm stretching here - do you think it would be acceptable to amend their SEP document to a prototype allowing contributions to another plan? Personally, I don't think it is, at this point, since we are now in 2016.

Possible that the fund company (Putnam) would agree to transfer this directly to the 401(k) plan without reporting as a distribution, but I doubt it, and I couldn't blame them if they won't. Ditto for transferring it back to the employer. But, MAYBE they would...

Anybody ever submitted a VCP in this situation, requesting that the amounts remain in the SEP, and just make sure no 415 limits are violated between the two plans? With a SIMPLE-IRA, you can do this, and pay a 10% tax on the amounts retained in the SIMPLE, but I don't see this listed as an option for a SEP in the Appendix C "easy" fixes in Rev. Proc. 2013-12.

What a pain. Any additional suggestions/observations appreciated!

P.S. also possible that they could convince the fund company(ies) to reclassify as a 2014 contribution, but I don't know if they will do that either...

A governmental 401(a) plan allows employees to make an irrevocable pick-up contribution election within a range of 1% - 10% of compensation. The plan also allows employees to make a one-time irrevocable election to not participate in plan. The plan has an age 21 and 1 year of service requirement with monthly entry. If an employee is eligible to enter the plan on 4/1/2016 must s/he make the election by 4/1/2016 or they don't make an election can they make it at a later date (e.g., 1/1/2019)?

The 401(k) regulations provide:

§1.401(k)-1(a)(3)(v) Certain one-time elections not treated as cash or deferred elections. A cash or deferred election does not include a one-time irrevocable election made no later than the employee's first becoming eligible under the plan or any other plan or arrangement of the employer that is described in section 219(g)(5)(A)….

It appears the employee would need to make the election by 4/1/2016.

Also, to the extent the plan allows for a range, should the plan contain a provision as to what happens if the employee does not make an election or can that be disclosed in an employee communication or an election form.

Thanks.

The 2007 regulations (29 CFR sec 2530.206©, particularly Example (1) in paragraph (2) permit divorce courts to enter QDROs post-death:

But in the case of a DB plan, does that increase the actuarial benefit payout risk to the plan, i.e., increase the benefit, in contravention of 29 U.S.C. sec. 1056(d)(3)(D)(ii) and 26 U.S.C. sec. 414(p)(3)(B) (QDRO must "not require the plan to provide increased benefits (determined on the basis of actuarial value)")?

By reason of the divorce, the participant was single. All the actual risk attached to the life of the participant, no spouse. When the single participant died, so too 'died' all the risk to the plan of benefit payout liability. So, does a post-death QDRO that attempts to give the ex-spouse part or all of the defined benefits that 'died' with the participant violate the clauses of the statutes that do not allow the QDRO to require the plan to provide increased benefits determined on the basis of actuarial value?

Had the participant commenced payout after the divorce and before he died (and before the QDRO), then his benefits would have been calculated as a single life annuity. Had the QDRO come in after that, it could only have been a shared payment one--a portion of the payments that would otherwise be made by the plan to the participant and ended on his death--not a separate interest QDRO for which payouts would be based on the life of the ex-wife or extend beyond the death of the participant. Carmona v Carmona, 9th Circuit.

In Example (1) in the regulations, at least the plan had notice by virtue of the rejected QDRO before the participant died, and the 2d QDRO is more along the lines of correcting post-death the technical errors in the pre-death one.

I have not been able to locate any other authorities that might bear on this. Your comments will be greatly appreciated.

Ok - I know this has more than likely been asked/answered but I haven't found the thread(s)...

TPA direct compensation is reported on both the Schedule H and the Schedule A. Does that also need to be reported on the Schedule C if it is over $5,000?

I thought not at first but rereading the instructions for Schedule C it states in part, "Persons whose only compensation in relation to the plan consists of insurance fees or commissions listed in a Schedule A filed for the plan" do not have to be reported again on Sch C.

I think I'm getting tripped up because these are admin fees and not "insurance fees or commissions".

Thanks in advance for any comments....

Curious to see if you think this would qualify. Suppose you have a Union Plan, where the percentage contribution to the Money Purchase Plan varies according to the collective bargaining agreement terms every time it is renegotiated. If you have a formula that says something to the effect of, " The Employer contribution percentage for each Plan Year will be the percentage required under the terms of the Collective Bargaining Agreement applicable to that Plan Year." - or something similar. It seems to me that this satisfies 1.401-1(b), but maybe I've been exposed to airplane glue or something...

A one person Sole Proprietor 401(k) P/S Plan. The owner is in the consulting business and gets paid commissions that are reported on a 1099 misc form.

Is this eligible compensation? The Plan definition of compensation is 415 comp.

If so, is it further reduced for the 1/2 FICA deduction?

Due to a CPA error, some HCEs received a discretionary employer contribution and it was deposited to their respective accounts in 2015

There were many NHCEs who were suppose to receive this contribution instead of the HCEs.

Is there any requirement to provide notice to the HCEs, If we pull out the already deposited discretionary employer contribution from HCEs accounts in 2016?

Please advise any issues that may arrise doing so.

Plan is a self-insured plan that contracts with a Non-traditional Third Party Administrator. The TPA does not collect any premiums or pay out any claims (claims are handled by Care First). Carefirst adjudicates all claims, and debits an account belonging to Plan Sponsor.

Role of the TPA is to process enrollment, provide other administrative services(billing, prepare 5500s, PPACA reporting, consulting, etc), for which it receives a "fee for service." Additionally, TPA collects and remits to CareFirst the fees paid by Plan Sponsor.

Since TPA does not "handle" plan assets and does not exercise any discretion or control over the Plan, it is our belief that the TPA does not fall under the ERISA definition of Fiduciary. Would you agree?

If TPA is arguably not a fiduciary, would an argument exist that the TPA is not required to fulfill the ERISA bonding requirements under Section 412? A review of Field Assistance Bulletin No. 2008-04 leads me to conclude that since TPA does not "handle funds or other property" of the plan (merely collects ans remits a fee to Carefirst) and does not adjudicate Claims, it would not be deemed a "Plan Official."

Thoughts? Thank you...

I found the forms themselves on the IRS website going back to 1990, but I couldn't find the instructions for all those older forms. Anyone know where I can find them?