I have a client who sold his dental practice in September but is continuing on with his Corporation for two more years in order to fully accrue his benefits in a defined benefit plan. This client also maintains a cross tested safe harbor 401(k) Plan and an additional straight comp to comp Profit Sharing Plan.

Now that we are at the end of the year I am not sure how to allocate benefits. All active employees (except for one who terminated a few days prior to the sale) continued employment with the new owner so they all have the same termination date with my client. At the very least we have a partial termination and everyone is 100% vested. That is the straightforward part.....

Now for the tough part....the 401(k) Plan has a last day of the year rule along with 1000 hours in order to get a contribution. Is there any way to justify allocating a contribution to all employees employed on the date of the sale? If I do that then I guess I would also need to prorate the hours requirement for the "short" plan year. There is no fail/safe for 410(b) since we aggregate all three Plans for testing with the general test.

The Profit Sharing Plan and the DB Plan do not have a last day of the year rule so they do not really present a problem. However, if I allocate a contribution to employees in the 401(k) Plan using the "short" plan year theory then I guess I would simply prorate hours in the PSP and DB Plan in order to determine who is eligible for benefits.

Also, the Plans are Top Heavy (of course) so should I be concerned with providing top heavy for all employed on the date of the sale.

Does anyone have any suggestions!

I own a small (< $200K annual), non-producing TPA firm that only has DC plans in its inventory. After over 20 years in the business I am certain of a career change in the next year.

I have a couple of potential local buyers who I am gauging interest in and it will include a potential package sale with my employee involved.

I am interested in knowing others(buyers/sellers) experience with such transactions. How was the sale structured e.g. 25% of plan revenue over 4 years? 50% over 2?

Thanks in advance for any info.

I just found out that a sole-proprietor who sponsors a defined benefit plan died in 2015 accruing 1,000 hours. The plan was effective in 2014.

Can the executor of the decesased sponsor waive the minimum funding requirement in the year of death of the plan sponsor?

I was wondering if anyone had an opinion on an individual (i.e. Account Representative of a TPA) signing as plan administrator for a 3(16) defined contribution plan. I understand that under these circumstances that only the signature of the plan administrator is required. However, if the TPA is not a fiduciary for all aspects of the plan (i.e. payroll, personnel) but day to day functions (QDRO review, hardship approval) can the individual signing be open to personal liability should suit be brought against the plan sponsor and their fiduciaries? What does the IRS definition of being a 3(16) encompass? Should the employer still be required to sign as the plan sponsor?

I have a client whose participants all have individual accounts at Matson Money/Trust Company of America. They receive statements that say "xxxx 401k Retirement Plan FBO Participant Name." The plan does not exclude ANYONE from participating. One participant has no ID (he moved from another state and has not gotten a current state ID). The company hired him based on his social security card and previous ID. Trust Company of America refuses to open an account for him citing The Patriot Act. They returned his deferral money and matching contribtuions. Now the plan is in violation of the plan document. Anyone ever come across this?

Thanks in advance.

Many practitioners had suggested (including at the February 2015 Baltimore conference) that some kinds of mid-year changes should be recognized as sufficiently benign that the change ought not to disrupt an otherwise good safe-harbor treatment.

So what do you think of Notice 2016-16?

https://www.irs.gov/pub/irs-drop/n-16-16.pdf

Does this do enough to meet the concerns practitioners had expressed?

I got a response from the IRS on a Plan Document restatement saying that I need to include Top Heavy provisions on a Multiemployer DB Plan. I just want to make sure what exactly needs to be put into the document? I'm more familiar with DC Plans, but am picking up work.

Thanks in advance!

Remember this? I'm getting some disagreement on something, and I wanted to make sure I'm not crazy.

Money purchase plan had NRA of 59-1/2. Plan provided for an allocation upon termination of employment if you had reached NRA, regardless of hours.

Plan was timely amended to change NRA to age 62.

A participant has now reached age 59-1/2 this year (2016), and is terminating employment. I say that participant is not entitled to an allocation, because participant hasn't reached NRA. I don't see any anti-cutback issues, because participant had not attained previous NRA of 59-1/2 prior to the effective date of the required amendment.

Agree/disagree?

I have a prospective client who wants a Profit Sharing plan so they can roll IRAs into in and borrow. I am sure that I have read that this practice is frowned upon and the IRS can claim the plan is not qualified since the intent never existed to make contributions. I can not find anything that states this now. Is this just early dementia or does anyone recall where this position may have been published?

Is there anything that prevents a plan from submitting a VCP for an operational error while a VCP for a nonamender failure is pending?

The plan isn't "under examination" according to the definition in EPCRS.

It was nice of them to put this all down in one place. Great example of how regulations can destroy something that's supposed to be a nice benefit.

https://www.irs.gov/pub/irs-tege/irs_reporting_disclosure_guide.pdf

A back to basics question: Does the 401(a)(17) compensation limit apply to elective deferrals under a 403(b) plan? For example, if an employee's compensation is $350k and he has elected to defer 5% of compensation, can he defer 5% of $350k up to the 402(g) limit ($18k), or can he only defer 5% of $265k ($13,250) because of 401(a)(17)?

I assumed 401(a)(17) did apply to 403(b) plan deferrals, but I've been pointed to some regulations under 1.403(b)-5 that suggest universal availability trumps such that 401(a)(17) does not apply. Thanks in advance for any thoughts.

At 1/1/2015 two active participants.

One participant terminates in 2015 and is fully paid out in 2015 so that there is one remaining participant as of 12/31/2015.

A couple of years ago I was attending the annual conference of the IFEBP. I attended a public employer session and the speaker was from the federal government. At that time we were told that they were currently reviewing a question regarding DROP's and "pick-up" arrangements. Plans that included a DROP provision and an IRC 414(h)(2) "pick-up" arrangement, whereby when a DROP provision mandated that those electing to participate in the DROP would no longer contribute to the plan, may be running afoul of the 'pick-up" and/or CODA rules. Since those electing to participate in the DROP would no longer contribute to the pension plan, the question was being reviewed because participating in the DROP was considered optional and may not comply with the "mandatory" requirement of a "pick-up" arrangement.

Since then, I have not seen an answer to this question. Does anybody know the outcome of this review?

Well, clearly I am questioning my years of experience. I have a situation where the participant died and the children are the beneficiary, no spouse. The CPA instructed a distribution be made to cover some expenses with no withholding or they completed a W-4 to delay withholding until the personal returns are done. I believe they then deposited to a Trust for whatever reason. Not sure. They actually may have made the check to the Trust even. I haven't found that out yet. Regardless it's not an IRA of any kind.

Can someone please provide me the mandatory taxation rules for distribution to a non-spouse beneficiary. I have read the code, seems to indicate that if it's a non-spouse it's not considered an eligible rollover distribution and therefore not subject to the mandatory 20%. However when I look at every single financial institution distribution instructions, our own that have been used and many other things, they state 20%.

Help, and provide me a something to print for the correct answer meaning a code section. I must be missing something.

Thanks.

I'm just taking a stab in the dark in hopes I am missing something.

Plan is a safe harbor 401(k) utilizing the match to meet safe harbor. Plan is top-heavy, but has been getting the pass because the only contributions have been deferrals and safe harbor match.

All the key employees defer up to the 402(g) limits plus catch-up if applicable. Plan sponsor wants to make a 1% profit sharing contribution for each employee, but it is not interested in bumping contributions up to 3% for those that require a top heavy minimum.

I don't see that they have that flexibility. If plan sponsor makes any profit sharing contribution they lose the pass. We are aware that matching contributions can count towards top heavy & mitigate some of the minimum contributions, but that won't solve the entire issue.

Am I missing anything here? I don't think so, but I am hoping. Plan sponsor wants to mke a contribution, but wants a level profit sharing contribution for all employees and isn't willing to pony up additional funds to get employees to 3%.

Thanks in advance

I have an ERISA 403(b) plan where the plan sponsor wants to allow hardship distributions on all money, including amounts rolled into the plan (as opposed to in-service distributions for any reason). Is there anything in particular that disallows hardships from rollovers in 403(b) plans?

Thanks.

Hi,

Profit Sharing only plan. 12/31 Plan Year End.

Allocation formula is new comparability where each individual is in its own

class.

There is no allocation condition to receive a profit sharing contribution.

The compensation used for the profit sharing allocation is full year

compensation.

There will be one new participant who will enter the plan as of 7/1/2016 (entry dates are 1/1 and 7/1).

Can I amend the Plan effective 1/1/2016 (retroactively) to change the

compensation used for the profit sharing allocation purpose? I'd like to

amend the plan to include the wording - Exclude compensation paid during

determination period while not a Participant.

Or, is this considered a cutback and therefore can only be amended for

future years? Maybe it is okay as long as the amendment is adopted before 7/1/2016?

I was thinking maybe it is a cutback because current document has no

allocation condition. However, the current formula is "each individual in

its own class", which means no one actually earned any right/benefit until

the individual percentage is determined by the employer.

Thank you for your help.

Prior ESOP was individually designed but will use Pre-approved document instead for next restatement. Where does the IRS state that a sponsor can now use a Prototype and delay the restatement of their document?

Also, is there a list of regulatory amendments required for ESOPS the past 5 years?

An unprecedented number of deaths are going unreported by the SSA. In fact, almost 50% less deaths! This is due a re-interpretation of Section 205® of the Social Security Act that took place in November of 2011 that prohibits the SSA from reporting "State Death Records" in the Public Death Master File (DMF).

The SSA is still reporting deaths from every State in the country but these deaths were reported by a "First Party Source" (Family, Friends, Funeral Homes, Hospitals, Coroners, etc.) Below are the annual totals of deaths reported by the SSA from 2010 to 2015:

Annual Deaths Reported by the SSA DMF: 2010 to 2015

*2010: 2,450,902

*2011: 2,318,302 (5.4% Decrease - SSA changes took place in NOV 2011)

*2012: 1,150,663 (35.5% Decrease)

*2013: 1,474,973 (39.9% Decrease)

*2014: 1,284,624 (47.6% Decrease)

*2015: 1,259,106 (48.6% Decrease)

This has led to million of pension overpayments to deceased participants (fraud) and crippled many already underfunded pension plans. This is compounded by the fact that many Defined Benefit plan sponsors use direct deposit and these accounts are shared with a spouse, relative, and/or caretaker. It's the easiest fraud to get away with!

What's funny (or not funny) is that the Federal Government IS using these "State Death Records" for government agencies such as the IRS and Medicare but they won't share deaths with the Public including Local and State Government.

For more information, please contact Kyle McDonald at PBI at 415-299-8249 or at kylem@pbinfo.com.