I have a client that wants to drop their 2015 grace period, which would carry into 2016 and add a rollover provision. How far in advance do they need to notify participants? Is November 30th too late in the year? Is distributing an SMM sufficient?

Thanks for any replies

Greetings 401k Board,

I am hoping for feedback and guidance regarding an unusual situation. Employer A is about to acquire Employer B. Both parties agree that Employer B will terminate their Safe Harbor plan prior to acquisition (closing in less than 30 days). Is there an exception to the testing requirement for the current year (because of elimination of the SH) due to plan termination? They will have made 11/12 months worth of SH accruals, and there will no longer be a plan for the final month.

They will be able to timely issue a "NO 2016 SH" notice, for what it's worth. As an added complexity... If the deal falls through after after 11/30, can Employer B re-issue an updated SH notice to re-institue the 2016 SH contribution? It will certainly be an employee-friendly change, and be done with some time to allow employees to consider the elections for 2016. That's what the 30 day period is intended for if I'm not mistaken.

Any observations, questions, input are appreciated! Thanks!

In obtaining plan year end information, we discovered that the sponsor of the Profit Sharing plan had borrowed $50,000 from the plan:

• Corporation passed resolution approving plan to extend $100,000 line of credit to sponsor
• Sponsor borrowed $50,000 from LOC, with check payable to sponsor and deposited into payroll account to meet payroll obligations
• Borrower later borrowed additional $30,000, and has since repaid about $5,000-$10,000 of the total borrowings

This was obviously prohibited transaction, and in no way can be re-characterized as a participant loan to the owner since there is clear evidence of intent (resolution from Board for LOC and deposit into payroll account). This was an honest mistake by owner, who didn't realize it was prohibited or that he should contact us first.

Ideas???

(Warning - rambling musings follow. May be boring.)

This ASPPA news article (I think it is available to non-members) caught my eye. ASPPA said “Another “excessive fee” lawsuit was settled recently — but what’s more interesting than the settlement amount is the speed with which it was reached and how it’s going to be spread among the parties.” I guess that is a valid observation; you can read the article for that take.

I’ve never been able to find details on these suits, specifically when they talk about different share classes - but I did on this one, in the complaint itself, not the settlement and found it interesting (in a dry, boring sort of way...).

The basis of the first part of the complaint is that they used retail shares when institutional shares were available. Looking at one specific fund, they say that American Funds Income Fund could have been used with R-5 shares instead of A shares. The total difference in fees is .29% (59 basis points vs 30 bps). For those who don’t know (and I think that many in this industry are appallingly unaware of such details), A shares have a built-in trail commission, aka 12b-1 fee, generally .25%, so the 12b-1 fee is part of the total fund fee. R-5 shares have no built-in distribution or 12b-1 fee. They are designed to be used in a fee-based platform, where an advisor charges a separate fee. I think that’s a significant point, and makes the direct comparison tenuous, because they are ignoring those other fees that doubtless would be charged. (Although I doubt .25% is the going rate for such a plan; I have no idea but 5-10 basis points still generates an awful lot of revenue on $1 billion - “One billion dollars, bwa-ha-ha.”)

They go further and compare the fund to Vanguard’s “VBALX” (I think they mean VBTLX, Total Bond Market Index), with expenses of .08%. Again, I think it is fair to say that in most plans, there would be some kind of an advisor fee built in, so the direct comparison is at least a bit misleading. And...I’ll be careful not to give investment advice here...let’s just say that there is a difference between active and passive investing, and I think there can be value in paying a manager. For AF Income Fund of America, the actual management part of the fee structure is .22%, and I think that is (more than) reasonable.

My conclusion on this part is that the fees were probably excessive, but probably not as excessive as their comparison would lead one to believe. (Incidentally, the complaint states that the institutional share fees were less than the retail share fees in every case, but in the settlement, Novant claims that some retail share fees were less than some institutional. Shrug.)

Next (there’s more!) they go on to the recordkeeper, GreatWest. They note that direct compensation to GW increased from $195,000 in 2009 to $2,400,000 in 2010 “without providing additional services.” (And $3,500,000 in 2011.) While I’m sure there were some additional services, I find it hard to argue this point.

Then they go on to the broker, and note that commissions went from the $800,000 range in 2019 and 2010 to $1,900,000 in 2011, “...despite Davis’ limited services not changing in any material way...” (Ouch.) I am having a hard time arguing with that. They use the term “kick-backs” repeatedly and it’s pretty ugly. There’s some other nasty business going on with gifts and co-ventures that I won’t get into.

Finally, there is a Fraud and Concealment section. Novant apparently bragged that “certain fees were waived” (I guess the reference is to A shares purchased at Net Asset Value, which is no big deal) and that “the checks for all administrative expenses are written by Novant.” I don’t know if they say that any checks were actually written, but I’m sure if they were they were for trivial amounts. Sigh. “Hogs get slaughtered” comes to mind.

My take on all of this...I’m not a lawyer, but I think there is a saying to the effect of “bad fact cases make bad law.” That’s in part what I see here; there was some greed (understatement) and they probably got what they deserved. I just have a real bug up my butt about the DOL’s obsession with fees, and they definitely relied on and quoted heavily from the DOL regs in the complaint. I agree that when a broker “takes” 75 bps as a trail commission instead of 25 bps - and that is what really drives the pricing - it might be egregious (depending on plan size). But saying that management fees of 22 bps vs 8 bps is a 175% increase is hysterical and misleading.

I deal mostly in the smaller plan market and am pretty confident that we not only have nothing to be afraid of, but are under the radar. Still, there are some things in here that are cause for concern. Thanks for listening if you got this far.

A DB plan terminated and all participants were paid out in 2015. One participant chose the joint and 100% survivor annuity option and an annuity contract was purchased (from an insurance company). My questions are as follows:

1) Is the purchase amount of the annuity included in #7d (benefits paid) of the SF? I assume yes since where else would you put it.

2) Is a Form 1099-R prepared for this participant? I assume no since the insurance company received the benefit and not the participant.

I have a prospective client that has income as a sole proprietor and he also has an LLC taxed as a partnership. He owns 99% and his wife owns 1% of the LLC.

Is there any reason why he cannot adopt a DB Plan as a sole proprietor and have the LLC be an adopting related employer?

Someone told the CPA he had to have two DB Plans, one for the Sole Proprietorship and one for the LLC.

Example: 4 family members own a s corp biz (mom, dad and adult children), no other EEs. They currently pay the same salaries for all 4 (~30k/yr). They sold the assets of the business (~1.5M) early this year but retain the entity, which is now flush with cash. Just over 1M is not basis so subject to form 1231 cap gains.In order to minimize cap gains, we are considering a combination of 1) reallocation of equity (gifting some by parents to children using small part of lifetime gift exemption before eoy to keep cap gain liability at 15% (they should have gifted the equity before the sale but besides the point), and 2) starting a k/ps/cb plan to reduce AGI from 1120s, but naturally considering adjusting comp before eoy to get to funding levels for the ps/cb that make sense. Since the income of the business was minimal (sold early in the year), they will show significant loss of income in the business due to ER contributions to owners for ps/cb plan. However, they own several other businesses (no EEs other than the same owners) that will pay a management fee to the original co or the original may just become a holding co for the rest, to be determined, but income will flow into the entity after this year.

My question is:

1) is there a limit to deductibility for ps/cb plans for an all owner/family relation company w no other EEs?

2) can losses due to contributions be carried forward like other corporate losses?

Thx!

Member of controlled group participates in a single employer plan.

That member goes out of existence, can we say that the plan terminated with respect to that participating employer thereby allowing us to force out all of that member's participants?

Or do we have to let participants with more than $5,000 and under age 62 leave their accounts in the plan?

I'm guessing it's the latter since "the plan" didn't terminate but I'm looking for a cite.

Thanks

DB plan pays out Year 2's January monthly payments to retirees and surviving spouses late in December of Year 1, rather than in early January of Year 2 as would normally be the case. Consequently, they each receive 13 payments in Year 1 and only 11 payments in Year 2. Is there anything in the 401(a)(9) regulations or other guidance that says there is no RMD violation in Year 2? (Forget for the moment about whether VCP could cure this, or whether there is "reasonable cause" to avoid the excise tax, or whether IRS would really have any interest in enforcement here.)

Doctor is in a large partnership (100 or so) and gets a K-1. For unknown reasons, they also pay his S-corp for services (he says management but I think it is an arbitrary splitting of income). He wants to set up a plan for his S-corp.

I have a vague recollection of "management" being problematic, but also some kind of a percentage threshold...ok, I know nothing.

Any thoughts about whether/how this could be or not be an ASG?

Has anyone seen a non-ERISA 403(b) plan sponsored by a dual status (i..e, 501©(3) and governmental) public education entity?

Thanks!!

This might be a gray question...anyone interested in commenting??

Company A has a 401(k) plan with excess assets from their DB plan termination that occurred in 2014. They also have another company B that spun off in 2012 and adopted the 401(k) plan in 2012. That made the 401(k) plan a multiple employer plan in 2012. A has a small ownership interest in B. The companies are not a control group or ASG. Company B spun off, but never adopted the DB plan b/c it was frozen in 2012. The participants from company B were in the DB plan when they worked for company A. Can the excess assets be used as Profit Sharing contributions for both company A and B? Or, are they only allowed for A?

An audited plan of ours had a fee due in two parts. For purposes of this post, 2 payments of $5,000. The company paid the first part of the fee a few months ago out of their operating bank account. Recently, they received $8,000 from an ERISA class action lawsuit. Now that the other $5,000 portion of the fee is due, we are paying those fees out of the lawsuit money that was put to the retainer account.

The client asked if we are allowed to have a check of the remaining amount ($3,000) reimbursed to them under the guise that the money would have been able to been paid to audit fees to begin with.

Has anyone had expierence with this or guidance?

Thanks

Would a 401k plan that provides the basic SH match to one group of participants and the enhanced SH match to another group still be considered a SH 401k plan? Thanks.

I believe that for purposes of qualified plans, in determining whether or not a brother sister control group exists, the shareholders of the two or more organizations being analyzed need to be individuals, defined as individuals, trusts or estates.

If the direct sharholders are partnerships, not individuals, does the inquiry stop there.

Or do you look to see who the owners of the partnerships are and attribute ownership through the partnership to them and see if a brother sister controlled group exists through organizational attributions.

Thanks

We have a plan that did not issue their corrective distributions by 12/31/14 and now a QNEC needs to be made. The option that is being chosen is resulting in no corrective distributions needing to be made (i.e. not the one-to-one correction). Since no corrective distributions are now being made, could the plan now file an amended 5330 and get a refund of the excise taxes that were paid in? If so, has anyone done this? Our thought is this could possibly be an audit flag that may not be worth the risk.

I've researched the issue of "related income" until I'm blue in the face. Hopefully, someone can help.

Please provide any source material so that I may read, absorb, and learn.

My clients are partners in a large controlled group. They individually own what we will call the parent company ("Co. X") and Co X owns controlling interests in other affiliated companies. For years they took their Co X K-1 income personally, applying it directly on their individual 1040s. Recently, LLCs were set up for each of the partners and the LLCs now hold their interests in CO X. Now the K-1 income filters down into the individual LLCs, allowing for additional deductions on the income.

There is a Safe Harbor 401k for the benefit of the employees in the affiliated companies, under which the partners may contribute up to $18k per year.

Can individual SEPs be set up for each individual LLC, but the individual LLCs only?

If so, may the partners contribute the max amount of 25% or $53k?

I express my sincerest gratitude in advance for any help on this matter!

Thanks!

Has anyone ever had to report a merger in the Summary Plan Information notice under ERISA Section 104(d)(1)(G)? Does one just list the actuarial value of assets and liabilities for each plan from the 5500 from the year preceding the merger? Any help would be appreciated.