A large record-keeper that most of us know and love has a funny policy. If you are 59.5 and want an in-service distribution of your entire non-loan account, but you have a loan outstanding, then you are not permitted to do so. You are not permitted to a take distribution that will reduce your non-loan account balance below your participant loan balance. Their opinion is that you are violating the collateral requirements.

The EOB is perfectly clear on this, the 50% limit is determined on the date of the loan only.

The recordkeeper went on to tell me that this rule does not apply to a hardship because the hardship rules require you to take loans first. I explained that this completely negates all logic and reason that might otherwise have supported the position.

Esteemed pension gurus, what say you?

I have a potential client that has 3 owners and no employees. They would like to set up a plan to defer some of the taxes.

Is there any benefit to setting up a cash balance plan vs. a defined benefit plan? Or does it not matter since there are no employees and therefore no discrimination testing? Note - there will never be any employees.

Thanks

Does anyone have an idea as to the earliest date that a participant can withdraw prevailing wage fringe benefits from a plan? I am thinking that the earliest date would be the 2 year rule (other than hardship). Does anyone believe they could be withdrawn earlier than that? Thanks!

A client attended a seminar where at least the client was given the impression that it is beneficial to wrap H&W benefits with the 401(k) plan into one document.

2 questions:

1. Are there document providers that provide a wrap document whereby the 401(k) provisions & the H&W provisions are incorparated into one document?

2. Even assuming that the answer to Question 1 is yes, what would be the benefit of wrapping a 401(k) plan wiht H&W plans? I understand why a plan sponsor might want to wrap all H&W benefits into a single plan, but I don't see why a plan sponsor would want to wrap a retirement plan with welfare plan.

Thank you for any guidance.

A participant in one of our plans contributed over the 402(g) limit for 2015. We're working on doing a distribution of the excess right now. How would you calculate the gain/loss? Would you consider the date when the deferral first exceeded the 402(g) limit as the start date and the date of distribution as the end date for gain/loss calculation purposes?

Also, there were SafeMatch contributions associated with these excess deferrals. Do you calculate the gain/loss for those as well?

We are trying to clean up a situation involving an S corporation that was hit hard by the recession. The S corporation has been 100% ESOP-owned since 2004.

Due to the reduction in payroll resulting from the recession, contributions to the ESOP to enable it to meet its debt service back to the S corporation have for several years been roughly double the 415 limitation.

We have considered treating the excess contributions as S corporation distributions, but the stock value has dropped so much that it's virtually impossible to allocate enough stock (at its fmv) to participant accounts to meet the dividend-make-whole requirements of IRC Section 4975(f)(7).

We are likely to recommend that the loan be refinanced. We would also like to increase the amount of the loan but feel that this can be done only if additional shares are purchased by the ESOP. Although it seems counter-intuitive, I believe I have read or heard somewhere that an ESOP that already owns 100% of an S corporation can still buy more shares (and borrow the purchase price from the company).

Any thoughts would be greatly appreciated.

Privately held corporation with stock split between the company, a father and a son as owners. Non-familial COO and CFO. Company is discussing options for a succession plan in the event both shareholders die. They are considering using an endorsement split dollar arrangement on the life of the shareholders with key employees (COO and CFO) listed as beneficiaries as a way to fund the key employees' purchase of the deceased shareholder's stock. Another option would be to bonus out shares of stock to those key employees.

Any thoughts on using split dollar versus bonusing shares?

A client missed allowing a few participants to defer and now owe lost salary deferral opportunity. I know that these funds should be classified as a QNEC. But what about the associated match? Are these funds deposited to the match account with vesting attached or are they a QNEC as well?

Thanks for any guidance you can provide.

I'm probably missing something, but I can't find anything in 414(q) or the 414(q) regs addressing this.

S-corporation, new leveraged ESOP has the two head honchos irrevocably waiving participation, as the plan would otherwise fail 409 testing.

The plan document utilizes the top 20% election to determine the HC. Question is this - when determining the top 20%, are these two INCLUDED or EXCLUDED from the determination process? Since I find nothing that says you can or must exclude them, it would seem that they should be included. On the other hand, this doesn't seem reasonable, similar to doing 401k testing where someone has zero comp for the year, so you exclude them entirely from the testing. Of course, following the coverage testing rules, these people are treated as non-excluded and not benefiting, so maybe that is the more reasonable interpretation, in fact, that's where I lean.

Anyone ever encountered this, or have an opinion?

We are working on the PPA restatement for a plan. Current plan is a safe harbor plan that uses a safe harbor definition of compensation (no exclusions to comp) for the deferral and safe harbor match portion of the plan. The definition of compensation for Profit Sharing allocation purposes excludes bonuses and overtime.

Is this ok? What happens if the Compensation Ratio Test fails? In this case, it is only affecting the Profit Sharing. Does this failure affect the safe harbor status of the plan with regards to SD and SH Match.

We want to suggest to the client to use the safe harbor definition of compensation for all sources. Do we have a case to suggest this?

We have a Profit Sharing/401(k) we have taken over from a prior TPA who we understand was doing some shady accounting. Plan is with American funds.

I ran AF reports and compared them to past 5500s, and there are gross discrepancies. For a trust with assets in the range of $300k-$400k, assets on 5500s have been misstated (both over and under) by more than $110,000.

The ending balance on the 2013 report is approx $444,000 when it actually should have been approx $551,000

How should I prepare the 5500 for 2014?

1. Use ending values from 2013 and calculate earnings to get to correct 2014 ending value.
2. Use correct beginning 2014 value, ignoring fact that 2013 report was wrong.
3. Use correct beginning 2014 value, and include an explanation of error as an OTHER attachment to the filing
4. Other ideas?

This plan is part of a group of plans I’ve been asked to take over from a life actuary who is also an EA.

The one employee/owner has ample income to take care of 415(b)(1)(b)…he’s doing this to escape state SE and Federal SE taxes.

He’s a corporation.

He’s still actively employed.

Prior actuary certified it for 2012, 2013.

EOY val.

For starters, The AFTAP flunks—less than 60% because the plan has no assets at EOY, so benefit restrictions kick in.

I know of no waiver for a 1 person plan for the 436 benefit restrictions….maybe there is one…

The pension formula doesn’t match up with the $100k in and $100k out….

I guess you could design a DB formula that would have an annual accrual the cash lump sum of which equals $100k and have him take in in-service distribution for $100k, but I haven’t investigated how that will affect the AFTAP.

Has anyone ever done this before and does anyone see any possible solution to this – forgetting for a moment the seeming sham nature of it and prior years’ AFTAP certs that were wrong.

Thoughts would be appreciated,

Hello...I have a 3% Safe Harbor New Comparability plan that has a 10/15 tax filing deadline (on extension). In 2014, they made their 2014 mandatory 3% Safe Harbor NEC allocation in November so it would be considered a late contribution for tax purposes. They now want to make a 2015 Safe Harbor and possible a New Comparability allocation. Would that 3% Safe Harbor NEC allocation that was made late for 2014 count for 2014 or for 2015 for gateway purposes? I know it would count for 2015 for 415 purposes but not sure about how it would apply for gateway. Any thoughts? Has anyone had this situation come up before? Thanks!

I have a question concerning amending a SEP plan:

Employer adopted an individually designed SEP plan in 1995 and has not amended the plan since its adoption. In order to correct this problem, can the employer amend the individually designed plan by adopting a prototype SEP plan administered by a financial institution that has already been approved by the IRS? And, if the answer is yes, does the employer then have to use the VCP to inform the IRS of the adoption of the prototype SEP plan?

Any comments would be appreciated.

Client failed testing. Refunds issued and cashed. Discovered bad data was used. Tests rerun and client still failed but refund required for HCEs was less than what was issued?

As to issue of refund, can they self correct?

I work on a plan that has been frozen for 20+ years.

- The plan does not have an unlimited lump sum provision

- They would like to offer a lump sum window (unlimited) to its vested terminated participants

- They are less than 80% funded

- No restrictions on lump sums since they were frozen prior to PPA

Can they still offer a window since the AFTAP percentage does not impact their ability to offer lump sums

-OR-

Since it would is a new provision/amendment, does the 80% come into play?

From a practical standpoint, it doesn't seem to be necessary to have a separate plan tax ID number when the assets are held with an investment provider/recordkeeper (i.e. John Hancock, American Funds, etc) who uses their own tax payor ID for tax reporting and distribution purposes. That being said, is there a legal precedent for applying for a separate plan tax ID number in this type of situation? We always apply for a separate number with assets in brokerage accounts or other arrangements that need it for tax reporting purposes. Some practitioners take the approach that it is needed to separate employer assets from plan assets in all situations. Not sure how this has been dealt with in the legal arena or how the IRS views this issue. Looking for some further guidance on this topic.

Here's a doozy for you...

Calendar year plan. Fiscal year of employer ends 9/30/2015. 12/31/14 contributions are deducted on the 9/30/15 return. They are amending the fiscal year to 12/31 and there will be a short fiscal year from 10/1/2015 to 12/31/2015.

How do I determine the max deductibe for that short fiscal year?

The owners will have more than 66,250 of comp in Q4 ($265,000 x 3/12). But I have 12 months of allocations to allocate out. Do they just get hosed on the 2015 plan year? Or is there a way to use the calendar year for the max deductible, especially since otherwise the comp for those 9 months will never get to be used?

It is discovered in checking the 2014 vaulation work for a DC plan that there were a few employees who should have entered the plan in the 2013 plan year.

In calculating lost opportunity, can we rely on Rev Proc 2015-28 with the reduced QNEC of 25% of missed salary deferral for the 2013 and 2014 failures?

What if the employee was missed in 2012 and 2013 and 2014? Are we required to calculate the full QNEC (half of missed salary deferral) for all years missed? Or does Rev Proc 2015-28 give us the ability to reduce the 2013 and 2014 QNEC and we only need to give the full QNEC for 2012?

Any guidance would be helpful.

A participating employer under a 401k plan is sold. How does that affect the employees in that participating? They haven't terminated their employment nor has the plan that they were under terminated. Can they set up a new plan of their own if the new employer doesn't want to merge them into their own plan? If so, are the assets just moved over into the new plan?

Thank you.