I am a 401k plan administrator. I'm being asked by a participant to allow her to continue to invest in a publically traded LP which *could generate UBTI (Fidelity has told us that the security is no longer allowed in their 401k plans, but will allow us to grandfather her in).

At any rate, I want to get some info to better advise the plan trustees on this issue.

Should there be more that $1000 of UBTI generated and the plan has to file a 990-T, how arduous is this filing?

Additionally, I assume that the participant would be responsible for the tax, paid out of her 401k, are there any issues with this?

And, Are there any issues that I am not seeing? Any liability for the other members of the plan or the plan itself?

Thanks

I have an owner who took a distribution from his 401k plan. The terms of the loan followed all the requirements of 72(p) thereby making it a permissible loan and was not a prohibited transaction upon the loan issuance.

Now the owner has defaulted on the loan. I've done extensive research regarding the ramifications of a disqualified person defaulting on a loan. I cannot find any direct information from code sections 72 or 4975 but I did find the following on two separate IRS communications (one was a phone forum, the link below is from a TEGE/EP Nationwide Tax Forum in 2013): a disqualified person defaulting on a loan results in a prohibited transaction.

https://www.irs.gov/pub/irs-tege/forum13_loans_hardship_distns.pdf

(the example is on page 22)

Has anyone declared a defaulted loan to an owner as a PT and is there some regulations or code sections that I'm missing? The example from the IRS in the above link is very cut and dry but I'm irritated that I can't find an official regulation somewhere.

In the draft version of the 2015 Form 5500, question 13 has been added to find out if the plan has been timely amended for all required tax law changes. Then the questions b, c, and d are asking for the date of the amendments and the serial numbers of the prototypes or vol submitters. Does anyone know if the 2015 SF will be asking for same?

I'm sure this has happened but I'm not finding any threads.

Safe harbor nonelective 3% 401(k) plan - individual accounts - newly eligible participant is refusing to complete an enrollment form.

What would others do? Set the participant up in a target fund based on his DOB?

I'm always amazed at people who don't want "free" money

I have an accounting client who seems to have received some bad advice from his financial advisor. He had a SIMPLE plan for a few years. His advisor recommended moving to a SH 401k. He only has 4 employees and he does not defer the maximum. He was not informed of the Form 5500 filing requirement. So now he has to go through DFVCP and file future forms. Can he terminate the SH 401k and just go back to a SIMPLE plan?

Thanks!

Employer A sponsors a 401(k) Safe Harbor Plan. Employer A is looking at aquiring Employer B. Employer B maintains a Cash Balance and Profit Sharing Plan.

1. Cash Balance Plan will be terminated prior to the acquisistion

Question - If Employer A wants to merge Employer B's Profit Sharing Plan into their Safe Harbor 401(k) Plan, can this be done at any time, or can the merger only take place on the first day of the plan year, since one is safe harbor and the other is not.

If they do merge the plans, am I correct in saying the Employer A's Trsutees and Plan Administrator will assume all fiduciary responsiblities for Employer B's Plan. Therefore, the s"sins" of Employer B's plan become Employer A's responsibility??

Sigh. Accountant tells me about a client that filed their 2013 5500 a couple of months ago and got a bill for $8800 or so from the IRS for late filing penalties.

Can they amend and file under DFVC? Might it be worthwhile to just beg forgiveness?

Suppose you have a public instrumentality that is considered "governmental" and therefore ineligible to sponsor a 401(k) plan.

Is there any reason that they can't use a 401(k) document, but simply not elect any of the 401(k) provisions? In other words, they only elect PS and rollover, and appropriately modify SPD to remove references to deferrals, etc., etc...

Or does the fact that the document is, according to the IRS Advisory letter, a "Profit Sharing Plan with CODA" preclude them from using it?

I can't see any sensible interpretation for the latter, but thought I'd see if anyone had a different opinion?

Have a Profit Sharing Plan with three participants, Husband, Wife and Employee. Employee terminated and received a distribution. As a result of the distribution, there is a forfeiture of $5,000. Plan calls for forfeiture to reduce employer contribution.

Plan Sponsor had bad year and received no compensation. What can we do with the forfeiture?

401(k) participant whose account included after-tax and pre-tax dollars received an otherwise-proper hardship distribution (i.e., authorized by plan, procedures followed, right amount was paid, etc.), but which was paid entirely out of pre-tax deferrals (i.e., the distribution was paid without regard to the ordering rule requiring it to have been paid first out of after-tax dollars). To pluck some numbers out of thin air, let's say that a $10,000 hardship distribution was paid entirely out of pre-tax dollars, rather than $1,000 after-tax (representing the full after-tax account balance) and $9,000 pre-tax. As a result, the administrator treated the entire $10,000 distribution as taxable and subject to the 10% early withdrawal penalty. But if the first $1,000 had properly come out of the after-tax account, the amount of P's basis in the after-tax account shouldn't have been reduced. So the plan isn't out any money, but the tax hit to the participant was a bit larger than it should have been.

To me, it seems reasonable under the general correction principles to fix this by cutting P a check for the amount of the improper tax hit (plus interest), and moving the remaining after-tax dollars into P's pre-tax account. But EPCRS doesn't seem to directly address this scenario.

Anyone encountered this before? Thoughts?

E: I suppose one might argue that this is, really, a failure to have initially required P to withdraw the after-tax amounts before receiving the hardship, which could be corrected by requiring repayment of the portion that shouldn't have been distributed in the first place. But from the plan's perspective, the right amount (in absolute terms, anyway) was paid out. Any repayment would presumably be made with after-tax money anyway, so requiring that additional steps seems like an overly complex means of reaching the same result you'd get by recharacterizing the remaining after-tax dollars already in the plan as pre-tax...

I have wealthy participant that has two individual accounts in the 401k plan. He wants to designate a beneficiary for each account instead of using one form and inputting percentages. Is this allowed?

Does a contribution for the tax year 2014 that is made in 2015 added to the actual 2014 account balance when calculating RMD's?

Business owner taking RMDs has scheduled automatic checks to come from the plan's record keeper. Business owner dies, 10 days later record keeper issues the annual check.

Should the check be returned and reissued to the beneficiary, or deposited to the estate?

While it is well documented that you can't amend the profit-sharing allocation methodology retroactive to the beginning of the year if a person has accrued a benefit (e.g. no last day requirement), does anyone have a problem with changing the allocation group definitions in a cross-tested plan if the language in the plan states that the determination of the appropriate group takes place on the last day of the plan year.

Example: Since it is a partnership, we aren't using the "everyone in his or her own rate group" method. There is no last day requirement to receive an allocation. We want to add a couple more allocation groups to allow more flexibility. Group determination is as of the last day of the plan year. Can we make this amendment effective January 1, 2015 or do we need to make it effective January 1, 2016?

To me, the language that says your group determination is as of the last day is critical, but my concern would be that adding a group would cast some doubt as to whether a person has already accrued a benefit based on the groups that were in place prior to the amendment.

Thanks.

We have a client that established a new DB plan effective 1/1/2015. The plan will be adopted this month. The only employee is the owner and she turned 70 1/2 in 2014. Vesting is 100% since she has another qualified plan.

Her required beginning date is April 1, 2015 but she has no accrued benefit on that date.

When must she receive her first RMD as an annuity? I couldn't find anything in the RMD regs. I can't imagine it would start in 2015 since her benefit won't be calculated until the end of the plan year when we get her final salary (although since she is the owner we probably already can calculate her exact accrued benefit on 12/31/2015).

Would her benefit start 1/1/2016?

The 403(b) plan excludes those who work less than 20 hours/week. But when an individual is hired full-time and then is later a part-time individual (less than 20 hours/week), is it acceptable to automatically no longer permit that individual to make 403(b) contributions to the plan? The employer has been doing this and our question is whether this is a violation.

Thanks

Partners have ordinary income and Guaranteed Payments. Can we amend the Plan to exclude from the calculation of earned income Ordinary Income (but NOT Losses)? The situation is that the CEO is a 10% owner and does NOT want the extra match attributable to his ordinary income. I know I cannot exclude the losses because if I did their match rate would be higher than the rank and file and that would not pass nondiscrimination.

They want the match to be based exclusively on guaranteed payments.

I also recognize for nondiscrimination testing, I would still use the statutory definition of earnings.

A plan has a 6-month service requirement for 401(k) purposes and a 1-Year service requirement for matching contribution purposes.

The plan is considering adding automatic enrollment of 5% for newly hired employees only. Further, the Plan wants to be considered an Eligible Automatic Contribution Arrangement (EACA).

Can the 5% default contributions be delayed until the participant is eligible for the match (1 Year) or must the 5% automatic enrollment be applied once employees become eligible for the 401(k) (6-Months)?

In other words, would waiting to automatically enroll participants until 1-Year of Service violate the uniformity requirement of Treas Reg 1.414(w)-1(b)(2)(i)?

A 401(k) Profit Sharing Plan was terminated and paid out over 2-years ago.

The Trustees just received information from the former custodian that they would receive a payment as part of some class action settlement because the Plan was charged "too much."

Questions:

1. How should this money be accounted for? We are thinking it should be paid out to the participants pro-rata (to the extent the charges affected each participant's account balance).

2. A final 5500 filing was already done over 2 years ago. Do we simply do another final 5500 filing in the year of asset recovery?

3. One consideration here is to try to minimize audit risk, will the filing of a final 5500 filing 2 plus years subsequant to the execution of a plan termination amendment and resolution trigger it for audit, or make this an "ongoing plan."

Thanks

client uses prior year testing. one owner over age 50. testing will pass for 2015 based on lower group average from 2014.

no one is contributing in the lower group for 2015. So....can the owner contribute the catchup of $6,000 next year (2016) with the lower group average at 0% for 2015?

I know this should be easy but believe I am overthinking it....