dmwe

If a 9/30 PYE switches to a 12/31 PYE, does the $5,000 threshold for Sched C reporting get adjusted down to $1250 for this short one-quarter period?

This is a construction company and summer workers and I'm assuming that they are falsely documented workers.

Doubtful.

We try to do some due diligence prior to distribution by looking participants up on LexusNexus and we're running into a situation on a construction company plan where the SSN of the participant does not match up to the name or address we find on LexusNexus. I most cases these are "force outs" of small balances and we're not sure we have a good address either. Where do we go from there? We don't really want to issue a taxable distribution under that SSN and cause the wrong person to be taxed on a distribution they never receive. I was planning on just forfeiting these small balances if the name doesn't match up to the SSN. I don't think the plan document addresses false IDs.

I agree that the electronic delivery requirements are onerous. Do you typically send the sponsor one copy for them to make copies and deliver or do you do all of the printing and mailing and then maybe charge them for the service?

We're are a bank/trustee and recordkeeper and we're wrapping up our restatements but wondered how other shops were planning on helping their customers with the distribution of new SPDs. There are some pros and cons to electronic distribution and so many rules that it may not be workable. However, there may also be some push back to asking the customer to print X# of copies to hand out to all, including terminated employees who still have a balance in the plan. How are you approaching the process? Thanks

Thanks for the responses. The "adequate security" is the key. I'm not sure the company has ever provided anything other than the Promissory Note.

In a case where the Put of shares back to the company is paid out via a Promissory Note over a 5-year period, is the stock held as collateral for the Note? Or, are all of the shares turned over to the company in exchange for the Note and the Note is held as the asset in the rollover IRA? I think the IRA owner would be more comfortable holding the shares as collateral and then releasing 1/5th of the shares each year as the Note is paid down. How are these typically handled?

That thought did cross my mind that an amendment could be used to allocate any excess. Otherwise, would it be a 50% excise tax?

I have a client with a Cash Balance plan that is only one year old. He's been given a range of contributions for 2009 and I've told him that anything over the minimum contribution would basically go toward investment gains in future years, thereby possibly decreasing the contribution range in the future as well. If he consistently funds the plan over the minimum amount and an excess of dollars accumulates in the plan and he decides to retire and terminate the plan, what is the excise tax for the excess funding? Thanks

Thanks. I didn't think anyone was going to respond to that question. I agree with you for 2009 but wasn't sure for 2008.

I work on the 5500 for an ESOP that hasn't made a contribution in years. Every one is 100% vested. There are around 50 participants with balances but that number would be over 100 eligibles which would share in a contribution if one were made. So we've filed a Schedule H with an audit. Now they have decided to freeze the plan. Since the extra eligibles will never receive a contribution or have a balance in the plan can we go to a small plan 5500? Technically are those who were once eligible but will now never receive a contribution still counted as "participants" for 5500 count purposes? Thanks

If a one-time loan administration fee of $300 comes out of the proceeds of a participant loan, and all of those loan fees add up to more than $5,000, is it reported as "service provider" income on Schedule C. I think it is but the outside auditor doing the 5500 audit says it's an transaction outside of the plan between the borrower and the service provider and since the total amount borrowed will be repaid into the plan it should not be reported as fees coming out of the plan. My feeling is that Schedule C is about service provider income and not necessarily the financial impact of fees to the plans overall assets. Which way should I go? I'm thinking if I report it on Schedule C it would not tie to any numbers on Schedule H because it's not a fee that affects gains/losses in the plan. Maybe it's just a footnote on the audit report.

We were informed of a DRO from 1983 (maybe even before QDRO guidelines) that was never handled by lawyer, plan administrator or recordkeeper. Participant balance has just recently been rolled over to an IRA. Ex-spouse is finally bringing up that part of it belongs to her. Has she waited too long to get this handled? Is there a time frame in which she must act to claim an alternate payee benefit?

I'm working with a non-publicly traded ESOP with an 11/30 PYE. An employee who terminated in 2006, anticipating that the stock price will decline, finally sent in his distribution election form to rollover his stock & cash to an IRA. He also submitted a Put Option form to Put the stock back to the corporation in return for a 5-year note. He signed and dated the distribution form and Put Option form on 11/24/08. As trustee and recordkeeper, we proceded to pull the stock from our vault to send it to the transfer agent and sent the IRA account opening paperwork to the participant. The stock was reissued as of 11/28/08 to the IRA but didn't get back to me until Dec. 1st. I still have to send the stock along with the Put Option to the company after we determine whether or not the participant must sign the back of the certificate. Here's my question...will his distribution and subsequent note payable from the company be at the 11/30/07 price, or the 11/30/08 price since we are now into a new plan year? Does the pricing hinge on the date of the Put Option or the date the stock is delivered to the company, the Put is accepted, and the note payable is prepared? The plan document isn't specific to this situation coming up. The Put Option does specify that the stock will be valued as of the preceding year-end stock price. Thanks

It would appear that since the client is taking a tax deduction for the entire contribution for the year ended 8/31/08 that I'll have to allocate it all as of that PYE and then, on a prorata basis, use participant cash to make the loan payment in January and then release those shares at that point. But since we only do annual allocations I'll wait until 8/31/09 PYE to allocate those released shares - also prorata based on the cash used to make the payment. Does that make sense?

Each retirement plan should have a QDRO policy. I'd suggest getting a copy of that to read. I think ours requires that the participant not be able to adjust any investments until the QDRO is final. That may also protect the ex-spouse from harm should the participant attempt to adjust investments to the detriment of the ex-spouse. Unfortunately, you're caught in this market decline with everyone else. I'd suggest getting your QDRO handled ASAP and keep as much money in the plan as you can, as long as you can, to see if the market might improve and increase your balance. Only take out just what you need, or make him wait. Once it's yours in the plan and the balance is greater than $5,000 you can't be forced to make a withdrawal.

The current cash contribution is for the 8/31/08 PYE but the loan payment isn't due until Jan. '09. They'd like me to use part of this cash contribution for the '09 payment. Shares released, related to this payment, will not happen until 8/31/09. Timing-wise it doesn't sound right to me either. I'm not sure the document contemplates how we actually account for things as a TPA, but I'll take a look.

In my past experience with leveraged ESOPs, the company will pass their loan payment through the trust and based on the plan document, at the end of the plan year, you calculate how many shares should be released based on a formula and allocate those shares. I've got a new leveraged ESOP client and he is making the annual ESOP contribution today and then in January wants me to use some of that money to make his loan payment. I've never allocated contributions in cash to eligibles and then subsequently used some of that money to make a loan payment and then, at the next year-end (8/31), released shares based on that payment. Does that work or make sense? I'm more inclined to not allocate the amount of the contribution that equals the loan payment and hold it in suspense until January. Any guidance?

We only use safe harbors with our clients. Plan sponsors don't want to have to review facts and circumstances every time some runs into financial difficulties. The safe harbors are nice and specific and, yes, easier to administer. But business owners have plenty to keep them busy. IMHO, they don't need the extra burden of having to sit and listen to sob stories and then make the determination whether or not someone's financial difficulties qualifies as a hardship.

I agree with Kevin. If your record keeping software can't handle fiscal years you may have to track HCE's via a spreadsheet (if you ever have HCEs in the plan) in order to accurately look at each 6 month period to get your calendar year deferrals and determine catch up using the calendar year 402g limit and then manually adjusting fiscal year total deferrals to exclude any amounts above that were reclassified as catch up already giving you the actual deferral percentage.

It's not clear but I'm guessing that he wants to terminate the plan because it's costing him too much money. Maybe, if he's not already doing this, have the fees shifted to the participants instead of the employer. Then it wouldn't cost him anything. It doesn't make much sense to start up a new plan if he doesn't plan on contributing to the new plan either.???

Isn't the standard rule 80% owned by 5 or fewer people? I think that would make company 1 and 2 a controlled group. Make sure you know who holds the voting stock.

IMHO there are too many factors out of your control to attempt any combined testing. I would suggest you point that out in your service contract and document that combined testing needs to be done but that you aren't the one to do it.

I agree it's Actual, even though it deals with averages. Leave it to the IRS to make it clear as mud.