austin3515

As a former auditor, my opinion is that the DOL would look this over VERY closely. They would NOT be thrilled about the auditor and the auditee being "in bed together." For example, could the payroll company (who provides the auditor with X audit clients) coerce the auditor into overlooking its errors. Not only do CPA's have to be independent in fact, but they must also be PERCEIVED as independent. Therefore, they should walk away from situations which might be perceived as NOT independent. This seems to be one of those situations. I know for a fact that a very large firm had a similar arrangement with a very large insurance company to "bundle the audit" and the whole operation was disbanded because the DOL was pretty unhappy with it. What's more, its the fiduciary's responsibility to hire the auditor--so if the DOL rejects this arrangement, it is the fiduciary's problem (i.e., the fiduciary must go out and hire a new independent auditor). Sure, there might be a malpractice suit if the audit was rejected, but we all know how that works ($$$$$$$$$).

I would quote blinky-the-three-eyed-fish for an IRS audit! Didn't you ever read Romeo and Juliet?

Your English accent needs some fine tuning...

You can't get much more clear than JFKBC's explanation... Although he didn't mention that this will get you out of the ADP test, in his defense that's the whole point of all of this craziness. On top of that, Tom Poje gave you the exact cite in the regs!

Partnership is income is reduced by 401(k) contributions inasmuch it is included in the compensation figures that are deducted from partnership income.

Darnit Bird's right, it is based on CG rules (I looked it up). Sole Prop owns 100% of his own business, and just 50% of the other. To be brother sister controlled group, he would need to own at least 80% of the S-Corp. Over the years I've learned never to ignore the ASG rules--but I can't see how a defunct Schedule C and a new S-Corp could ever fall into an ASG situation. In light of this "new information" I actually vote for terminating the old plans. That way the money is rolled in with no distribution restrictions. Plus, the problems of either of the old Sole Props' plans won't affect the other partner. PLUS creating one new plan is just easier. I vote termination.

It is still the same employer - the fact that two sole-props choose to incorporate together doesn't change the fact that they are still employed by the same econominc entity (that's the best way I can describe it). The IRS was careful to draft its rules so that changing the form of a business would not affect application of the rules. OK, let's say one guy is a landscaper, and the other guy is a lawyer in their respective schedule C's. They both form an S-Corp together to manufacture widgets. Then, I suppose you could terminate the uni-k's and roll the balances to the new plan (though this might be scrutinized under audit). Converseley, if they were both lawyers, and they both incorporate together to practice law, then they are both working for the same employer. Does this example make the point about "economic entity" more clear? I think it does...

You can't terminate a 401k plan, and then turn around and start a new one the next day. Because there is a "successor plan" within 12 months, there is no distributable event created by terminating the Plan. So merger is your only option. The only substantial difference in the outcomes is the distribution restrictions which unfortunately will need to be preserved.

I think Bird's comment applies in the same way to notifying the participant.

Two words of caution for you: Top Heavy. In the first year of the Plan, the TH ratio is determined as of the last day of that Plan Year. So if you're not extremely careful, you could wind up giving 3% of pay to everyone!! Not to say this can't be done, but in "micro" plans, you need to be extremely careful, particularly if the 401(k) is rolled out, say on December 15. 2007

Documents do not need to be written in a special way in light of controlled groups. Also, as I mentioned earlier, often-times a seemingly minor detail can definitively rule out ASG status. Competent ERISA counsel should be able to tell you if it's a gray area or black and white. Save you the trouble of applying to IRS (yuck!)

To be clear, its the CONCENTRATION of HCE's, not the number. But based on the additional info you provided it sounds like this will be the case. The next step for you is to crunch the numbers and see how it goes. Remember, if you fail the ratio percentage test, you can always try the Avg. Ben. Test.

I agree it was nice! BUT if your in the market I'm in (10-100 part. as "sweet spot") a little quick math tells me that average plan in the survey has 6,000 participants!! I almost fell out of my chair when they said the average profit sharing was over 9% of pay!! That just doesn't happen (often) in the small plan world!

I'll go a step further and suggest it woul be imprudent from a fiduciary perspective to disallow loan repayments. This would definitely be a fiduciary no no. Not to mention the adverse tax consequences on the participants who would receive deemed distributions.

For what it's worth, the match formula you see more than any other is still 50% up to 6%. I see a LOT of others doing 25% of 4%. No one formula has the majority, obviously.

IF they are an ASG, the first step is to test each plan for coverage, treating the employees of the other company as not benefitting. If you pass coverage in both plans, everything is hunky-dorey. Purely based on speculation I'd say you might have a problem, because presumably, there is a very high concentration of HCE's in the management company plan. It is when one plan covers a disproportionate number of HCE's that you run into a coverage problem, particularly if that plan is more generous.

Is he/she buying that the Plan is subject to 415? It's written in the document, but if you can't go by the document...

Based on the facts you've provided, I'm on board with you. Corbel's documents do allow you to use any 414(s) definition for ADP testing. Did you show him/her the site in the document that spells that out? I have no audits where this has come up.

http://www.dol.gov/ebsa/regs/fab2007-3.html I wonder if they saw my post? It's not much but it's something. at least it means we have plenty of time to figure it out! On December 20, 2006, the Department of Labor issued Field Assistance Bulletin (FAB) 2006-03 providing guidance for the Employee Benefits Security Administration’s national and regional offices concerning good faith compliance with the pension benefit statement provisions of section 105 of ERISA, as amended by the Pension Protection Act of 2006. In FAB 2006-03, the Department indicated, among other things, that, pending the issuance of further guidance, the furnishing of pension benefit statement information not later than 45 days following the end of the relevant period (calendar quarter or calendar year) will constitute good faith compliance with the requirement to automatically furnish pension benefit statements by individual account plans. Since the issuance of FAB 2006-03, it has come to the attention of the Department that many individual account plans that do not permit participants and beneficiaries to direct the investment of assets in their individual accounts may not be able to comply within the 45-day period set forth in the FAB. It is represented that many of these plans are profit sharing plans and the sponsors of those plans do not determine or contribute profit sharing contributions until after the sponsor’s business tax return is completed. Similarly, non-participant directed individual account plans sponsored by partnerships cannot make contribution determinations until completion of the partnership tax return. It also is represented that many such plans are dependent on securing third-party valuations for those assets that do not have a readily ascertainable value. Compliance with the 45-day good faith period, therefore, would appear to be impossible or very expensive for many of these plans unless the benefit statements were based on data from the end of the prior plan year. It is further represented that much of the required information is compiled in connection with the preparation of the plan’s Form 5500 Annual Return/Report and, accordingly, the time frame for furnishing benefit statements should correspond to the required filing of the plan’s Form 5500. In view of the foregoing, and pending the issuance of further guidance, the Department is providing the following additional guidance. Plan administrators of individual account plans that do not provide for participant direction of investments will be treated as acting in good faith compliance with a reasonable interpretation of section 105(a)(1)(A)(ii) of ERISA when statements are furnished to participants and beneficiaries on or before the date on which the Form 5500 Annual Return/Report is filed by the plan (but in no event later than the date, including extensions, on which the Annual Return/Report is required to be filed by the plan) for the plan year to which the statement relates. This guidance supersedes the guidance provided in FAB 2006-03 as it relates to the dates for furnishing pension benefit statements to participants and beneficiaries of individual account plans that do not permit participants and beneficiaries to direct the investment of assets in their individual accounts. Questions concerning this matter may be directed to Jeff Turner or Suzanne Adelman, at 202.693.8523.

Tell ya what, you run for Congress, and I'll vote for ya

One plan, one controlled group, one test. Note: One plan, 5 controlled groups, 5 tests (i.e., a multiple employer plan). Note: 5 Plans, One Controlled Group, up to 5 Tests, if each plan passes coverage, yada yada see my original post.

That's the best icon I could find for, "daggonnit I hate it when I say something stupid..."

My original post (over 2 years ago!!) is correct only if there are 5 plans (I can see I had assumed that in my post). My understanding is that if you have one plan, you have one ADP test. Everyone is tested together. Am I correct that all 5 companies are covered under a single plan? Retsructuring is available only for nonelective contributions.

Tom, I don't understand. Are you telling me that by following the terms of the Plan regarding how to handle an ineligible participant (close the account, return contributions, etc.), you could risk disqualification? Doesn't the favorable opinion/determination letter protect you from that sort of injustice?

I edited my post, as I now realize it was your prior employer that made the mistake, and not your current employer. You're current employer is on the money - your prior employer needs some training--this is a very basic question!! Nothing about 402(g) or the corresponding 401(a)(X) is based on a Plan Year. It is a calendar year limit no matter what the Plan year is. 415 on the other hand can go either way, depending on what the employer elects. However, it is almost always the Plan Year.