austin3515

Just to clarify, an auditor can GENERALLY accept referrals from anyone without concern. The question is whether they can compensate someone for those referrals - and they cannot. I use the phrase GENERALLY because the example we're discussing here I agree would be the exception--this type of arrangement does not pass the independence smell test, even if there is no money exchanging hands.

You can exclude any group of employees you want, as long as you pass coverage. And because union employees are excludable from coverage (as long as retirement benefits were the subject of good faith negotiations), you can always exclude union employees.

I did see that as well, regarding ASG's. Sounds like you were way ahead of me when these conversations began

At the time of the distribution.

Why do people want to do anyting they want to do? Maybe I'm crazy, but I thought it was an interesting idea...

I'm not sure why you are concluding that QSLOB's are not an alternative. If you have 5 separate companies, you oughta be able to have 5 separate QSLOB's. I'm not entirely familiar with the rules on being a QSLOB, but it's not exceedingly difficult to have QSLOB's.

I stand corrected: If you're willing to go through the QSLOB rigamarole (sp?) you can indeed run 5 tests in one plan. 1.414®-8. Separate application of section 410(b) © Coordination of section 401(a)(4) with section 410(b)--(1) General rule. For purposes of these regulations, the requirements of section 410(b) encompass the requirements of section 401(a)(4) (including,but not limited to, the permitted disparity rules of section 401(l), the actual deferral percentage test of section 401(k)(3), and the actual contribution percentage test of section 401(m)(2)). Therefore, if the requirements of section 410(b) are applied separately with respect to the employees of each qualified separate line of business of an employer for purposes of testing *ONE* or more plans of the employer for plan years that begin in a testing year, the requirements of section 401(a)(4) must also be applied separately with respect to the employees of the same qualified separate lines of business for purposes of testing the same plans for the same plan years. Furthermore, if section 401(a)(4) requires that a group of employees under the plan satisfy section 410(b) for purposes of satisfying section 401(a)(4), section 410(b) must be applied for this purpose in the same manner provided in paragraph (b) of this section. See, for example, §§1.401(a)(4)-2©(1) and 1.401(a)(4)-3©(1) (requiring each rate group of employees under a plan to satisfy section 410(b)), §1.401(a)(4)-4(b) (requiring the group of employees to whom each benefit, right, or feature is currently available under a plan to satisfy section 410(b)), and §1.401(a)(4)-9©(1) (requiring the group of employees included in each component plan into which a plan is restructured to satisfy section 410(b)). Thus, the group of employees must satisfy section 410(b)(5)(B) on an employer-wide basis in accordance with paragraph (b)(2) of this section and also must satisfy section 410(b) on a qualified-separate-line-of-business basis in accordance with paragraph (b)(3) of this section, in both cases as if the group of employees were the only employees benefiting under the plan.

I can assure you there are no soft-dollar arrangements. That is an explicity prohibitted practice. Auditors CANNOT accept ANY referral fees, commissions, or soft-dollar kinds of money at all as fees from any audit client (even if the monies are not related to the audit itself). As an example, a CPA could not sell investments to an audit client. It's fee for service only. If any of this is going on, they would lose their license to practice (if caught). I just can't imagine any large audit firms are doing this. Certainly not the big 4, or the "big 100" for that matter (whoever they might be).

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...