austin3515

Is it too late to decide to exclude pre-1/1/09 contracts? Taking over a new client approaching the audit and they have 10 or 15 pre 1/1/09 contracts. I would just report them as a distribution I guess (if it is doable).

Thanks Derrin!

This is hysterical - this article directly on point was in my in box last night! https://ferenczylaw.com/flashpoint-the-three-month-rule-and-retroactive-safe-harbor-elections/

Can I set up a new profit sharing only Plan effective 10/1/2020, and then have the 401(k) and SH Nonelective effective 11/1/2020? This would ensure that my plan year is at least 3 months. I bleeive the answer is no. So many articles that say "the plan year still must be at least 3 months" are not specific enough, and really the same old requirement that CODA must be effective for 3 months still applies. And any the SECURE Act amends the statutes, and it is the reg that includes the 3 month minimum. Anyway, just want to make sure we are all on the same page that in order for a new plan to be a safe harbor, it must be established and accepting 401k by 10/1.

But it sounds like you think if its not in the document, it is not permitted? I will ask the document provider...

Two beneficiaries are 50/50. Participant dies recently (i.e., within a month or so). Beneficiary A is well off and does not want the money, they want it all to go to Beneficiary B who is not as well off. Can Beneficiary A disclaim the benefit? I have the IRS said yes, but one federal court said no, and another one said yes, etc. And I have heard state law is an issue. Our volume submitter document (Corbel/Relius) appears to be silent on the issue...

Ees with under 20 hours per week were excluded from participation, butt he document did not indicate that they were excluded. Have people tried to do VCPs for this to amend retroactively to exclude?

I want to add some emphasis here. If your client has a rollover IRA with Fidelity that has $100,000, and then contributes $6,000 nondeductible to a Charles Schwab IRA, then youre client has made a big mistake. Why? Because when you convert $6,000, $100,000 / $106,000 * $6,000 is taxable income. You have to add up ALL IRA's when figuring out how much of the conversion is taxable. The workaround is to roll that $100,000 into the qualified plan. But I'm sure this is missed all the time which is why I mentioned it here.

How about you fund it and then they just take a distribution upon termination. They can even fund it last minute. If under 59.5 its true there is a 10% penalty tax, but that presumably will be a relatively small price to pay for not having to worry about it.

I just read through the language in the Corbel Doc and I think what Derrin says about the PPD document applies to Corbel too. "The discretionary matching contribution under this Question 29.A.a. is a “Flexible Discretionary Match” unless the Employer elects to use a “Rigid Discretionary Match.” (Choose a. if applicable.)" So, I guess it depends on what the definition of "use" is. It does NOT say unless the Employer elects the Rigid Match formula below. It just says if it USES the rigid match. I guess the big question is going to be how to do they program it in Relius Docs. And I suppose where my last post is ending up is, why would you ever not elect the Flexible Discretionary Match AND the Rigid Discretionary Match?

So formula a is x% of 4%, annual computation period. Rigid match. formula b is flexible discretionary match. I get to choose between the two, which means the allocation of the match is now ambiguous notwithstanding the rigid match checkbox. and not for nothing if my spd says I’ll Match on deferrals up to 4% and then I turn around and match on deferrals up to 6% that would be pretty ridiculous. and now let’s say the rigid match is used every pay period to calc a match. And now we want to say “ok I’d like a true up so I’m going to now switch over and say this is a flexible match.” I do the true-up and give the notice. so the end result of the last one is that I now get to keep the option of the annual true up under a rigid pay period match and only do the notice if I do the true-up. And again the benefit is no true up = no annual notice. I keep all the flexibility I previously wanted with almost none of the notice requirements. I see this last part as the only “true benefit” because of the spd disclosures that the rigid match will require. So for example if no cap on the match was disclosed it would be unreasonable to now implement a maximum match amount under the flexible discretionary match... man I missing anything? I’ll have to look at the cornel doc and see if this is possible... unless derrin knows!

Thanks! I agree, Bill it stands to reason if the plan is eligible for the credit in the first place, then you would not get the credit for setting up a different kind of a plan. Can you tell me more specifically where I can find that Q&A? What notice number was it, or whatever they call it. I am a card-carrying member so I can get into the website...

It is true I am no Derrin Watson (but equally true that he is no international man of mystery!), but if you have both, then you have the Flexible Discretionary Match and you have to do the notice. The whole point is the document has to specify for every dollar contributed as match, who gets how much of that total match deposit. If the client has the "flexibility" to choose either the rigid or the discretionary then that alone subjects you to the flexible discretionary rules.

If an employer has a SIMPLE IRA plan and starts a 401k are they eligible for the start-up credit? I wouldn't think so, but i can't seem to get any fine print information...

The only "discretionary" variable is the matching rate (25%, 50%, etc.). Everything else must be defined in the document. That way, the employer decides on an amount (say $25,000). Then, the document defines precisely who gets what amount. Obviously. normally, we back into it the other way (that is calculate a 25% of 4% match), but that's besides the point. You have to look at it in the other direction (i.e., declare the amount first) to understand where the IRS is coming from.

That works too, but under my method, you won;t get the letter in the first place. Although, are you saying this is 5500-EZ eligible plan, that stopped filing 10 years ago? I would let it lie if that is the case.

I fail to see how not making any contributions to compensate a participant for a missed deferral opportunity could possibly correct such a failure. But the IRS said let it be so; and it is so.

If it were me I would file the 2012 5500 late, pay the user fe, but mark it as final. If its marked as a one-participant plan I think that should get you all cleaned up. If it were my client I would do that for sure. IF an IRS letter came, I would just say we never should have filed in the first place, we're exempt, etc.

But then you have to standardize what you get from the clients. We have clients who cannot even provide us reports with full social security numbers. Others cannot generate custom reports in Excel. And many more have no desire to learn how to do anything "techy". i.e., I think you're target market is relatively narrow. Even PayChex and ADP can be tough to deal with.

I'm nto talking about the data, but the definition of the DER itself. I have an access program that builds my takeover transaction data file for import. We have to manually create the DER itself one column at a time. I was wondering if there was a way to import the DER definition into DER set-up somehow. I don;t think there is but thought I would ask...

Ironically Gilmore, it seems to me an Employee Leasing arrangement would be the scenario where it could make some sense in terms of econcomies of scale. But as a general rule all of the things that make administering a stand alone plan more expensive are still present in an open MEP: -Onboarding expense / conversion. Anyone who has been through these knows this takes probably 15 to 20 hours of a recordkeepers time, probably more for all I know. -Customer service / call centers. If the average account balance is low, an Open MEP won;t fix that serving such accounts is just not profitable no matter how many you do. -Ongoing customer service. For every ongoing plan, customers are going to have questions, and problems, etc. You have a 1,000 employers on your plan? Good for you! You've got 1,000 sets of problems - not 1. -Last I checked every Employer of course still requires testing. The audit is of course the big variable and whether it helps or hurts depends on whether or not you have more or less than 100 participants. So Pam don;t get me wrong, I see very much so that there is a place for these in the market especially depending on the mindset of the employer. The question for me a TPA is, "does my world evaporate in favor of the open MEP approach?". I consistently conclude there is a place in the market for me too! I'll just add that I feel like the competitive process for these will almost end up being like the bundled versus unbundled arrangement. Bundled has always been cheaper, but cost is not the number one factor for any of my clients.

Thanks Pam!

Good question! I know the auditors want to do internal control walk throughs as well. I assume each employer has their own "systems" that need to be reviewed at some point. Interesting. The Plan as a whole is subject to audit, that much I know.

Can I ask what happens if you have a client that sends in a deposit a month late because perhaps there was a data feed issue, or they did not release the funds in time? I realize that you're in a different positiion as the plan sponsor then "just recordkeeper." I am very intersted in getting a better understanding on how problems are addressed when you (as the "vendor") just a lot more skin in the game on these sorts of things. Thanks in advance if you're willing to share!

Well, I can answer that question! Because the IRS said so in their opinion letter!