wsp

Can an owner of an S-Corp reclassify his compensation post 12-31? And in doing so make deferrals into his individual 401(k) plan at any time up until 4/15? Everything I have read, including earlier message boards say yes this is allowable because the individual is not subject to the ERISA standards of section 21510.3-102(B)(1). So, then if there is a reclassification and thus an increase in the Self-Employment portion of the SS tax then it would typically be done after the submission of the 945's in February thereby making a revision of those forms necessary and a penalty for late filing. Are there any other drawbacks or pieces that I am missing here?

If I read the older messages correctly that the social security and medicare taxes are applied to compensation after the deferrals to pay premiums in a Section 125 Premium Only Plan, then would this order of payroll occurances be correct? Or is my original assumption not a correction one? Gross Pay Less deferrals/contributions to section 125 POP plan FICA/FUTA Pay Less FICA/FUTA Less 401(k) deferral (based on FICA/FUTA Pay) Net Taxable Pay Less taxes Less loan repayments (based on Taxable Pay) Net Pay

My client neglected to refund the necessary payments as a result of the plan's failure of the 2001 ADP test. The plan is correcting this via the SCP route by making a one-to one correction in contributing the amount of the refund as an allocatioin to the NHC group. Now my question....Are these contributions characterized as a QNEC and 100% vested or as Employer Contributions that fall under a vesting schedule?

Ok, thanks for the input...Now, have you ever heard of such tactics from a company like Fidelity? It clearly is against the best interests of the client of a client that consistantly contributes the maximum amount to the SEP and intended to do so again, even with the maximum percentage increasing.

Ok, thanks for the input...Now, have you ever heard of such tactics from a company like Fidelity? It clearly is against the best interests of the client of a client that consistantly contributes the maximum amount to the SEP and intended to do so again, even with the maximum percentage increasing.

A client who was operating a SEP, amounts calculated by my firm (CPA), was approached by Fidelity to have their assets invested there. Well during the typical Fidelity glossy sales talk the salesman told my client that the SEP could only be run for so many years and they should convert the plan to a SIMPLE plan. The clients did as they were advised and contributed the maximum amount to the SIMPLE. Now, it's tax time and we are just hearing about this. Has anyone ever heard of this happening before? What is their recourse? As they have always contributed the maximum 15% before and would have done again this year. They are now shorted? Can we pull all the assets out of the SIMPLE as administrative error and contribute to the SEP instead? HELP!!!!

Forgive me for I'm still new at this medical stuff.. I have a client, Company A, that has another company, Company B, pulled into their medical plan as a sister company in order to obtain the reduced premium rates. The two companies share common ownership but there is no controlling interest on the part of any 3 owners thus no controlled group environment If Company A sponsers a section 125 plan can they allow the employees from Company B to particpate even though there is no controlled group relationship? Do they by default? Now, assuming they are not part of Company A's 125 plan, if Company B has been taking out the premiums to pay the medical premiums pre-tax and there is no governing 125 plan...what do they do?

One of my clients paid out 2 lump sum distributions early in 2002 directly to the participants (brokerage accounts liquidated and paid out) without witholding the 20%. Without going into specifics, let's assume that the money is irretrievably gone. Do I now simply file the 1099 showing no money withheld and hope that the plan doesn't get audited? This surely has to be a red flag for administrative deficiencies.

I'm new at the cafeteria plan game so bear with me please. Am I correct in assuming that Section 125 contributions for medical premiums get reported in box 10? And, am I also correct in my assumption that there is no limitation on this deduction? Seems to me that you can ask the employee to bear as much of the cost as they will take before they look for another job... and Lastly (for now) I am aware of only 1 limitation in this area and that's the $5k dependant care. Are there any others?

Where do you include the son of the president of the company in these calculations? The rate groups are as follows: president, all others. I know that the son gets the same contribution % as all other NHCE's but do I treat the son as a normal employee when it comes to testing? or do I pull him up into the HCE group for testing purposes? If I force him to be tested then they don't pass cause the kid is only 23 and most of the other employees are over 45. My predecessors didn't give him any contribution...is that correct? Makes a huge difference to the prez's contribution where I include him as the population base is fairly small. I buy off on theory that spouse gets treated in same classification as prez for testing purposes, but his child too?

All good and well Katherine, and I whole-heartedly agree that it should be done monthly for all traditional plans. Although, the expense in doing so would be onerous for most small business owners. However, we are talking about a daily valued plan, adminstrated and trusteed by the same company (Merrill Lynch). This plan, by design, is reconciled daily. In addition, Merrill already certifies that the trust balances are accurate on a monthly basis. They also, I would imagine, provide monthly plan and trust statements to the plan sponser. To me, this is reconciling... It makes absolutely no sense why, in this case, the auditor is making the client do this on a monthly basis, when, by design, the plan is reconciled daily. It's the same as the auditor requesting the plan sponser do a adp test when the plan already satisfies ADP through the use of a 3% safe harbor contribution. It's my opinion that the auditors are simply blanket applying a rule passed on by the higher-ups to all plans without stopping to verify that it is even applicable to specific plans. They do it all the time (and I'm certain every TPA has their audit horror stories which typically involve an auditor fresh out of college with minimal training). I've seen many an instance for which a traditional plan was not reconciled, even annually. I believe it is those plans to which the DOL was referring, not a daily valued plan. Maybe I'm being stubborn here, but I still don't see the validity of the request.

I agree Pax, but it's my contention that they are already reviewing the work of the recordkeeper/trustee or relying on the accuracy of their data via a satisfactory SAS70 report. Asking the plan administrator, who has absolutely no access to the data being used, to calculate the earnings (remember, she is already verifying activity; they want her to balance to the trust and the only missing piece is earnings) is a bit unreasonable. The best she could possibly do, and they should know this, would be to plug in the earnings provided by the recordkeeper/trustee. If they are using her data to verify anything, then I question the validity of their work. What it boils down to is that this is a daily valued plan and the trust and recordkeepers systems balance daily. If they aren't going to rely on the SAS70 reports that, in all likelihood, their own firm prepared then what is the point? Why make the plan sponser go through the extra work? A traditional plan I can understand this request, but a daily plan? I would love to hear an auditors opinion on this.

Well, not exactly...I am a TPA and have been dealing with auditors for years and have found the best way to get them in and out of my hair (thereby avoiding the exhorbitant fees they charge) was to figure out exactly what they could rely on and then modify my numbers to match theirs. So, I was just giving you the easiest way to appease the auditor. And yes, it is spinning your wheels... Unfortunately it's only going to get worse for you if you have a Big Four auditor. They've been increasingly pushing work back onto recordkeepers and administrators for the last few years. From a consultants point of view, I would talk to the partner on the account and find out exactly why it is that you have to replicate work already done by the trustee/recordkeeper who has a satisfactory SAS70. In my opinion, the "post-enron" world answer is not a viable response.

So, in essence, the auditors are asking you to do their job for them? Aren't they relying on Merrill's SAS70 report to "buy off" on the trust and daily valuation recordkeeping systems? If so, then I don't understand the purpose of the request, other than the auditors attempt at pushing their work onto you. As a recordkeeper, it sounds to me like you are already reconciling monthly as you are tracking all monies moving in and out of the plan. But, if they push, all you have to do now is "plug" Merrill's earnings for the month into your data. If it ties then you are balanced and done. If it doesn't, then track which pieces of activity haven't occured on the trust side yet and move those into next month's activity. Do it piece by piece, starting on the last day of the month and working backwards. The reason I say use Merrill's earnings, instead of wasting your time trying to calculate your own, is that at the end of the day the trust's earnings are the only ones that the auditors will use in their reports. Otherwise they would have to do a full scope audit. So, no matter what earnings you use they will question them if they don't tie exactly to the Trust...may as well use the trust to begin with and save yourself the effort. Anybody else see things differently?

I have a client that changed it's corporate structure, moving all employees to a new entity. The ownership structure is still the same, however the new entity has a 12/31 year end while the old entity and it's plan had a 6/30 year end. Now, of course, they want to change the plan year end to 12/31. They are aware of the vesting implications and also plan on making an employer contribution for the short plan year so employees do not have a cut back, although the profit sharing contribution is a discretionary one. Question 1....Is an amendment sufficient to change the plan year end? Question 2...Is it too late to do this? Question 3...If not, would the effective date of the amendment be 12/31/2002? or July 1, 2002?

I think all attorneys need to take an ethics class. But, why do you say that? Seems more ethical to me than getting someone off when you know they are guilty. I'm curious as to why you question this. Perhaps it might come back and I'd like to be prepared.

I think all attorneys need to take an ethics class. But, why do you say that? Seems more ethical to me than getting someone off when you know they are guilty. I'm curious as to why you question this. Perhaps it might come back and I'd like to be prepared.

Thanks all, sometimes a different perspective is all it takes. We will be requesting a signature by the participant regardless of where the check is sent. However, we are going to steer them in the direction of an attorney in an effort to avoid the family becoming further involved.

A client has a participant who fled the country with a child to avoid prosecution for a crime (child committed, not the partcipant). Obviously the family isn't going to disclose his whereabouts or give an address to send the distribution paperwork. Nor will they even forward the paperwork to the participant themselves as they are distrustful of everybody.... Can a power of attorney be used in these circumstances to obtain the distribution? The balance is over 5k so we can't just pay it out without authorization. First the controlled group question, now this...I should have stayed in bed today!

Yes, but mine is a spin off question because it actually happened yesterday. Someone walked in off the street wanting to start a 401(k) plan with safe harbor provisions. I told him it was too late for that but would research other options....The three month rule applies regardless of whether it's an add-on plan or not, correct? So then no new plans after 10/1 period? or can I still utilize the 5% rule for first year plans?

So, let me make sure I get this right. If I have a person who comes to me and says "I want to start up a 401(k) Plan for my employees." Because it's after 10/1, it can't be a safe harbor plan, but he and all other HCE's can still contribute up to 5% of his annual compensation without worrying about discrimination issues. So, we would want to start it out as a regular plan, then amend the plan to make it a safe harbor plan effective 1/1/2003? With the original plan whose first plan year will be 12/1/2002-12/31/2002 can I then implement a 100% match to go along with it? Then modify that with the safe harbor amendment?

Company B is 100% owned by Company A and has an employee that left the employ of B and went to work for A. Is that a distributable event? Does it matter if Company A is a foreign based company? Obviously we are not talking about same-desk rule since it's a new job in a different country...But, does the controlled group situation impact this?

I recognize that the trust needs an EIN, not the plan but my question is a little different. I have a client that applied for a EIN number for their plan a few years ago. Since then, they have been filing a schedule P showing that newly applied EIN number as the trust's EIN but all other forms are using the company's own EIN as the plan sponser's EIN. That makes some sense to me and I can buy into that concept, but.....Capital Trust (American Funds) is shown on all paperwork, and admitted that they were in a phone conversation, trustees of the assets. However, they are holding each account separately and they are filing all 1099's and 945's under each individual ssn (which makes absolutely no sense to me!) rather than that plan ein number. In addition, they have never (at least according to my client) provided a signed schedule P. The schedule P that has been filed with the 5500's has been created by my firm and signed as trustee by my client. Is American Funds remiss in not providing this schedule P with their signature and the plans ein number? or their own ein number? Can we switch to the plan's ein number now without drawing attention to the plan? Should we even bother? The plan is terminating at end of year anyways. Has anyone else run into this with American Funds?

I know the schedule p is not a required filing. But, if you have one coming to you in the mail but, obviously, it's not getting here prior to October 15 and you want to include it...what do you do? File without, then file an amended return? Obviously, the fiduciary is on the hook, but in the interest of client relations we want to limit liability. Any suggestions?

First, let me predicate my question with this... My experience is with retirement plans, so this Health, Welfare, and Fringe benefit stuff is extremely irritating with it's "do this, unless this or this occurs. If that is the case then stand on one leg, rub your tummy and your head in opposite directions" approach. That being said...My client terminated a Life Insurance plan, employer paid premiums-fully insured, back in May of 2000. Unfortunately, my predecessor failed to file a final 5500 for the plan with no notes or paperwork on why it was not filed. Obviously I can't use late software excuse or really any other valid reason for late filing. However, it was a small plan (fewer than 100 participants) so will I have any leniency from IRS/DOL in this regard? At it's heighth the premiums paid (non-experienced rated contract- whatever that is!) were only $5,000 so DFVC would be bitter pill to swallow. What options do I have here? Better yet, do I have to file the termination filing at all? Was my predecessor correct to begin with?