wsp

Thanks SoCal, much appreciated. I've got the Outline Book and read up on what you were talking about. Time to get a bit more aggressive in my ongoing education. And, Mike....You'll be happy to know that the Principal has informed me that I can no longer use it in any form. Muttered something about basic spelling errors and walked away.

If your client wants to help the employee he can set up an account or use the plan's checking account to hold the assets until the gavel falls or the money is required in escrow. That way the money never leaves the plan if the purchase falls through and if the amount is greater then the need they haven't distributed the excess. Additionally, the money is liquid should it be needed sooner than expected. Of course this sets a precedence for all employees but for a small plan it works well. I have a client that wanted to do exactly that...one thing that we required was that the participant sign a transfer request to move the money from the investments to the checking account and the account was interest bearing. On closing day, client wrote a check to escrow and handed it to participant as he headed out door to sign papers.

As little as I have learned in the last 2 hours has told me that I won't get the correct answer from them, just an answer. Can you avoid the gateway in a DC only plan by using the same principal?

Thanks for the responses thus far.... SoCalActuary, my original intent was to go to an actuary with this but thought I'd first make sure that I wasn't wasting his time and my money. I realize that there is potential for abuse in any plan...just wanted to make sure that the cash balance plan wasn't today's 412(i). Your comments on the testing has actually helped and I've started the process of consulting with an actuary on it. One question though: How does the gateway play into this? On my schedule there are a few individuals only receiving 3% in P/S plan and no one (besides owner and spouse) gets over 2% in Cash Balance Plan. In some cases they get both, but not all. Doesn't gateway apply here? Would it be applicable on a plan basis or aggregate? Assuming that imputed disparity was used for both plans and thus the plans are being tested on the aggregate.

Prefacing this by saying I'm not a DB guy so pardon the ignorance... Tax client of ours added a DB plan to DC-New Comp plan. Deductible contributions more than doubled and client talked about how 90% of contributions are going to him and his wife. Which of course drew our attention. Client has always "pushed the envelope" in terms of tax issues. Now we are wondering if he is doing the same with this approach to retirement planning. At our request, the client provided us with current year allocation schedule and we have found that the plans are New Comp and Cash Balance plan. I've read through a few things on the Cash Balance plan but as one might think they don't talk about the areas where the laws can be pushed and potential for abuse might exist. What I'm afraid of is that someone sold him on something along the lines of an abusive 412(i) plan but using the Cash Balance plan as it's vehicle. Is this something that could possibly blow up on him down the road? Is there a possibility of a reversion of some sort? If there is potential for problems down the road, is there something that will specifically point me to where to look to see if this plan falls within the acceptable versus nonacceptable realm? Do I look at coverage? Turnover? Inability to fund long term? I want to be clear that I don't think the client is specifically doing anything wrong or that the investments are inappropriate, just that the plan may not necessarily be in his best interests in the long term. I think that we would be remiss if something were to be looming on the horizon and we didn't let him know; even though we weren't specifically engaged on the retirement plan piece. Could be perfectly legitimate and we clap him on the back and say good job. Just want to make sure. Thanks in advance...

I've got a client that wants to prefund their profit sharing monies. However, the principals want to be able to immediately direct their contributions while the staff's contributions are put in a trustee directed profit sharing account. The staff will never able to direct the profit sharing money so I see this as a huge no-no. If we go ahead and prefund the staff into individual accounts, we remove that as an issue but what do we do about the participants who term prior to year end? Can we call their contributions an excess and remove it from the accounts prior to distribution? Principals are pretty unbending when it comes to this prefunding issue so I'm trying to find a solution here.

If the plan has a non-interest bearing checking account you can put it in there and then pay out the participants without setting up the accounts at Hartford/Nationwide/American Funds. But, in doing so the plan sponsor will be obligated to prepare the 1099-R's that would otherwise be prepared by the recordkeeper. In addition, the person responsible for the 5500 would also have to be aware of this account AND that there are distributions paid from it so that the distributions can be included on the filing. Because it's non-interest bearing I would never leave the money in there for more than a day or two...otherwise it could be argued that it should be interest bearing.

So you DO have to give TH contribution even though 100% of ADP was returned (assuming no catchup eligible HCE's)? Seems a bit excessive to me. Telling the HCE essentially that not only does he not get anything but he has to contribute to employees anyways would lead to about half my clients into terminating their plans.

I have a client that wants a total compensation statement to give to his staff. He's doing it for all the wrong reasons, wants it tomorrow, and doesn't want to pay a lot for it....typical isn't it? This is the only client I have that wants this so I don't want to re-invent the wheel. Can anyone provide me with a sample statement that I can change to fit this guys needs. I'm sure it will be a one-off thing but still need to provide a quality product. Anyone out there willing to provide me with a .pdf that I can use as a template?

I, too, would think that a ROTH would be a good fit but only because you're 1) young and 2) probably earning less now then you ever will in your life so your tax rate is low in comparison to when you'll be taking out your money. A large number of people actually will not benefit from a ROTH. And, a change to a 15% flat tax certainly will make everyone touting a ROTH look bad. Because it's long term benefit is unknown, I'm of the opinion that you shouldn't limit your contributions to one form or another. Better to diversify your taxable income just as you would your investments. Hedging your bets is the proper phrase. At any rate, sounds like you really only need help in deciding where to start your ROTH contribution. First thing I would look into is if your employer has a 401k that you are eligible for and if that plan allows for ROTH contributions. If it does it could be that you just need to contribute there. Though I believe the 5 year window doesn't apply to rollovers out so you'll probably also want to start a ROTH IRA outside the plan too...not continually contribute but as seed money. If your company doesn't offer one then you'll need to do the research on where you feel most comfortable putting your money. Some people prefer mutual funds, others prefer brokerage accounts. I'm not going to tell you which is better because it really does depend on individual circumstances. Once you've decided where you want your money then look online...you may be able to fill out an application online. At the very least you'll be able to print one out to mail in. They'll be able to help you figure out the details as well. Find the 1-800 number and give them a call. Good luck.

I'm not sure I want my post (original poster) thought of as the best of 2006. But, I suppose this might be my 15 minutes so I guess I'll have to take it when/where I can! I read through it and the whole thing made my head spin...though I have to admit besides Mike Preston solving my problem, I did also find the 17 year discussion between Mike and MJB useful down the road. Thanks to the both of you...

I was basing my response off of the fact that a broker was involved. Why does a broker care if an EIN is obtained for the Sole Prop? Seems to me that's the Accountant's responsibility. And the Accountant will tell you that it's not necessary but is generally done right away as a matter of principal. You just never know what the future will hold. But if an EIN needs to be provided for any return, statement, or document that requires an EIN and the plan document requests it...don't you need it to even establish the plan? Or do you use the SSN for that as well? Taking it a step further, if you can establish the plan without one but need one for a filing...can the broker guarantee that no filing would need to occur prior to the account reaching 100k? If Sole Prop dies after establishing and funding account but prior to 100k what do you put on 1099-R? I honestly have no clue...seems silly to even have to ask these questions over a 10 minute form.

Are assets considered segregated if they are using the ein of the sole prop to establish the account? If not, boy I'd hate to have to explain to the sole prop why 10 minutes wasn't spent establishing an EIN for the trust after he found out the hard way that one was needed.

Interesting thought...I went back and forth on this. Ultimately I sided with 402(e)3 which treats elective deferrals as an employer contribution. It seems to fit the situation more than anything else. If it's an employer contribution and the employer fails to properly withhold then he/she is out of luck and not the plan. Employer is still obligated to fund the plan per the terms of the document. If the employee paid the employer portion then the contribution ends up being after-tax voluntary contribution which isn't what we want and taking it pre-tax is not following the terms of the plan either. Not arguing the side because I really am not sure...but this makes sense to me.

Normal. Does it make a difference if a new SPD was provided to every participant with the restatement process?

Normal.

We've got a plan that had the annuity and QJSA accidentally removed from the document during the GUST restatement. Unfortunately this was found because the plan is going to be audited. Part of the audit request is that the spousal consent forms to waive the QJSA form is provided. I don't believe that form was provided to the particpants (Plan has been in existance prior to '89 and plan sponsor has never had an annuity payment) after all it was removed.... What should we do prior to audit to show we are trying to be compliant here.

I would hope that it would actually be more than just the preparation of the statements. If that's the case then I can farm that task out to another firm for $100. Seems to me that if we engaged in any action that directly impacted one of those line times then we would also be precluded from acting as an auditor (distribution processing, contribution calculation, earnings allocation, forfeiture allocation etc.)

If the document calls for contributions to be made on a payroll by payroll basis but the plan comp is annual compensation doesn't that automatically force a true-up? Plan could call for the deposits on a payroll basis for cash flow issues or if you have an employee base that has a fundamental distrust of management (ie manufacturing or the such). Such a mechanism would relieve some concerns...Then again I could be more off base. But I too agree..no interest.

Getting ready to create plan documents for a new plan. Intent is for plan to be a safe harbor matching contribution plan. Plan year ends 12/31/2006 so we can't be safe harbor for this initial plan year and it's not necessary as the company has 1 owner and 1 employee. Employee won't be eligible until 7/1/2007. Can I create the documents as a safe harbor plan and the amend the plan so it's not safe harbor for the first year? Or must I create them as a non-safe harbor and then amend it to be safe harbor on 1/1/2007?

1) Does seasonal work (ie timber companies) count as employer or employee driven initiated separation? The employees always had the option to hire back the next spring but it's possible that some were not hired back at behest of employer. Doubt that number reached the 20% threshold though. 2) If a TPA says that a partial plan termination has occurred and all subsequent paperwork shows effected participants at 100% vested but there is no amendment and no determination filing was done...was there indeed a partial plan termination? Can it be determined later that a partial plan termination did NOT occur and the vesting reverted back which then leads to forfeitures? Even though participants may have received multiple statements showing them as 100% vested? edited note: I'm not trying to get anyone out of anything...#2 is the situation that actually occurred and I'm trying to figure out if it was handled correctly or not.

I thought that too after I was annointed a relative of Lay or Skilling for offering up likely motivations for a legitimate fund swap and protecting the 99.9% legitimate trustees out there. Very well could be a paper but certainly won't be an objective look at 401(k) plans and the processes involved in closing a fund and transferring the assets to a new one. Of course that paper likely would have received an "F", simply for the fact that it would put a prof. to sleep. And now I shall go back to my internet browsings. I want to see PIP's My Space page. I'm guessing it will have video of Tom singing from the last ASPPA conference.

Thanks Tom...

IR-2006-162 confirms all of Tom's numbers as well as the catchup remaining at 5k. I need a copy of that spreadsheet!

If plan limit is zero then everything over that must either be refunded or reclassified as a catchup. No different than if the plan limit was 1% or $1. Question is really...do you run into a problem if the only person who can take advantage of that catchup feature is the HCE.