QDROphile

IRC section 4975©(1)(E). If the account minimum is $500,000 and the $100,000 in the self-directed plan account is necessary to achieve the minimum, the plan assets are being used for the person benefit of the participant (who is a fiduciary under the IRC even though not under ERISA) to the extent the account is used for assets that are not the plan assets. This is more obvious when the deal is a fee structure based on assets under management. The investment adviser has a fee scale that steps down as assets increase: 1.0 % for first $500,000, 0.75% for next $500,000, 0.5% for amounts in excess of $1 million. If the manager is willing to aggregate all sources, including the plan assets, then the plan assets may be contributing to acheiving the next step in the fee structure, which reduces the blended rate for all of the assets, including assets that are not in the plan (personal to the participant). If you are skeptical because there is "no harm" to getting a better price than the plan account could have achieved on its own, consider that there are two published PTEs on the subject, but limited to brokers and banks, not the average schmo. Prohibited transactions do not require harm. Perhaps your situation with the brokerage account fits into one of the PTEs.

All good points. Perhaps there is something for which they are seeking a private letter ruling, but I cannot imagine what that might be.

What you are describing is a determination letter.

prohibited transaction

The real question to ask is what the employer wants to do. If the employer wants to escape the TPA, a new plan is unnecessary. If the employer wants to distribute benefits, the the 12-month rule under the 401(k) restrictions on distributions is relevant, although perhaps not very artfully articulated.

The sole proprietor is adopting a plan and immedately merging the corporate plan into it. The new plan has exactly the same terms as the corporate plan, saving documentation. Does not have to be done that way, but you wanted a statutory reference for something that gets you there. I think you may not be able to find reliable authority for a conceptually more simple change of sponsors, but the IRS infomally accepts it.

IRC section 414(l).

I would be wary about describing the fee that way. There can be no penalty for maintaining an account under the plan after termination of employment. To the extent that the employer covers a cost that can properly be paid by the plan and allocated to accounts on some basis, the employer can cover the cost for employees and not for former employees, effectively levying a charge on accounts of former employees. See Rev. Rul. 2004-10 (I think).

The plan should be amended in connection with the termination to specify the effective date in terms of the last pay period that is subject to elective deferrals. Depending on the nature of the transaction, the last pay period may end the day before or day of the closing and it may be a short pay period -- no prorating necessary and hope that the hidebound payroll provider can at least cope with that. To minimize lost opportunity, you need to understand the corporate aspects of the deal and work around them.

What does the plan say about amendment? It is probably something unhelpful like "the Employer may amend ... " if so, then it is a matter of "corporate" governance concerning the requirements and formalities for the Employer to act in the matter. Those formalities will be determined by such things as the partnership agreement, at which point you are probably getting very close to "it is none of your damn business" and you probably need to rely on the lawyers to know their own governance rules. Or prove you know better. Or have a well-drafted plan document that specifies (ha!). Instead of pursuing the issue and getting a black eye one way or another, disclaim responsibility and get acknowledgement.

It is curious that the plan is going to be terminated rather than frozen. Does the employer have enough cash to buy all the stock at one time?

According to Rev. Proc. 2013-12, the VFCP calculator is is available only if other reaonsoable methods are not. only

And investment gains are subject to ordinary income tax rates, not capital gains rates. There is a real question about tax efficiency. You should do some modeling based on tax rates (including effect of deductions), expected returns, and time frame. The after-tax scenario is probably not that appealing. All you are getting is tax deferral on investment returns (at a rate cost) and you are giving up deductions. Ask yourself why the design is not seen or promoted.

I am no gentleman, but (1) there has been no specific text in the post to evaluate whether an interpretation is needed or the text is unambiguous, and (2) an interpretation of text that you partially supply and partially imply would not be unreasonable if it concluded that deferrals are permitted for compensation that has a pay day on or after the first day of the month in question.

If the document states the terms, then there is no interpretation. But if the document does not, how would the adminstrator decide how to act other than by interpreting plan terms (which have proven to fall short in the detail)? You seem to be saying that not matter what the document says or does not say, the compensation with the first pay day in the quarter is subject to deferral. I do not think that is the only compliant answer.

That would be for the plan document to say or the plan adminster to determine by interpretation, preferably expressed in written procedures.

"For Sole Proprietors/Self Employed people who open and Individual 401k plan at multiple places" there is a prize for acting on the basis of some knowledge and jargon and too little understanding. You seem to have won it, but now you do not know what to do with it. When you ask a purveyor to sell you a product, that is what you get, few questions asked. You should have asked for help in figuring out what you needed and wanted. Sorry for the lack of compassion, but what you did is so incredible that it seems like it is not simply naive -- something you were seeking sent you on the path to trouble. You did something extraordinary and complex and now you plead simplicity.

Could you illustrate? I do not understand what you are getting at.

Do you think you have three plans or one plan with assets held with three custodians?

How did the loan get paid if loan payments were not delivered?

If you do not expect to correct via VCP, you should consider if SCP is unavailable because of egregious error. You might look at the HCE ADP and figure out what the NHCE ADP would have to be to support the HCE ADP, or 3% if 3% is higher.

Practicality is important.

No. A commercial lender will get all the security it can, and the interest rate is often influenced by the qualifity and liquidity of the security. An assignment of pay is security -- agreed by the borrower as a condition of the loan -- not a remedy that is obtained after default (garnishment). It effectively makes the payroll deduction irrevocable and enforceable by the plan, which enhances the fiduciary's expectation that the loan will be repaid and reduces the need for the fiduciary to have to wonder what collection effort is required if the loan is not repaid by voluntary or other unenforced payments. I agree that plan loans are an exercise in contradictions and a policy travesty, but the the general understanding of plan loans has been clouded by prevailing practices of the big investment providers, tolerated by the IRS and DOL.

I just got a retroactive amendment approved in VCP to allow 15-year year home loans instead of the 10-year loans provided in the plan document. I think getting a 5-year loan converted to a home loan is tough, but if the loan is initiated as a home loan there is flexibility.

If payroll deduction authorization cannot be irrevocable (no opinon expessed), would it be a breach of fiduciary duty for the plan adminstrator not to get an assignment of pay to protect against the whims of the participant?