RayJJohnsonJr

This is been a problem for a long time and I haven't asked this question in a while: What is the easiest way to find old terminated employees to try and pay them out? Thank you.

Thanks everyone for great posts. Combined, they put this situation in the proper perspective. As fo me, I'm leaving the 2 very old Plans using 'ER ID as is. New Plans get Trust Tax ID's.

My concern was the same as ESOP Guy. 1099 reportable income resulting from invested Plan Assets being applied to the business Tax ID looks like taxable income to the business. Somehow, it's never been an issue though. So I think I'll leave it as is. Go figure.

When installing a new plan, I have always obtained a new tax ID for The Plan Trust. I'm taking over an existing plan and it appears the employer tax ID and the plan tax ID are the same number. Has anyone one else seen this?

Thanks for that point, Bird. I'll post what the attorney has to say.

I'm looking at it this way: If the ex doesn't get the policy (one way or another), the ex has a claim against the Estate for failing to meet it's obligation clearly spelled out in a binding Divorce Decree. So, I have written the attorney for the estate and pointed out that the Estate is the sole Plan Beneficiary, therefore ownership of the Policy must be transferred to The Estate. I included the Ins. Co. form to change the policy's ownership to the Estate. I pointed out to the attorney that the Estate could then transfer the ownership to the ex, so as not to run afoul of the Divorce Decree. I think the attorney will go ballistic, but that doesn't change the fact that I'm right. The Plan Beneficiary says "Estate." If the Estate doesn't give the Policy to the ex, the Estate will lose a slam-dunk lawsuit. The Estate could even pay punitive damages for intentionally failing to perform. I'm waiting for a reply. Bird, you helped a great deal with the definitive question, who is the Plan Beneficiary?

The Plan beneficiary is the participant's estate. The divorce decree says: "{The} Profit Sharing Plan shall name {the ex} as the beneficial owner of The GR Policy so that, in the event that {The Participant} predeceases {the ex}, {the ex} shall become the owner of The GR Policy." However, the Plan Beneficiary designation was never changed from "Estate" Which gives me an idea: Make them distribute the Policy to the estate (let the estate pay the income tax). Then the estate gives the policy to the ex. I'm pretty sure the ex would avoid any taxation under "Transfer for Value" rules on the taxation of life insurance. Thx again, Bird. Your questions are right on point.

If you're as old as I am, you can remember when IRA's could buy life insurance policies. But for reason's unknow, that was illegalized during the Carter administration. Thx, EBP

Yes, it is odd. It is the divorce decree that specified the policy would go to the ex. I argued against that methodology at the time, but the lawyers did want they wanted to do, as usual. I understand the problem with the ex paying the premium, there's no way to substantiate that. But I don't know what the ramifications are. Maybe the ex could start a small business, put in a qual Plan, roll the policy into The Plan, avoid the income tax. Thanks, Bird.

The sole participant of the PS Plan passed away and all Plan assets have been distributed except for one. The Plan held a survivorship (2nd to die) life insurance policy insuring the sole Participant and Spouse (who as of 2012 became ex-spouse). The policy was to be transferred to the ex-spouse (who is still a Trustee of The Pan) at the participants death. Upon transfer the ex-spouse would owe income tax on the cash value of the policy. That cash value is approximately $200,000. The ex-spouse doesn't want to, or can't pay the income tax and proposes an alternative: 1. Leave the policy in the Plan Trust so the ex pays no income tax. 2 The ex pays the annual premiums each year to keep the policy in effect. The ex desires to keep the the policy because, besides being a life insurance policy, it also pays Long-Term-Care benefits of up to $17,000 per month for life. Can the Plan Trust remain in existence. Can the ex pay the premiums. The ex is still a Trustee of The Plan because the couple remained on good terms as friends following their divorce. I had a case not dissimilar a while ago. A client had a a piece of investment real estate in his Plan for many years. After death, it was determined that plot of land was toxic because a paint factory once operated there. No one would buy it because the cost of environmental clean-up far exceeded the value of the land. The land could not even be transferred to a new owner under environmental law unless it was cleaned up. I actually don't know the end of that story but I know the Plan Trust sat there a long time.

Thanks again!

Thank you, C. B. Zeller. Much appreciated.

A CPA asks me, If I have a small business with a DB Plan, 3 owners, no employees. Can they file 5500EZ? Thank you, Rene

How is the maximum Defined Benefit calculated for older NRA's like ages NRA 70 or NRA 85? Thank you, Rene

Thanks Bri and Bill. I think I see on the efast how to do it. Thanks again.

It is a lot of effort, but I want to keep this client. I have been told I can prepare 5500s fo clients on the DOL site or EFast site. But, I cannot find that.

Although I've prepared 100's of 5500's in the past, that was when we used paper. I don't know how to complete a 5500 so my client can file on EFast. I've subbed out 5500's to a CPA firm for years, but this new client does not want his 401(k) and PS Plans information shared outside of my office. I realize 5500s are public record anyway, but I want to honor the client's wishes. Where do I prepare his 5500's for him? Thank you, and have a great day.

Thank you for your feedback Lou S. I needed to hear a second opinion. Since I do my own taxes I guess I'll just let it go.

Test reply

I am a participant in a 409 A Plan and the plan administrator, Principal, sent me my first annual distribution last year, 2022, when I turned age 65. This year, 2023, they realized they they made a mistake and my first distribution was not to be until my age 66. I didn't know they had made a mistake until they called me and told me, and asked me to send the money back. Then they sent me a registered letter saying my 2022 distribution was premature and and I therefore owe the 20% penalty plus interest on the penalty, but they would pay those costs for me. What nice people, huh? It doesn't seem right to me. Shouldn't they fix their mistake? All I can find in my research is the possibility they could have filed a corrected 1099R. Even if they're paying my penalty and interest, I I still don't like it.

Hi. The situation is that an 85+ year old client has a terminal disease and has a life expectancy of several weeks to maybe a few months. This person has no spouse and has named his four adult children as beneficiaries of about $300k each. I've read everything I can find on the new Secure Act rules, and it seems the best planning the beneficiaries can do is inherited IRAs and withdraw the money over a 10-year period. But I'm not even sure that's correct. Can the beneficiaries implement inherited IRAs to receive their distribution from the deceased's pension plan If so, is the period during which they must withdraw the money 10 years? And if so, must withdrawals be level or can they wait 9 and 1/2 years and take all the money at once? Or decide each year how much they want as long as they take it all out in 10 years? Is there a tax deferral strategy that's better, if deferring taxes is their goal? Thank you.

Thanks to all of you for sharing your experiences. Maybe if they assign the new 85,000 IRS agents to 5500's, they could improve their accuracy. Thanks again.

Over the last two years we have experienced a spike in the IRS assessing late filing penalties on 5500s which were filed on a timely basis. The penalties have always been in the $1,000s and a few days ago a client received a late fee letter on a plan that was never installed and has never filed a 5500 on a tax ID that was obtained 15 years ago. The penalty is $25,000. We usually get the IRS to correct these and eliminate the penalty with our first letter to the IRS, but sometimes it takes two and three letters to get the IRS to relent. Is anyone else experiencing this problem?

Thank you, Luke Baily. Brainstorming ideas often leads two optimal solutions. Picture this: company A originated in year 2000 and installed a defined benefit plan in 2002. At the time there were six covered employees, including the owner, who earned more than maximum covered compensation every year. In 2006, the owner conducted an asset sale, and all the non-owner employees/participants were terminated and paid out with 100% vesting. The owner was not paid out, and the plan was continued. The owner had numerous other businesses, such as commercial real estate sales, and hands on apartment complex acquisition, renovation, management, and resale, but none of his other business activities ever included having employees other than himself. So, when his other businesses became Participating Employers of the original plan, the plan document allowed recognition of predecessor employers years of service and compensation. Therefore, the DB can recognize all years of service with any of the companies since 2002 and all years of compensation since 2002 for purposes of averaging compensation and determining the defined benefit. It would seem the tax deduction for contributions would be available to whichever company made the contribution in the year they made it. Going back to the original subject though, I wasn’t planning to bring this up, but these new disclosure requirements coming into effect, promulgated by “The Corporate Transparency Act,” is something everyone should know about. I have attached 2 articles describing the new requirements, but suffice it to say, the federal government is reaching inside the small business to find out who’s benefiting and other historically private information. Some will say, “so what,” but those with a healthy skeptisim may be shocked. Every business will be required to report (other than those on the excepted list, which is curious to say the least) business information that has been historically private. These requirements have also led to investment companies requiring highly detailed private information when a Pension Plan is opening a new investment account. A new required form entitled: “Entity Customer Information Form,” which demands “Identifying information for all controlling individual(s) and/or beneficial owner(s)” including: Beneficial Owner Name, % ownership, controlling %, DOB, SS#, copy of Driver’s License, The organizing documents of the Entity are required also. If a Plan has 10 Trustees, all this must be provided for each Trustee. This is a whole new level of invasiveness. ARTICLE The Corporate Transparency Act is about to matter OCR.pdf ARTICLE The Corporate Transparency Act (CTA) is Coming, The Creation of a U.S. National Beneficial Ownership Database...pdf

This is new. Financial service companies are being held to a higher anti-money laundering standard and are demanding that a check representing a plan contribution to be deposited into a new investment account have the same name on the check as the name of The Plan. I have numerous clients with one participant plans who have numerous companies. They may have a plan with a name based on the company they own that was quite active 20 years ago but not very active today. That shouldn't matter since they could have named the plan anything they wanted. At least to my knowledge, they could name their planned SpongeBob if they wanted. If an individual owns three or four companies, however, and company A started the plan 20 years ago with it's name on The Plan, that plan covers all the employees of all the companies he owns, he just happens to be the only employee so any of the companies could make the planned contribution, at least from what I've learned over the years. The CPA's never have a problem with this. I work with them closely. This is causing a huge inconvenience from my clients who may be forced to run money through a company that's been dormant for some time. Or, I suppose the only alternative is to change the name of the plan to the name of the company writing the check. Witch is stupid, because no such thing is required in qual plan rules. Or, what I'm going to try first, is adding the name of the company writing the check as a cosponsor of the plan (which it is a de-facto Co-sponsor by virtue of 100% common ownership anyway) and send the investment company the corporate resolutions and adoption agreement effectuating the Co-sponsorship of the plan with company A's name by the company B who is writing the check. Anyone have any thoughts on this?