jukeboy56

A company is owned 100% by an ESOP. The only contributions are made by the company. The company executives voluntarily decide they want to reduce the executives' compensation contribution percentage to a much lower percentage than is being contributed for other employees. Am I correct in assuming that to do so without a plan amendment to that effect creates a plan failure that needs to be corrected?

We have a client who established a regular SEP but failed to cover their two eligible employees for five years. We've advised the client how to correct using guidance from the IRS Fix-it Guide. What are the consequences if the client does not make the corrections? A regulation cite would be helpful if possible. Thanks!

Subject company has filed 5500 as a small plan for 2013, 2014 and 2015. They recently discovered that a division of the company was not offered the opportunity to participate in those years. The company has done a self-correction for the failure to cover those employees. If participant counts had correctly included the missed employees the plan would have been considered a large plan for 2013, 2014 and 2015. Should the company file amended 5500's for 2013, 2014 and 2015 and hire an independent auditor to audit the Plan for those years? This doesn't fit any fact patterns described in the voluntary correction programs, so how should they proceed?

A sole proprietor established a safe harbor 401(k) plan for 2015 and employees made deferrals. The sole proprietor did not make deferrals during 2015. If the sole proprietor wishes to make an IRA contribution for 2015 are they considered covered by the 401(k) plan, even though they made no deferrals?

This question is about a couple who operate a farm. The husband has been reporting as a self-employed farmer for several years with an established SEP plan. Four years ago, the couple elected to treat the business as a qualified joint venture, reporting the revenue and income on two Schedule F's, one for each spouse. Prior to the election, everything was reported in the husband's name. The farm has reported a loss for the past three years, but this year it has a profit. The husband and wife would both like to make a contribution to their SEP plan (as well as for other qualifying employees). However, the wife has only reported the farm on a separate Schedule F in her name for four years, and the farm had a loss for three of those years. The question is whether the wife meets the eligibility requirements for a SEP contribution since she did not have positive earnings from the business for three of the last five years. Does a year with a loss count as a year of service for an owner for eligibility purposes?

Plan A has a June 30 year-end. On December 31st, Plan A is merged into Plan B which has a December 31st year-end. All of the existing participant accounts in Plan A are transferred to Plan B. Assuming that Plan B's testing for the year ended December 31st will not include the newly-added participants from Plan A, is non-discrimination testing for Plan A required for the six months ended December 31st? And, if possible can you provide me with a citation to support your answer?

I see the 2008 Form 5500 instructions include something called Voluntary Alternative Reporting Option for Certain Plans with Fewer Than 25 Participants. Am I missing something, or is this much ado about nothing? I haven't analyzed the differences in detail, but it sure looks like it doesn't reduce the reporting by much.

Here are the facts... The plan is a 401(k) Plan with a June 30th year-end In January 2006 the sponsor transmitted the deferrals for a particular payroll period to the custodian. The custodian received the money but never credited them to the participant accounts. The amount of the deferrals was a little over $6,000. The plan changed custodians at the end of December 2006. In early 2007, when the plan was audited for its 6/30/2006 year-end the custodian's error was discovered and disclosed in the notes of the financial statements as employee contributions receivable, with a description of the error. The old custodian was contacted and subsequently sent the money, which had been sitting in limbo, to the new custodian. The new custodian received the money in July 2007 and applied it to participant accounts. An analysis was done of missed earnings and these were paid by the old custodian and applied to the participant accounts. It was a little over 550 days from the time of the error to the time of correction. So, the participants have been "made whole" as of July 2007. My questions are about paying the excise tax due and whether the steps we are taking will prevent further penalties or more severe actions. I know that the initial error is considered a prohibited transaction, and each subsequent plan year that it goes uncorrected is another prohibited transaction. Will what I am going to file correct all of the problems, or do I need to explore one of the voluntary correction programs? (Or is use of the correction programs negated by the fact that we went beyond 180 days before correction?) We are filing a Form 5330 for the year ended 6/30/2006 to pay 15% on the earnings missed between January 2006 and June 30, 2006 (calculated at the applicable federal rate). We are filing a Form 5330 for the year ended 6/30/2007 to pay 15% on the earnings missed for the year ended June 30, 2007 (including compounding). We are filing a Form 5330 for the year ended 6/30/2008 to pay 15% on the earnings missed for the few days from July 1, 2007 until the correction later in July 2007. We will list the amount of the delayed contributions on line 4a, Part IV of Schedule H of Form 5500 and attach a schedule listing the amount of the delayed contributions as a prohibited transaction. Thanks to anybody with advice to offer.

I don't have all the facts on this one yet, but the business owner and his wife have failed to deposit amounts withheld for their personal Simple IRA contributions and employer match "for several years". Apparently they have had a couple of employees over the years and have deposited those employee's contributions and matches, just not the owner's and wife's. Does anybody know if this would be considered "misuse or diversion of plan assets", making this error ineligible for any correction program? If so, any ideas as to how to proceed?

Just to follow-up on my own questions, here's what I've found out by talking to the Department of Labor. It is NOT too late for the plan to participate in the DFVC Program, since they have not received any correspondence from the Department of Labor yet. The Department of Labor has a toll-free line where plan sponsors can check the status of any 5500 filing: 866-463-3278

I guess the other question I have about checking with FreeErisa is how would the DOL have a copy of the filing if the IRS shows no record? Doesn't the filing have to get into IRS's system for the DOL to receive their copy? Does the IRS ever "lose" filed 5500s after the information has been forwarded to the DOL?

Great idea, but the only years they show without paying for additional research are 2006 and 2005. Is there any other site that would show me if a 2004 return had been received by the EBSA? We don't necessarily need a copy of it, since we already have one.

My question is about the language contained on the DOL website and the deadline for filing for participation in the Delinquent Filer Voluntary Complaince Program. The Plan, which has less than 100 participants, filed its 2004 Form 5500 but kept no proof of mailing. In July 2007, they received a "Request For Information About Your Form 5500" letter from the IRS saying that it had not been received. The Plan responded with a copy of the 5500 to IRS and a response stating that it was timely filed in May 2005. The IRS sent a follow-up stating that they intend to assess a penalty of $15,000 unless there is reasonable cause or an extension. The letter states that a penalty won't be assessed if the Plan satisfies the requirements of the DFVC Program The Department of Labor website lists requirements for the DFVC program including: "...if the required filings under the DFVC Program are made prior to the date on which the administrator is notified in writing by the Department of Labor of a failure to file a timely annual report under Title I of ERISA..." and further states: "IRS late-filer penalty letters will not disqualify a plan from participating in the DFVC Program. A Department of Labor Notice of Intent to Assess a Penalty will always disquality a plan." My question is: Does the IRS letter mentioning an intent to assess a $15,000 penalty disqualify the Plan from participating in the DFVC Program (under the premise that the IRS is acting on behalf of the DOL)? Or, does the disqualifying notice of intent to assess literally have to come from the Department of Labor?

Thank you. I now see that an IRS Notice dated April 28, 1997 contains the language "has worked for the employer during at least 3 of the 5 years immediately preceding the tax year", which reinforces your interpretation.

For years I've thought I understood the SEP coverage rules regarding service, but now I'm not so sure. IRS Code Section 408(k)(2)(B) says that participation requirements are satisfied for a year if the employer contributes to the SEP of each employee who "has performed service for the employer during at least 3 of the immediately preceding 5 years" I have always assumed that the year for which the contribution is being made is one of those five years. So, for example, if Employee A performed services during 2003, 2004 and 2005, the employer would have to cover him for the year ending 12/31/2005. However, I noticed in an outdated version of IRS Publication 590 (which covers IRA's) the coverage requirement described as "has worked for the employer during at least 3 of the 5 years immediately preceding the tax year". The current Publication 590 doesn't discuss SEPs, and the current Publication 560 (Retirement Plans for Small Businesses) uses the phrase "has worked for you in at least 3 of the last 5 years". So does "immediatly preceding" mean before the start of the tax year for which a contribution is being made? Has anyone found anything else that clarifies when the 5 year period falls?

A taxpayer has established a SEP plan for his Schedule C income (with no other employees) and has a profit from that enterprise. He also has a farming enterprise with a loss for the same year (also no employees). Am I correct in thinking that he can use the income from Schedule C to calculate his SEP contribution without combining it with the loss from Schedule F ?

Is there a logical reason the income limits are set so low ($0-$10,000) for phaseout of the ability to make a contribution to a Roth IRA for married taxpayers filing separately? Where is the potential for abuse?

If a traditional IRA can be rolled over to a qualified plan, and a distribution from a qualified plan can be rolled over into a conduit IRA and then back into a qualified plan, why can't a SEP IRA be rolled into a qualified plan? Is there a logical reason why? What am I missing?

318(a)(2)(B)(i) Stock owned, directly or indirectly, by or for a trust (other than an employees' trust described in section 401(a) which is exempt from tax under section 501(a)) shall be considered as owned by its beneficiaries in proportion to the actuarial interest of such beneficiaries in such trust. As I read "other than an employee's trust described in section 401(a)..." it sounds like I DO NOT need to count shares allocated within the ESOP when determining who is a 5% owner. Comments? Clarifications?

For the purposes of determining who is a 5% owner, and thus required to begin taking required minimum distributions after age 70-1/2, are shares allocated through an employee stock ownership plan that have not been distributed from the plan count? Subject company has some employees nearing age 70-1/2 who own shares outright and also have shares allocated to them within the ESOP. Do the shares still inside the plan have to be counted when determining if they are 5% owners? Any code or regulation citations you can include would be appreciated.

For the purposes of determining who is a 5% owner, and thus required to begin taking required minimum distributions after age 70-1/2, are shares allocated through an employee stock ownership plan that have not been distributed from the plan count? Subject company has some employees nearing age 70-1/2 who own shares outright and also have shares allocated to them within the ESOP. Do the shares still inside the plan have to be counted when determining if they are 5% owners? Any code or regulation citations you can include would be appreciated.

For the purposes of determining who is a 5% owner, and thus required to begin taking required minimum distributions after age 70-1/2, are shares allocated through an employee stock ownership plan that have not been distributed from the plan count? Subject company has some employees nearing age 70-1/2 who own shares outright and also have shares allocated to them within the ESOP. Do the shares still inside the plan have to be counted when determining if they are 5% owners? Any code or regulation citations you can include would be appreciated.

After filing Form 5500 for a client's health insurance plan, we received a correction from the insurance provider informing us that when they sent us the information for Schedule A, they overstated the commissions paid (they doubled them in error). How crucial is it to re-file Form 5500 correcting this error? I hate to incur additional expense for the client if the information is only used for statistical purposes. The plan has 200 participants and the actual commissions were $11,000 instead of $22,000 as reported.

The subject company has an operating SIMPLE IRA plan established through Nopain-Nogain Mutual Funds. I haven't read the plan document, but I am assuming it designates Nopain-Nogain as the only financial institution that can accept IRA contributions. The employer would like to offer increased investment options to their employees by opening the plan up to include investments from BrandX Mutual Funds too. Section Section 219(g) describes the types of plans which an employer cannot make contributions to during the same year they make contributions to a SIMPLE plan. The plans listed in Section 219(g) include SIMPLE plans, therefore it appears an employer cannot have two SIMPLE plans during the same year. So, I am concluding that the only way to acheive what the employer wants is to wait until the end of the year, terminate the current SIMPLE plan with the designated financial institution, and adopt a new plan without a designated financial institution effective January 1st. (And providing at least 60 days advance notice of the change) This will open the plan up so that the employees will be able to direct their IRA's be placed anywhere, and not just limited to Nopain-Nogain and BrandX. Is there any way to limit the plan to just these two investment sources (who are competitors)?

It appears from what I'm reading that you are correct. Thank you for pointing this out.