Bird

Interesting*/thanks. *Well, it's what passes for interesting in our world.

I didn't notice it at first but...ouch.

First you have to be very sure about when they are entitled to a distribution - almost any new plan we write will say after the end of the year. If, in the scenario you describe, the person term'd on 2/20/15 and is entitled to an immediate distribution, they would get it based on 12/31/14, the latest val date. (Setting aside issues about contributions during the year, which is why we don't like immediate distributions, especially for pooled plans.) Now, if the participant has a "large" proportion of the plan assets, it might be prudent to declare a special valuation date, in fairness to both the terminating participant and the other participants. And/or, make sure sufficient cash has been set aside to pay him/her, so you don't have to fuss about the earnings or losses on that portion. (Way back when I first started, my boss kind of arbitrarily decided that we would add 6% annualized interest to any such distribution. It seemed fair, but I eventually came to realize that while it might be fair, it wasn't right. Once I started looking to the documents for answers pension life got a lot simpler.)

I don't think it is a big deal to miss the November (really Dec 1) "deadline" - that is just a safe harbor for giving the notice; see below. Definitely can't operate both in the same year. (3) Timing requirement— (i) General rule. The timing requirement of this paragraph (d)(3) is satisfied if the notice is provided within a reasonable period before the beginning of the plan year (or, in the year an employee becomes eligible, within a reasonable period before the employee becomes eligible). The determination of whether a notice satisfies the timing requirement of this paragraph (d)(3) is based on all of the relevant facts and circumstances. (ii) Deemed satisfaction of timing requirement. The timing requirement of this paragraph (d)(3) is deemed to be satisfied if at least 30 days (and no more than 90 days) before the beginning of each plan year, the notice is given to each eligible employee for the plan year. In the case of an employee who does not receive the notice within the period described in the previous sentence because the employee becomes eligible after the 90th day before the beginning of the plan year, the timing requirement is deemed to be satisfied if the notice is provided no more than 90 days before the employee becomes eligible (and no later than the date the employee becomes eligible). Thus, for example, the preceding sentence would apply in the case of any employee eligible for the first plan year under a newly established plan that provides for elective contributions, or would apply in the case of the first plan year in which an employee becomes eligible under an existing plan that provides for elective contributions. If it is not practicable for the notice to be provided on or before the date specified in the plan that an employee becomes eligible, the notice will nonetheless be treated as provided timely if it is provided as soon as practicable after that date and the employee is permitted to elect to defer from all types of compensation that may be deferred under the plan earned beginning on the date the employee becomes eligible.

I'm not 100% sure but I don't think so.

Still confused about what happened, but I'll tell you what I would have done: Since Co. A effectively acquired the employees of Co. B and apparently wanted them to participate in Co. A's plan, adopt an amendment to Co. A plan that allows them to participate immediately, either by saying that directly or crediting service with Co. B. Co. B either terminates their plan, and participants can do what they want with that money, or the B plan is merged into the A plan. There are issues with merging plans, like maintaining benefits, that may make that unattractive.

So how did Co. B "accept contributions" if it was not paying any employees? You mean Co. A withheld and submitted to Co. B's plan? The issue of plan merger is tangential to the issue of who is withholding and submitting contributions, and to where. Co. B still exists, as noted, and can adopt a resolution to merge its plan into A's plan whenever it wants, of course Co. A will need to have a similar resolution, which it may already have. It shouldn't be all that difficult but the facts are still rather muddled.

I'm sorry, I didn't see the part about "regardless of the above limits" (even though it was right there!) That says what it says, so I guess it does supersede the 20% limit. Makes the whole design issue a little weirder to me.

I would read it as the lesser of 20% of annual comp or 100% of a bonus. Otherwise the 20% has no effective meaning. (FWIW, my gratuitous remark on this is "Why?" - unless there is some good reason for limiting deferrals to 20%, and I can't think of any after...whatever year deferrals stopped being included in the 25% deduction limit...it's just something to screw up.)

Were company B's (former?) employees being paid by A or B when their contributions were withheld? Clearly, the plan of Co. B wasn't terminated unless someone took action to terminate it, so we need to cast a skeptical eye on anything Co. B's advisers say. I'm not sure how Co. A can adopt a resolution saying the plans are merged "about" 30 days after the asset sale. It's kind of hard to determine exactly what's going on and where the money went, so I'm not sure if there is a problem or not.

I'm not that familiar with this end of things, but here are my best guesses: yes, I think the late payment is address on the 1040X, yes, I think the 5329 is for the excess contribution and I think the instructions will take you through each agonizing step to determine the penalties, I believe you will have to pick up all of the income this year; that's what I was saying about double taxation - you lost the deduction and still have to pay the tax when the money comes out. I am quite sure the investment company will issue you a 1099-R with Code 7, which is for a "regular" distribution. You might want to give them a call to try to confirm...good luck with that.

Got this from a plan participant: Attached are all the filled out forms - needed for my dismemberment.

I think you wind up with double taxation because the excess contributions weren't taken out before April 1 (or 15?) of the year following, so yes, I think you have to file amended returns and then the custodian will just issue a 1099-R for the distributions and you pay ordinary tax on that.

I'm guessing that when you say you put this into "an old IRA" that you mean it was not a SEP-IRA, is that right? Did you ever sign a SEP-IRA adoption agreement? If so, you might be able to convince the IRA custodian that they really were SEP contributions and were ok...but the money is out already, mmm. Sounds like a mess for less than $1000/year. Sorry but I'm not really sure about the reporting. I'd want to know for sure how the custodian is reporting the disbursements.

That's correct, or at least what I remember. That doesn't put it in the "no problem" category, at least for me. If it's a small-ish plan, it's going to terminate, sooner or later, and I guarantee there will be unhappiness of some sort when it comes time to try to raise cash.

Higher commissions.

I doubt what he says is accurate. The ones I've seen are sold for $x/share, let's say $10, and when you get statements on them, they show $10/share, but the fine print says that is the latest offering price, not current market value. Nobody knows what they are worth, which is the price a willing buyer and a willing seller will accept. Now, there are publicly traded REITs which trade on markets and have readily determinable share prices. That doesn't sound like what is being offered.

I agree that it's trivial.

Thanks Mojo, you stated my position as I would have. Austin, I'm trying to take a step back and see things from a national policy perspective; if you're just looking at it from a narrow perspective of a retirement plan consultant/administrator and what is best for you and your clients then there is no point to the conversation. Congress' opinion is what matters, not the employee and not economists. Congress passed the law. IRS is interpreting it, yes, somewhat narrowly. If you look at the 1996 summary of legislation prepared by the joint committee on taxation, which I did, it says, under the safe harbor provisions explanation - "The result that the nondiscrimination rules are intended to produce can also be achieved by creating an incentive for employers to provide certain matching contributions or non-elective contributions on behalf of rank-and-file employees." (my emphasis) Which pretty much backs up my point.

Sez who?

Exactly.

That's correct. IOW, they are going back to look at the original (e.g. profit sharing) contribution and saying that since it was not 100% vested when made, it can't be used for SH. It makes sense in a "hypertechnical" way. Honestly, from a policy standpoint, I kind of agree - the safe harbor should be something the employer is buying into to avoid testing, and just using money that's laying around in the plan from forfeitures is not exactly asking much of the employer. I just happen to be reading the GAC update in the Fall 2014 Plan Consultant from ASPPA and they (we) are still asking the IRS to reconsider; I say give it a rest - don't we have anything else to work on?! Ed Snyder

Yes.

I said it before and I'll say it again - there is nothing wrong with it. It's not gray, it's black and white. That's why we have these (incredibly) detailed laws and regs - to minimize gray areas. I'm not saying there aren't still gray areas, but this is not one.

I don't believe there is any problem with a brother being an investment advisor.