Bird

Then no, you have nothing to disclose. Whether you discuss it all or not is up to you; we made it into a project where we reviewed each plan and (tried to) succinctly explain the rules and how they applied to that particular plan. I wanted my clients know a) that we were on it, and b) that someone probably owed them a disclosure (broker or investment advisor).

408(b)(2) is disclosure to fiduciaries, so I think it is required for all.

I'm with you Lou. Just because something is good for us and our clients doesn't mean it is "good."

I understand your points and to an extent am just playing devil's advocate. I think there was a time when there was no ADP test and the 401(k) limit was the DC limit, so owners could stash away big bucks just for themselves. The ability to do that has been largely diminished. If we're talking policy, and not feelings, I could make a pretty good case that we should just have those individual accounts that were proposed some years ago where anyone can contribute $15,000 or some other number in between the IRA and max DC limit. Get rid of all these contradictory rules and let people do what they want within clear, defined limits. And put 90% of us out of work.

But the whole point of TH rules is that for a small business, there's potentially not much difference between deferrals and an employer contribution. Someone...just posted a scenario where a business owner deposited $16,500 thinking that's how to make a deferral contribution. Keep in mind that there's a tax break involved in all of this, and to the extent that a business owner gets a break, we all have to pay a little more (at least in theory, I know that's not the case in today's bizarro world...we're just borrowing that much more). The idea behind that break is to encourage broader coverage, not to let Mr. Owner put away money for himself and no one else.

Full employment for the pension industry. Be careful what you wish for. Seriously, I think there was a legitimate point to it way back when, but since then more testing and compliance rules have narrowed the "opportunities" for discrimination and made it at least somewhat redundant, but not completely as we see in this example. It's not an original thought, but why not make it a universal rule? If you want to have a plan, be prepared to make a 3% employer contribution. I mean, why should someone who works for company A that has a plan, with no employer contributions, be allowed to put away $17,000 while someone else who works for a company with no plan, be limited to $5,000 in an IRA (if not otherwise limited)? That really makes no sense at all (along with a lot of other things).

I've seen some adjustments made that surprised me, and I think it all depends on how much control one has over the payroll process. But I couldn't really blame anyone, CPA or payroll company, if they refused to make this kind of adjustment. At the very least, there should have been Medicare taxes withheld. so now you have other problems spiraling off. It looks like a profit sharing contribution to me.

I think this IRS guidance is referring to employer and "employee" (i.e. nondeductible employee) contributions. But I don't think there's any doubt that deferrals are deductible if made by the tax return due date for self-employeds. It's just a matter of whether they are "late" and subject to lost gains. (If we're being honest, I don't they care about self-employeds.) I know I've seen posts here about guidance that says the clock starts running after the contributions are "determined", and I argue that at best, that applies when a self-employed elects a percentage and not an amount - $16,500 is "determined" the moment it is put in writing.

This is why Schwab has no business setting up 401(k) plans. We are constantly cleaning up messes of them and their ilk. Anyway...no, you don't have payroll. As a Schedule C filer, your employEE and employER contributions are all mushed together on your 1040, line 29 I think. For tax purposes, deposits are due by April 15. But the Department of Labor has guidelines that say employEE contributions have to be deposited more-or-less right away after they are withheld from pay. The ultra conservative approach for complying with those guidelines is that since your income is determined on Dec 31, you should get your 401(k) contributions in shortly thereafter (first week of Jan). If you don't...well, then you (the employer) are considered to be holding onto your (the employee) money "too long" and...you still get the deduction, but you're supposed to add interest. 99.5% of your single-employer one-person plan comrades don't have a clue about this and consider April 15 to be the deadline, and blissfully go on their merry way, so you might as well too. I can pretty much assure you that you're doing lots of stuff wrong, and/or will do lots of stuff wrong because their are all kinds of rules with qualified plans that you can't even imagine. If you want to run it right, hire some local pension consultant. Neither Schwab nor your accountant will give you reliable advice.

I agree with Tom - definitely before the end of the year, and when during the year is a 411(d)(6) issue. I'd argue/think that no one has earned a particular QNEC at this moment and you can amend. (Unless your plan has specific language that QNECs are required, or something else that I think is unusual.)

I don't think a girlfriend has any more right to see that participant's bene des than I do. As to the last question, most plans say the spouse is the beneficiary. Might have to be married for 1 year to be a "spouse" for plan purposes though.

A. Sponsor is probably using some flawed logic if it wants to add annuity provisions to a plan that doesn't have them. Any participant can buy an Individual Retirement Annuity and thereby create his or her own annuity option (I'm not saying that's a good idea either). Just because the government wants more annuities doesn't mean it is a good idea. I'd say it's a singularly bad idea in today's interest rate environment, where you'd effectively be locking in historically low rates for the rest of your life. B. I don't know if a plan may add costs for providing an annuity, but I don't think it's appropriate. 99% of the time there's an agent involved who's going to get a nice commission; let him or her do the legwork.

Nice name, is that benef-law or bene-flaw? My initial reaction was "of course" you count them since those additional participants are owed the money. But, you may file on a cash basis, and if the accounts don't exist... ...but on the other (other) hand, I'd think the technically correct theory is that the moment it was determined that money was owed to someone, they became a participant (again?). Cash in an account doesn't make one a participant or not. (I'd still be open to arguments that they are not participants.)

Right, no hours no last day. I think I remember hearing somewhere that employment status is ok, or maybe it was just someone's opinion... I found this: Reasonable classifications generally include specified job categories, nature of salary (hourly vs. salaried), geographical location or similar bona fide business criteria. An enumeration of employees by name or other specific criteria having the same effect as an enumeration by name is not considered a reasonable classification. in an IRS handbook of some sort that I found online (here). It doesn't cite status.

Nothing wrong with it IMO. Yeah it smells a little. FWIW we usually don't use a last day provision if we have each person in their own group. You can do whatever you want for each "group" anyway so there's no need for further restrictions based on hours or employment status.

Especially if, as suggested, you want to use it as a way to determine catch-up contributions based on a plan limit. If challenged about why $5,500 of a $6,500 deferral is catchup, I don't think it flies to say "oh, we told him he could only put in $1,000." To be honest, I'm not sure if that ability to limit is meant to be used as a "plan limit" that would create a catchup. At the very least I'd want it documented almost like a plan amendment or written implementation of that discretionary feature.

Yes. As noted, Penchecks will do all of this for you if you give them a gross check. And if you don't have a personality disorder where you are compelled to do everything yourself, that is something to consider.

We are handling the withholding through the IRS batch processing system; we maintain a separate bank account just for that purpose. It's generally not too difficult to get an investment provider to cut two checks, one to the participant and one to us, with a proper letter of instruction. Sometimes you need a guaranteed signature and sometimes you need special indemnification language, but you learn who needs what from experience. Long story short, if someone has a checking account and it's not costing them anything to maintain it, yes, it's easier to have them cut the checks, but we're not insisting on it for new plans or making old plans get one.

The way I see it, if a loan payment happens to be made after the original 5 year period, it means nothing. The payments must be scheduled to be completed within 5 years, but actual payments could be made after the 5 year period as long as they didn't run afoul of the default rules (i.e. paid by the end of the quarter following the original due date). The problem here is that the loans probably defaulted already - if they are running behind 2 payments per year, then at the end of 3 years they are 6 payments behind, and with 6.5 scheduled payments per quarter, they would be more than a quarter behind after 3+ years. (If you had a loan effective Jan 1 2007, and keep ratcheting payments back by 2 each year, a payment due at the end of March 2010 is probably going to be paid in July 2010 and will, or should have, triggered a default.) (Assuming the plan and/or loan policy uses the longest possible default period, of course.)

I agree. And if you do get the participant to agree to tell the custodian to return the funds, be aware that their system will want to issue a 1099-R. (I think) it washes out if the original distributing plan issues a 1099-R indicating it is not eligible for rollover, and the IRA issues a 1099-R for a refund of an excess contribution.

I agree that the IRS wouldn't care and for the most part wouldn't worry about it. But feeling a wee bit argumentative today, I still think it's a stretch to say that RMD rules override other plan provisions and create rights not otherwise in the plan. Our (Fort William) plans actually make that clear: (2) Construction. All distributions required under this Section shall be determined and made in accordance with the regulations under Code section 401(a)(9) and the minimum distribution incidental benefit requirement of Code section 401(a)(9)(G). Nothing contained in this Section shall be deemed to create a type of benefit (e.g., installment payments, lump sum within five years or immediate lump sum payment) to any class of Participants and/or Beneficiaries that is not otherwise permitted by the Plan. My guess is that you would find this in most other documents; even if not, I don't believe it's the intent of the RMD rules to create benefits that don't otherwise exist. FWIW

RMD=Required Minimum Distribution=a precise amount that must be removed from the plan. It is in fact a minimum but that does not convey the right to take additional amounts. If the plan permits other distribution, then as noted, no big deal (subject to proper option election being made). If the plan does not permit other distributions, then there is no distributable event and the extra amount is not a permitted distribution. If it was a 2012 distribution, then you can still amend the plan this year to permit it retroactively. I'm not sure that you can just put it back for 2011; that might be a permitted self-correction but I don't know. If you wanted to go to the trouble of filing for an approval, I imagine the IRS would let you amend the plan to permit the distribution now. It's not like anyone was hurt.

I agree, but I think if you were really, really anxious to do this, you could amend the plan to say something like "Joe is in the plan for 2011 but does not share in the formula allocation. He gets a special allocation of $x." Or something like that. It would take the plan out of prototype status if it's a prototype.

We've always picked the names and said "For 2011, Joe Smith gets $xxxx" so it doesn't carry forward to other years. (Is it top heavy and do(n't) they have to get TH mins?)

But if it already allows in-service I think limiting it to 2 would be a cutback. A different way to discourage multiple distributions is to charge the participant for each one, if possible; they won't be so likely to take small amounts if they're being charged $50-$100 per pop.