Bird

True. Just be careful with the "Solo/Individual 401k" stuff; there is no such actual animal; it's just a marketing name. You'd be establishing a regular qualified plan, complete with compliance and filing requirements, including 5500 fillings, since the participant is not a 100% owner.

True, but might be the lesser of evils. I wonder about the circumstances surrounding the plan termination. This appears to be a very large policy, perhaps for an owner; is there a change of ownership? If the idea is to get rid of the MPP might it better be simply restated as a PSP? Otherwise Bill Presson's suggestion of borrowing out some or most of the cash value before distributing or buying the policy is good, just be careful because a stripped-out policy can be expensive to maintain. (When I was new to the business, I asked my boss, a life insurance salesman/TPA "why should life insurance be in a qualified plan?" His answer: "To make a commission." That is really the only reason; it pretty much stinks at the end of the road for the participant.)

Just shooting from the hip but my gut says the surrender charges should be borne directly by the accounts that incurred them (not spread). Frankly, in this day and age, there shouldn't be surrender charges and I wonder about the liability of the decision-makers; either the PEO making the investment choices and/or the employers who chose to join the plan. I know sometimes plans get stuck with old contracts and you just have to bite the bullet at some point...

Thanks for taking the time to listen in and post. That is, I think, a good thing; frankly I'd rather have some concrete penalty to have these folks (whether they be "innocent" non-filers who didn't know the rules, not-so-innocents who just don't bother with such details, or my own clients who just can't be bothered to pay attention) pay and be done with it, rather than mess around with the begging and pleading nonsense.

I agree. In fact, if you don't use a definition of "years of service" from the document and it is up to the administrator's discretion, then I don't think you have a definitely determinable formula.

I agree, just think of it as any other investment. But...I would want to be sure that they really were intended to be key man policies and not just for the benefit of that one participant. Just because the prior admin was doing it that way doesn't mean it was intended. When insurance is involved, it's not unreasonable to start with the assumption that something has been screwed up.

Correction; this agent said they consider it to be reasonable; not that something else is unreasonable. I do not believe she said that prime is out of the question; I've seen two reports, one is below. I agree that prime, prime +1 or even prime -1 could be reasonable; we'll continue to use prime plus 1 with no worries in most cases. I did just discuss this with a client with a pooled account, and I think in that case something higher, maybe even more than prime plus 2, could be ok, because making plan loans is taking money away from other investment opportunities and potentially harming other participants if the rate is too low. Reasonable' Interest Rate for Plan Loans Is Prime Plus 2 Percent, IRS's Wack Says By Florence Olsen Revenue agents will view “prime plus 2 percent” as a reasonable interest rate for loans to participants from qualified retirement plans under tax code Section 72(p), an Internal Revenue Service agent said Sept. 12 during an IRS phone forum. Kathleen Wack, IRS employee plans revenue agent, referred plan administrators to a government website, at http://www.federalreserve.gov/releases/h15, as the source of daily prime interest rates used by IRS revenue agents. “We normally add 2 percent” to those rates, Wack said. Prohibited Transaction Exemption If a plan makes a loan to a disqualified person, as defined under tax code Section 4975(e)(2), generally the participant loan would be a prohibited transaction under Section 4975©(1) and subject to an excise tax penalty, Wack said. However, IRS regulations provide a prohibited transaction exemption for loans made to disqualified persons at a reasonable interest rate if similar loans are available to all participants and beneficiaries “on a reasonably equivalent basis,” Wack said. The prime interest rate is the rate that banks offer their very best customers, but it is rarely used, Wack said. “For this reason, the service generally considers prime plus 2 percent a reasonable interest rate for participant loans,” she said. Wack added a disclaimer, saying that her comments during the forum should not be relied on as official guidance. Excise Tax Calculations All IRS revenue agents in the Employee Plans Division rely on the Federal Reserve website to update the computer programs they use to calculate excise taxes on Form 5330, Return of Excise Taxes Related to Employee Benefit Plans, Wack said. Wack gave that answer to a question about how IRS would view an investment platform provider that automatically set up loans at “prime plus 1 percent,” without checking to see what the plan administrator considered to be a reasonable market interest rate. Separately, David Boyd, manager of IRS employee plans mandatory review, said during the forum that the prime plus 2 percent rate is “not etched in stone.” The question for plan administrators to ask is whether the participant could get a loan in the open market for less than prime plus 2 percent, Boyd said. “If the answer is no, then I think prime plus two is reasonable,” he said. “It's a general guideline that we go by here at the service.”

For what it's worth, I checked through an old file and found that IRS Announcement 84-40 provides the authority to submit plan withholding along with wage withholding. 1099s etc. must follow through with the use of the same (employer) ID number, so that's the indirect authority to use the employer ID number for plan reporting. Whether that's been superseded by something else, I don't know. I would get a separate ID number anyway for the reasons mentioned before.

I'm guessing that what Scuba meant was "The plan has a discretionary match and the employer told his employees there would be a matching contribution." In that case, no match is required, but he has to suffer the consequences of poor relations with his employees.

I remember that too (final/short years could not be extended) but I don't see it in the current instructions.

P.S. It's Ft. William, not Ft. Williams. Pet peeve...(one of many).

This is correct, the sponsor/sole proprietor "must" have a separate EIN if it sponsors a QP. From footnote #1 of the short instructions with Form SS-4: I think you can use the sponsor EIN for plan reporting, but generally speaking, I would avoid that. You have to comply with deposit timing based on the sponsor's payroll, and coordinate the 945 and 941 and it's messy. I would definitely get a separate EIN for the plan if I had any reporting to do. I think you can indeed skip it (for the plan) if you have a custodian such as John Hancock doing the reporting and withholding. No way would I report using a SSN.

I'm pretty sure it's ok for paper filing. Not so sure that it's not ok for electronic filing too.

I think the answer to your questions is "yes" and yes, the 1099 and the 5500 should show the default in the same year.

If your client cares about participant costs, American Funds Recordkeeper Direct (only American Funds funds offered*) is almost always the least expensive option. And I like working with them. We have a handful on American Funds PlanPremier TPA (offers funds from other families, you have to be approved to use this), John Hancock, Hartford, etc. *As an aside, I don't have a problem at all only offering funds from one family. In hindsight, you can always find different funds from different families that performed better than funds from a single family, but looking to the future, I don't believe that you improve your odds of investment success by offering different funds from different families.

OK. My small-plan mindset thinks of one person being everything. But in a Smith and Jones partnership, Smith would want to make sure that they're both bonded in case Jones runs off with the money.

I'm not sure that I follow; are you saying that someone who is stealing money from a plan really cares about being personally liable to make good the losses? As far as practical consequences to not having a bond, I don't think there are any, unless you are really obstinate about refusing to get one. This old thread covers it. (I'm not saying it's ok to ignore the requirement and we always tell our clients to get one and assist them as needed.)

That's how I see it. You have to be careful of all the usual stuff like the timing of the amendment and whether you might take a document out of prototype status. I remember doing it once - did not request a special FDL but the next time we applied for one, just included that amendment in all of the "amendments since the last FDL" and had no problems. I guess if someone was already at the 402(g) limit or otherwise wanted to defer the max they might feel cheated. But I don't see anything "wrong" with it.

Requiring spousal consent on a form when it is not required by the terms of the plan (and should not be required if not an annuity plan) is a violation of the participant's ERISA rights, IMO. I've seen it - un-knowledgeable attorneys think they are erring on the side of caution by including it on the forms. Just because it had an FDL doesn't mean they read that. Maybe it's ok though.

I think the fix here is to issue 2 1099-Rs from the plan, one for the RMD as a Code 7 (taxable) and the rest as a rollover (G or H or whatever it is these days). Then the IRA custodian is told that the RMD portion is ineligible for rollover and they disgorge it (non-taxable). (FWIW I (still) believe that if there was enough left in the plan to satisfy the RMD, you could just distribute it now. I agree that technically the first dollars out are not eligible for RO but it's not like the IRS is going to check the dates of the payouts; they would just want to be sure the RMD was done. But that's not the issue here at all, I mention it because that was in the prior threads.)

Mmm. Well, fwiw, I wouldn't bother.

Um, is calculating 10% of the assets some kind of problem?

A. Just show it as 10% of assets. But, you (they) maybe are supposed to tell the company of the change in assets each year to re-set the amount (?) so that may not be 100% accurate. B. I don't think anyone (IRS or DOL) cares about that degree of precision for this purpose.

Me too - at best. Our plan language, which I think comes from the regs, is: a loan term may extend beyond five years if the loan is used to acquire a dwelling unit which within a reasonable time (determined at the time the loan is made) will be used as the principal residence of the Participant. It's certainly implicit to me that it's the participant who is to acquire the dwelling unit. It's not said if in this instance the money will be gifted or lent in turn, but arguably the loan is not being used to directly acquire the principal residence - it's either being gifted or lent to someone else. I don't think you can look through to the second step.

So you're thinking that if someone only makes catch-up contributions they are "not covered" by a plan for IRA purposes? Interesting thought, but I don't think it flies. I'm pretty sure that the allocation of any contribution at all is sufficient to be "covered."