Bird

I suspect the document doesn't say what you've posted. Ultimately, yes, I think you'll need to make up contributions plus interest. But I'm better at keeping plans out of trouble than I am at fixing problems so I'm not sure about the details, and there might even be alternatives, like only going back so many years, if you go to the IRS and work with them on fixing it.

As you already know, depositing contributions early when there is a last day requirement is problematic. I agree that the contributions that are made that shouldn't be are not forfeitures - as long as they are allocated according to the terms of of the profit sharing formula; it isn't clear if that is being done or not.

My own "general understanding" was that SIMPLE contributions were disqualified. I'm not quite sure but I don't think a disqualification for 415 violations is the same as a disqualification for having two plans exist in the same year when one is a SIMPLE.

I think it is a qualification requirement. But note that instead, you can provide information to enable them to determinate their own vesting. PPA Section 508 © ALTERNATIVE NOTICE.—The requirements of subparagraph (A)(i)(II) are met if, at least annually and in accordance with requirements of the Secretary, the plan— ‘‘(i) updates the information described in such paragraph which is provided in the pension benefit statement, or ‘‘(ii) provides in a separate statement such information as is necessary to enable a participant or beneficiary to determine their nonforfeitable vested benefits.

I think you need to clarify whether this is a SEP (employER contributions) or a SARSEP (employEE contributions). I think Jim is assuming it is a SARSEP. In that case, there is a non-discrimination test that probably failed badly in addition to the issue of not offering it properly. If it's a SEP then it appears there might be significant contributions owed. Anyway, it's good that you've realized there is a problem. It's not going to be easy to fix.

My recollection (and notes, which I trust more than my recollection...) say that it is ok to do it (vesting on statements) once per year. If a plan we handle is not on a platform that provides the necessary language, we were (are) generally going with a supplemental statement each quarter to cover the permitted disparity and/or investing principles language, and then once per year doing our own statement that includes vesting. In a handful of rare cases we're not generating our own comprehensive statements and are just generated a supplemental statement for vesting - basically spitting out the SPD language about how to calculate their vested percentage.

I think it would take A LOT to become a B/D. There's all sorts of compliance/oversight that needs to be done and you need a lot of assets under management to justify that. I dunno, maybe you can ramp up to that level pretty quickly. But I'd start by just becoming a broker again - you might be able to develop a relationship with a local/regional B/D, or perhaps one of the larger national firms caters to independents.

I agree. I don't think the term "date of eligibility" has any meaning in the context of a SEP. You are either in for a given year, having worked for the sponsor for [up to] at least 3 of the previous 5 years, or not.

We use our own forms. There's certainly no reason that you must use Relius forms; I'd just compare them to yours and make sure you're not missing anything.

Thanks, you're right about it being ok if it is a grantor trust. My knowledge on this is now exhausted - you're right about needing an attorney.

Repeating that I have less exposure in this area than I used to and am not 100% certain, but... I'm not so sure an ILIT can buy an existing policy from a plan. The participant can buy it, but otherwise might it not be a PT? And I think there's a potential problem w/taxation of proceeds (i.e. losing the tax-free death benefit) if it is bought by someone other than the insured. Something tells me that the only way to avoid that is to have incidents of ownership somewhere along the way which creates a gifting scenario.

Are you talking about buying a brand new policy in a plan, in a sub (irrevocable) trust? Or is it an existing policy that is being bought from a plan and going to a separate trust? If the latter, I don't believe there's any way to avoid the 3 year rule. If the former...I never ever encouraged the sale of insurance in plans but used to be quite familiar with it; companies such as Guardian had all kinds of literature explaining how the sub-trusts worked and why it was ok. I never saw it proven (i.e. a case where it was challenged, a PLR or anything) but I always found it kind of bogus to have a plan own a policy and yet not own it at the same time. I don't know of any current developments so I think it's status quo - maybe ok but nothing definitive.

I think the problem is that the document is the IRS Form 5305A, and (I think) the document doesn't allow another plan in the same year. I'd probably look into seeing if the document could be retroactively restated onto a prototype.

I think you're ok with an annuity notice and 402(f) notice...and yes, what we call a "right to defer" notice. If there's anything else applicable to this situation I don't know about it.

When you say "very early" do you mean soon after the end of the year, or during the year? If deposited during the year, then IMO they are in fact employer contributions and should be allocated according to the terms of the document. If monies went to the wrong people because of a computation error, then those monies should be "re"allocated to whomever should have received them. If deposited after the end of the year, then moving to a "holding" account should be ok, but don't call them forfeitures; they're not. They should at some point be allocated as contributions. And the correct employer contribution in that scenario is $87,000. The corporate return should be amended (although the accountant may decide it is not material). The alternative is to "re"allocate the excess $3,000 as above. Keeping the $90,000 deduction and just setting the money aside and calling it a forfeiture is not an option, IMO.

I think they're all participants, they just don't all have account balances.

If it's what I think it is, it has to do with the investments. Are both accounts trustee-directed? It's a way to effectively self-direct for the owners only, in an open-ended manner, without saying so in the plan(s). So you might have 10 rank and file in one plan, trustee-directed, and 2 more plans for the owners. All are identical in terms of provisions, and all are trustee directed, so benefits rights and features are ok. I'm not saying it's something I'd ever even suggest to my clients, but I'm pretty sure that's what's going on.

I'm not the greatest at reading convoluted regs but I thought this was for simultaneous formulas that are added together, not different formulas for different parts of the year. Changing allocation methodologies mid-year has a clear potential for discrimination. I'd also be concerned about whether the document properly reflects this change. If you just say "effective July 1, the formula is xxxx" but the plan has and has always had a Year-End allocation date, then the whole year s/b allocated under that formula. There has to be some specific language in the plan to allocate on other dates and compensation periods. It's not impossible but in my own experience, it's unusual.

I wouldn't rush into it! Changing your mind later is a nuisance at best and can be expensive as most decent outfits charge a conversion or takeover fee. I know it can be a cash flow issue but if you wait another month or two employees can just contribute more in the remaining part of the year. There really are many options. Yes, using Schwab for a small plan is probably expensive. But something like the T. Rowe Price option might surprise you. And recognize that although T. Rowe Price is a no-load company, they use a "special" (more expensive) share class in their program to help offset costs. That means that a load fund family like American Funds might be competitive or even less expensive. And, you get to work with a local TPA which is potentially a big advantage (yeah, I have a TPA firm). A local TPA can help you set up the right kind of plan for your company. I can't tell you how many plans we've taken over from large payroll companies that are just setting up boilerplate plans for small companies because the owner and/or Highly Compensated Employees want to make 401(k) contributions, but then after the end of the year they learn about this little detail called compliance testing and have to either take most of the money back or make contributions on behalf of the employees because they didn't know what they were getting into.

Most 401(k) investment options these days don't have surrender charges. The important thing is to figure out the expense ratios of the funds, and any wrap or asset fees added on by the insurance company. I'm not familiar with either product, but both appear to be insurance company products, probably similar. You might want to call a local third party administrator and ask for a proposal, just to see what else is available; in particular, just for the sake of getting something not so similar, ask if they can offer a single mutual company's funds. There's a clear bias in this industry that "different funds from different families" is better - the truth is that looking backwards at past performance, you definitely have to pick different funds from different families to get "the best", but looking forward, past performance is not predictive of future results, and my own opinion is that any slight advantage gained from offering funds from different families is offset by the higher fees associates with that - .50% to .75% or even 1% or more extra. Especially for small plans, it's worth looking at a single family of funds.

Amen. I think study results would be unreliable as plan demographics can vary widely; one plan could have some single parents who couldn't contribute no matter what and another could have second-income spouses who are trying to shelter as much as possible. As a general rule, if the employer is trying to maximize contributions for the owner(s) and/or a small group of select employees, the non-elective safe harbor works best as a building block for additional profit sharing contributions, especially in a top-heavy plan. And the humanitarian in me isn't that crazy about matches anyway because there are some people who truly can't afford to make their own contributions and I like to see them getting at least 3% from the employer. I have serious reservations about the public policy benefits of matching contributions. I generally think of the SH match as a solution for someone with "a lot" of employees who wants to maximize 401(k) contributions without testing but not go beyond the 401(k) limits. "A lot" for me means the ratio of owner comp to total comp is somewhat less than 50%.

I think if you re-phrase the opening statement as follows then the answer becomes obvious - I have a client with a flawed payroll system that incorrectly stops taking contributions when the maximum allowable comp that can be used for plan purposes, but that has nothing to do with payroll withholding, reaches $245,000. If this is a plan that actually does limit deferrals to the first $245K, then I would stand corrected, but I've never actually seen a document that did that.

No. If you change the name of the plan (or the address) you are supposed to notify the IRS. See the SS-4 instructions for the servicing office.

I wasn't aware of that case and am skeptical that ERISA would preempt the imposition of real estate taxes.

Playing Devil's Advocate, I'm not so sure that you have to do anything or for that matter that any violations of ERISA and/or the IRC have occurred. I don't think you'll find a requirement that sources be accounted for separately, just that certain types of money are subject to restrictions on distributions. We all know that it's a lot better to track 'ee and 'er contributions separately for that and other reasons. But this plan doesn't allow in-service withdrawals, and if you put a note in the file to never, never, ever allow that on pre-2011 (or whenever you can start to track it) money, and identify that money and new money properly, then that might take care of it. My 2 cents.