Bird

That's a great find, thanks for posting!

Thanks for the detailed explanation. I understand what you're saying, but there's enough lack of specificity for me to not default after 5 years.

Kevin, I've always been impressed by your ability to provide on-point cites when I thought something wasn't necessarily clear. But in this case, I don't see Q&A 4 directly saying that the loan defaults when an actual payment is made after the five year period; it references Q&A 10 for timing and I don't see it saying that there either. Good point about the payments being withheld before the end of the period; I missed that, which should clinch it anyway.

I agree with you. Yes, I think the code says it has to be repaid within 5 years, but I've always taken that to mean it has to be amortized over 5 years, not that it defaults if not fully paid off within 5 years. It's kinda silly if you ask me.

ASPPA asap 10-08 covered this; if you aren't a member and don't get asaps (you should think about it) the primary reference was DOL FAQ #4.

Yes, I was thinking volume submitter.

Yeah, I think it's ok but as Austin notes it could be argued that the allocation is indeterminable. And I'm honestly not sure the extent to which you can rely on writing text into an "other" box on a prototype but to me, it at least stretches the spirit of what they want you to be able to do. I'd be more inclined to do an "every person in their own group" plan instead of messing around with some oddball scheme, but that's just my 2 cents.

Thanks; that clears it up somewhat. I was thinking that the IRS could put a levy on the plan account and actually take the money directly from the plan, but I guess not.

For any "group" allocation-type plan, we prepare a memorandum describing the contribution for each group. When each participant is in his or her own group, we just list the employees and contributions. When the IRS finally caved in and OK'd groups, they said you had to have some kind of memo describing the allocation...probably widely ignored.

Gary, it sounds like we're in similar markets. There's a lot to talk about, and feel free to send me a PM if you want to call or discuss further by e-mail. Here are a couple of thoughts, pretty much just cutting to the chase... we prefer, in fact we pretty much insist, on using a platform designed for 401(k) plans when we set up a new plan. I've done the thing with individual retail brokerage or mutual fund accounts for each participant, but when you've seen the light of working with companies that are geared to this market, even a two or three person plan works far better on a platform. We primarily use American Funds, and sometimes John Hancock; there are others in the market but we can only work with so many providers. At the end of the year, we just suck out the investment information from their systems and import it into our own system. (As an aside, one of the benefits of working with a platform is that they handle distribution processing - cutting checks, withholding, and 1099-Rs. It's a big advantage that isn't always considered. Trying to pay someone the right amount from a Schwab account when you have vesting and withholding - yuck.) BTW, some mutual funds are refusing to establish FBO accounts (i.e. retail, non-platform) for 401(k) plans. You do have to work with a broker (I am a broker and sometimes act as the TPA only, more and more as both the TPA and broker, which is a big advantage). There are pros and cons to this; on the plus side you have someone to work with the participants and at least try to explain some investing concepts; on the negative side, well, they are brokers and brokers tend to get in the way and mess things up. I'll let it go at that; I don't know how well I conveyed it but there are tremendous benefits to running plans this way.

The instructions say 2010 short plan year filers may not use the 2009 forms for filing. They must use the 2010 forms, See www.efast.dol.gov for additional information My forms provider (Ft William) said they hope to have the 2010 forms online in the summer. I didn't try too hard but the 2010 forms might be available already for filing through the IFILE system.

I think Schwab does provide recordkeeping services. I started to inquire but the minimums and/or fees were so far from being practical for the plans that I work on that I didn't get very far. Sorry but I don't remember any of the details. We do have a couple of plans that use Schwab accounts for self-direction, but it's just a more-or-less "regular" account where we get copies of paper statements and we keep track of the money by source. I find it really hard to charge "enough" for that type of service...

I have a business owner who owes the IRS some money. He started by asking about a hardship, which the plan doesn't permit at the moment but of course could be amended to allow, and I threw out the idea of using the anti-alienation exception for a tax levy. So he met with the IRS agent and responds: He is aware of cases where the ten percent penalty can be dropped, he believes this is one of them. He suggested that the plan not withhold the ten percent. I find that a little scary because, well, it's not like someone has discretion over the penalty. Frankly, I don't even know if a levy is subject to tax, let alone penalties; if they just take your money is it the same as a distribution? And he goes on to say: The amendment can include situations involving taxes owed, or payments on mortgage to prevent foreclosure. That makes me think he's talking about a hardship distribution, not a tax levy; it's almost like the agent is fishing around to see what he can get the owner to do voluntarily without squeezing him to the point of trying to negotiate a more favorable settlement (maybe that's a leap on my part). If anyone has been through this or otherwise knows how to handle it, please comment. It seems like the agent should be the one imposing the levy first, not just hinting about how they can raise the money, if they're going to do it that way.

As long as all of the money in both IRAs is pre-tax, and it probably is, there's no reason you can't combine them. It used to be that you might want to keep a rollover IRA (the second one that came from the Keogh) separate in case you wanted to roll it back into a qualified plan, but you can roll any IRA money into most plans so that's not a factor.

There's nothing wrong with consistency! (Especially in our business.) The full quote is: A foolish consistency is the hobgoblin of little minds, adored by little statesmen and philosophers and divines. (Emerson) My emphasis on "foolish"; maybe I'm small-minded for making that distinction but, well, there it is... BTW, I stand corrected on including 403(b) deferrals in the ABT; thanks for an enlightening question/discussion.

mmm, when you said this I thought you meant to fix it to change it TO pre-tax (but it already is pre-tax) but now I understand that you meant fix it from pre-tax to Roth. And yes, I question whether it is appropriate to leave it. Sorry, I was confused.

Yes, I think deferrals are in the 415 test, not in the rate group test, and in the ABT.

I think you're on the right track for understanding, but just to clarify - there is no federal deduction for either savings vehicle. Yes, you can get a state tax deduction for a 529 plan under the right circumstances, but that's a relatively small benefit and I don't know that I would plan around it. Yes, you could use a Roth IRA and then withdraw the contributions at a later date without penalty; then you could keep the earnings for yourself and take them out after 59 1/2 without tax or penalty. But if you're starting early, and you are, the earnings will become a significant part of the account and you might wish later that you had easier access to them. I'd lean towards the 529 if you're content to put this money aside and decide that it and the earnings are to be used for college. But there are so many things we don't know that it's impossible to say one is better than the other.

But if you do leave the payroll coding as it was, you should move the money to the pre=tax source in the plan. Does(n't) the participant have some right to have it corrected? If he elected to have money withheld and it wasn't, there is a procedure for that...

Yeah, but nobody's forcing them to adopt a plan at that point, and there are alternatives - wait a year until you have eligibility under a one year waiting period, or go with a shorter waiting period, that is "permanent." At an aggressive extreme, you could have partners who say they started a business on January 1, and didn't hire employees until January 10. Waiving eligibility for anyone employed on Jan 1 and requiring a year of service for everyone else sure looks discriminatory in my eyes.

Recognizing the potential pitfalls noted - yes, it can be done. If he does it now, he'll still have to take the RMD from the IRA before the rollover, but then for future years it is subject to the plan rules (no RMDs until terminated).

I think that question is ok for this board, where few if any of us are true "investment advisors" getting paid a "management fee" that is a percentage of assets. (On the other hand, we never know exactly which term is appropriate, and maybe more of us, myself included, receive "commissions" that happen to be paid as a percentage of assets and might look a lot like "management fees" but aren't - but I don't see a problem discussing that.) And what's reasonable depends on many factors, so many that I wouldn't want to try to pick a number or range as "reasonable." So, Benefitmgr, do you mind sharing... how much money is in the plan in total, how many participants, are you using mutual funds and self-directed accounts or are you paying someone to manage a pool of money, does the same company that handles the investments also prepare compliance tests and the plan tax return or is that done by someone else?

I would be most comfortable with scenario 3. I think if you went with scenario 1 and then an NHCE was hired later, it could be argued that there was discrimination in favor of an HCE (although not at the same time of course). I agree that scenario 2 is discriminatory, at least in my eyes, but honestly I don't know how they measure it objectively. I've never seen it challenged but have avoided it myself, due to the language you mention about the establishment of a plan being an amendment for this purpose. I thought I remembered hearing an IRS speaker say it is problematic, but that's a very hazy memory. None of the examples even come close to this point, so maybe it's not really discriminatory.

I think you have to push this back to the plan sponsor - tell the participant that you're not the Plan Administrator and that such questions go to the PA. Then the sponsor/PA can come back to you and then you can at least tell him that it's billable time, and make it his problem. (Sorry, maybe you've already been there/done that.) If the participant is asking consulting-type questions then he can certainly engage you for such services. Of course you run the risk of wasting more time trying not to answer the questions than just answering them.

I'm ok on 3.6.