Bird

Thanks for the feedback. I will continue to do it the right way.

They are permissible now. I just meant it is easier for us to have groups and directly decide what each group gets.

This is a tough one. I started to write that the plan is clearly wrong about paying to her estate, but she did request a lump sum, and her husband consented, so it makes some sense to follow through on that request. But I don't know why they would add the FBO IRA to the check to the estate; that makes no sense to me. And I think the annuity starting date is the actual payment date, so they haven't reached it. I'm pretty sure that since they did not cut the check before she died, that all of the paperwork becomes moot, so they have to pay to the plan beneficiary. J. Simmons makes good points, especially about exactly what the spouse did or did not consent to, but most especially about getting competent ERISA counsel.

I've always maintained that once an employer contribution is made to a plan, it should stay there, whether that means reallocating monies to other participants' accounts, or increasing contributions to others within a self-directed environment, or allocating contributions that an employer really didn't want to make in a pooled environment. I know that the payroll companies that have jumped into this market with both feet have no qualms about "refunding" money that wasn't really meant to be in an account, be it PS, match, or whatever, and I guess I am just curious if that's become some kind of norm while I missed a memo or whatever. I have a couple of plans where that would really be a lot easier, and I'm ready to tell them that's too bad, but thought I'd check.

I don't think the pooled piece has to be valued annually, although I think PPA does say that quarterly statements are required (i.e. you can just spit out the same 12/31 values each quarter). I also think there was some kind of guidance relaxing that useless reporting requirement but would have to look it up and am not in the mood today. Unless someone backs me up, I'll follow up later (maybe).

Yes and no. I think I know what you mean, but they are integrated formulas, they are just not safe harbor formulas using permitted disparity. They are, or at least were, used often as a way to achieve a New Comparability result. Back in the day, there were concerns about formulas being "definitely determinable" so carving a plan into groups and allocating pro rata to each group was somewhat aggressive, so we used super integrated formulas instead. I think the IRS was right and kind of miss that challenge, but they caved in and now it's a lot easier and cleaner to just allocate to groups.

That formula is just not a safe harbor - if you use a safe harbor formula, e.g. where everyone gets the same percentage of pay, it is deemed to be non-discriminatory and you don't have to run any tests on the allocations to prove that it is non-discriminatory. With a formula like this, you run the allocation, get the results, then you have to test the results for discrimination. In this case, you'd almost certainly have to convert the contributions to projected benefits and test the benefits (aka "cross-testing"). The bottom line is, you can have just about any formula you want, as long as it is clear, but the results may be subject to testing.

I think you're right; they can segregate the accounts now and each beneficiary can do what they want, but life expectancies will forever be based on the oldest beneficiary.

I'm not sure you need anything special in the loan policy to provide for default upon plan termination, but as noted, you can just "distribute" the note in-kind which is effectively defaulting on it. Or you can amend the policy as part of the termination and provide for the default. Whatever - but the participant has no say in this matter.

R. Butler's list is accurate. The problem you generally run into is that the accountant should really be giving you a preliminary 14A number, then you do all the calcs and tell them the contributions, and they should put the rank and file contributions into the 1065 partnership return, which will change the 14A number but then it will be final. Most accountants can't be bothered; for the rank and file contributions they'll either use last year's accrued contributions deposited this year (wrong, if the calcs assumed they were deducted last year), or actual deposits made during the year (usually wrong), or their own calcs (usually wrong!!!). Then you can have differences in how those expenses are allocated; you might see a 75/25 partnership and assume all expenses are allocated that way, but really, they split them down the middle - whatever, it's a challenge. To get at least reasonably close, you have to ask what, if any, number they used on the 1065, and then make your own calcs accordingly.

It doesn't sound right, but I haven't worked on a target benefit plan since 2002. I guess it might depend on the formula - if it is based on years of service or participation, then I think the target benefit would continue to increase and additional contributions would be required. I guess if it is a flat formula, then one would reach their theoretical accumulation amount at retirement age so yeah, I guess contributions would cease in that case (except for top-heavy, if applicable). That's very much "for what it's worth" because it's been a long time. I'd want to read the document forward and backward.

Same response - as I see it, the participant is agreeing to make any loan payments by payroll deduction, not agreeing to an irrevocable stream of payroll deductions. I agree with Bret's "risk analysis" - well put.

For argument's sake, if the employer wanted to permanently change the policy to permit 2 loans, couldn't it be done any time before the end of the year? I thought that for optional amendments of this nature, the plan could be operated under the desired terms before the actual amendment as long as the amendment is adopted before the end of the year. (For that matter, I think it could be specific to this one instance, but that wouldn't be as clean - would take the plan out of VS or prototype status).

IMO, the plan provision that says loans will be made by payroll deduction means "as a convenience to the Employer, any loan payments made will be done through payroll deduction [and if a participant stops the payroll deductions so be it]" not "loan payments will be made through payroll deduction and the participant has no control over those deductions and must continue them forever and ever." Not such a big deal to stop, I think, although I'd have at least mild concerns about doing this immediately after loan inception.

I think I'd continue to do what you are doing. I think you can argue that you are just "pre-using" forfeitures that are going to happen anyway on the last day of the year. The other possibility, as you note, is to let them sit and use them the following year, but accrue them as fees in the current year. That's not 100% consistent with the typical cash or modified cash accounting that is used for plans, but so be it, I don't think it would be challenged.

FWIW - our plans have this language: DISTRIBUTION IN EVENT OF LEGAL INCAPACITY: If any person who is entitled to receive a distribution of benefits (the “Payee”) suffers from a Disability or is under a legal incapacity, payments may be made in one or more of the following ways as directed by the Administrator: (a) to the Payee directly; (b) to the guardian or legal representative of the Payee’s person or estate; © to a relative of the Payee, to be expended for the Payee’s benefit; or (d) to the custodian of the Payee under any Uniform Transfers to Minors Act or under any Uniform Gifts To Minors Act. The Administrator’s determination of the minority or incapacity of any payee will be final. I think the UTMA/UGMA route is best; the custodian would have some obligation to spend it on the minor's behalf.

I think you can do either of your two options, and I don't know of any other options, except to just sell it outright to a third party. But I try like heck to avoid these situations so have no direct experience. I'm just commenting because there were no other responses; I hope someone more experienced chimes in. (And I understood your remark about "no tax implications to the plan" fwiw.)

...and sooner or later, one of the docs will want a $0 contribution, which means $0 pay. Just use a document where each doc's contribution is whatever you want it to be (to be accurate, not necessarily cross-tested).

Sieve- Any financial statement prepared on a cash basis will use "the books" as opposed to the bank statement, so checks written but uncleared are included in the period's records. That is, you are correct about the "snapshot" concept but it applies to the books, not to statements prepared by the financial institution. As for checks going into another account before being cashed, I think that's more of a paper concept than a physical one.* That is, if you have a brokerage account at XYZ Co., and you tell XYZ to write some checks on Dec 29, they're going to show the money leaving that account on Dec 29. But in reality that money is being paid from their general account. If a check isn't cashed they might re-open the account and re-deposit the money, or at least contact someone to find out what to do about it. That's a different scenario from writing a check from a supply of checks that are given in advance; in that case of course the brokerage firm knows nothing about it until they are presented for cashing. I don't know if that makes sense but I know exactly what Locust is talking about and it's not a concern...for me anyway. For the record, I'm not an accountant so take it all FWIW. *I guess you could say that about any monetary transaction these days!

Not sure but I would vote that the penalty does not apply.

One possibility that would make this work is if the sole proprietors, or at least the one who made contributions, was an adopting employer of the plan, either directly, by virtue of an adopting document, or indirectly, by virtue of a provision that automatically includes members of a controlled group or affiliated service group. But I guess if you've been doing the admin for a while you would know if that situation existed. jpod's thought that they are running expenses through Sch Cs as a convenience is probably correct. It's such an incorrect way to report things that you might actually be able to take the position that you are going to count the sole prop income for the plan because it really and truly is partnership income. I don't really know enough about the sole prop income (does it all come from the partnership or is it really other income?) and am just thinking out loud.

I've heard it suggested that a plan doesn't really exist until it is funded, at least a PS plan. Although I'm sure someone could shoot a hole in that theory, it kinda makes sense and we've taken that approach the one or two times it's happened to us with no consequence...of course there is no consequence because the only way it could come up is if someone audits a later return and compares the effective date on the return to the effective date on the document, and that's not likely. Of course you want to use an effective* date of 2009 for the first return, not 2008. *I guess that would be an "effective" effective date.

That's my take on it as well: the new system is completely different from the old so we're just waiting for the new.

I agree, although I don't understand the comment about it being good that RMDs aren't required...unless you just meant that that's one less thing to complicate it.

It applies to all "pension" plans, so that includes money purchase plans (and target benefit plans, which are money purchase plans). I don't believe it affects other DC plans; it's tied in with in-service distributions being allowed from pension plans after age 62 under PPA.