Bird

The test seems to be on "aggregate" contributions, which I would not read as "net," so I think it's ok.

2h

Well, SEP contributions are likely allocated pro-rata so it's highly unlikely they were allocated correctly. So you might have to tweak them after the end of the year (to bring everyone else up to the highest percentage received by any participant). You definitely can't move the money to a 401(k) but you can just make sure the contributions were allocated properly and also start a 401(k) for this year.

If I were you I'd duly note that you informed them of the issue and move on. I'm not a CPA and have limited experience on plan audits but it doesn't keep you from giving an opinion, does it? I mean, don't you ultimately just have to certify the financials for the year in question, or do you have to "deal with" anything you find at all (I seriously don't know). There is no 15% statutory limit so it's an artificial plan limit that should have been removed a long time ago.

And some low cost bundled products are actually the best fit for certain plans. The problem I see is that they typically see their role as purely administrative processing, and in a case like this, just a teeny bit of foresight ("consulting") would have at the very least given the client a heads-up. Actually, as you note, whoever prepared the return should have indicated the need for an audit - I'm still curious about those details. And, unfortunately, consulting with an attorney or accountant is no guarantee of success. FWIW

That explains a lot. (Not being condescending; I understand.) I believe it's ok. I have only a tiny handful of over 100 plans but at least one uses the company accountant so I have to assume it's ok.

To be accurate, there are over 100 "participants" but only 20 with account balances. And there is your problem. I am curious about how this came about; did someone prepare a return showing that many participants and not know the opinion was required, or...? Sounds like someone messed up. As for cost, I don't know but it's safe to say "more than you'd expect, and enough to really PO the sponsor." A plan of that size needing an accountant's opinion just shouldn't exist. Someone needs to look at 1) whether the numbers are accurate; maybe eligibility is such that not everyone thought to be eligible really is, 2) whether the opinion really is needed (the threshold is effectively 120) and 3) reconfiguring the plan, possibly be amending eligibility or by having more than one plan. I'd start by talking to the TPA.

I think the question was about receiving lifetime benefits and the answer is yes, the spouse must waive rights to the benefits at the time of distribution (within 180 days).

From the way this was phrased, I'm guessing it's an IRA, so there would be no withholding. As noted, the reason this is permitted is that you have 60 days to complete a rollover; the idea being that typically you are moving from one financial institution to another but you can indeed use this to some slight advantage as a 60 day "loan" and roll it back to the same institution. The institution will report it as a distribution, and as noted, you must report it as non-taxable since it was rolled over. When you re-deposit the money, make sure they know it is a rollover; they do report that too so everything you report should be confirmed by forms the IRS receives independently from the institution.

skos, I agree with your assessment...if it never got into the plan and the insurance company just refunded from their general account then I would be very comfortable arguing that it was not a contribution. Masteff makes a good point about digging for the transaction detail.

It's actually quite astonishing how often this gets messed up. p/r companies either limit people improperly (e.g stopping deferrals once someone hits the comp limit) or ignore the comp limit when calculating matches. And when they're doing both ends (i.e. calculating employer deposits as they go along, and also doing the plan "administration" - and I have to use that term loosely because it appears all they're doing is spitting out a tax return on a cash basis) it's a disaster. I've heard and understand that argument but have never seen a document so poorly written that this was an actual issue, FWIW.

To expand on ERISAnut's accurate response, especially regarding 4 and 5 - you can just adopt a brand new SEP any time you want to make a change. Do make sure any contributions associated with that document go to the provider associated with that document (i.e. if you had a document with A and then started using B's document, new contributions can't go to A). And I suggest that any changes be made by adopting a new document instead of "amending" an old one - they are typically so short that it's just as easy to re-adopt as amend...and anyway you have to use pre-approved language, so you can't go making up your own provisions - if you insist on "amending" such amendments should be limited to the nature of "box 1 is unchecked and box 2 is checked" or whatever. And just as a general concept, SEP-IRA accounts effectively become the particpants' own IRA accounts as soon as the money is in. They can do what they want with them, including rolling over from old vendor A to vendor B, but that can't be forced.

I suggest we forget the misnomer "premiums." They could indeed be premiums in an insurance company contractual sense but they are contributions from the plan's standpoint, and that's all that matters. The plan made a contribution that should have been reduced for forfeitures. It wasn't, and then the insurance company improperly refunded the excess to the employer. It's a mistake, but not a mistake of fact, IMO. I think a lot of accountant-types would figure this is a wash and let it slide (and probably not get "caught," and to be honest I don't know for sure that the IRS would challenge it on audit) but it's not right. To be precise, if the plan has any kind of an optional (PS or match) contribution allowed, even if it's not currently used, the "extra" contribution should have stayed in the plan and been allocated.

Use the trust ID #. I'm under the impression that this is a small plan, and the owner is the trustee, not Schwab. The reality in this case is that the TPA has to do virtually all the work in terms of preparing the forms - everything except actually writing the check. Another alternative is to contact Penchecks/Benepay - you give them one check for the total and they can handle the withholding and reporting for something like $40. Also, note my edit to prior post - it appears the threshold for paying a balance due with Form 945 is now $2,500, so as the facts are presented, you could actually just send a check in at the end of the year! I'm still hesitant to do that because later withholding could put you over the threshold. But for what wrongdoing? I still don't get it.

WDIK is right, and it's an important point - beginning and ending assets don't reconcile with the income and expense items reported. We interpret 10g to include earnings and realized gains or losses; the instructions specifically say not to include unrealized gains or losses. I'm not sure what the point of reporting anything is if you're going to ignore the unrealized gains, but I guess somebody had their reasons...or not, could be they just assigned this to some stoners that they couldn't fire.

I'm not sure. The insurance company letter said “This check represents a refund of premiums received by (the insurance company) on 1/18/2007. This money has been returned to you in view of the fact that at the time of your remittance, sufficient credit was available to offset a portion, if not your entire bill.” But something tells me that's boilerplate language that shouldn't be taken literally. I mean, the sponsor got a check from the insurance company; how can you say they weren't disbursed? If the funds were applied to reduce a contribution, and the insurance company also issued a refund, then the insurance company overpaid. Insurance companies are great messer-uppers in many ways but they don't often overpay. It sounds like the funds were improperly deposited by the company and should be returned to the plan, and yes, I think it's a PT. Right; that would be a bigger concern for me!

Yes and yes. Not making contributions after 70 1/2 is an IRA "thing."

There are two ways that I know of to get the $2,000 to the IRS - 1) Have the plan write a check to the plan sponsor, and then have the plan sponsor write a check to its bank and make the tax deposit using form 8109 (or 8109-B ("blank") which is what we usually use. The bank will not take a check from another institution because cleared funds must be available for the deposit. It's definitely OK to run this type of payment through the sponsor although I don't have a cite handy. 2) Have the plan write a check to "Financial Agent" and mail it to Financial Agent, Federal Tax Deposit Processing, PO Box 970030, St. Louis, MO, 63197, along with the 8109-B. That's in the instructions on the back of the 8109-B and we've been doing it lately and it seems to work. Getting an 8109-B can be a challenge. It has the special blue drop-out ink so you can't download it. I think you can wade through the phone ordering system, or you can write to the IRS and ask for a small supply (<50) from: IRS, Eastern Area Distribution Center, PO Box 85074, Richmond, VA 23261-5074. Just write a letter asking for some forms and explain that they are for tax withholding on pension plans and that you assist in the preparation of returns. It takes about three weeks. And your deposit is generally due by the 15th of the month following withholding. If anyone knows of a better way to get the forms please post. Yes, 945 is an annual form; it's filed to reconcile deposits made during the year. Make sure that you get the months the withholding is for recorded properly, and deposited timely, because they do check. (Kind of amusing how they zero in on "bright line" items, no matter how trivial, but I digress.) I believe you can make a deposit with the 945 if the amount due is less than $500.* *Edit - I think this is now $2,500. "Moving towards" as in IRS (glacial) terms or we have to pay attention? You mean that the improperly issued check had to be reissued and it caused a delay in the deposit that resulted in penalties? The very fact that the check was payable to US Treasury isn't cause for a penalty, I hope?!

In additiona, I don't see that anyone has mentioned employee communications (participant statements). They would have to be re-done. Not always easy to go back and say "oops, this new statement with no contribution on it replaces that old one with a contribution. Have a nice day!" That might be the root of the desire to go ahead and make the contribution now.

Whether this is a proper arrangement or not really depends on the nature of the working relationship, not the way it is structured. You should take a look at the twenty factor test in Rev Rul 87-41; I think it's more commonly used to determine "independent contractor" vs. "employee" status but I believe it might provide some insight here. There are factors such as the degree of control over the individual, and how they are paid. I don't consider myself an expert, but I always look at whether someone is paid by the hour or the job as a starting point. If paid by the job, then I'd start with the premise that the person is an independent contractor and look for other factors to confirm or deny that starting point. Likewise, if paid by the hour, I'd start with the premise that the individual is an employee...of course independent contractors can bill by the hour but it usually becomes obvious if the person really is an independent contractor. Gburns' second question is another key one. Now in this situation of having "partners" in the LLC, I'm guessing that each "partner" is going to eat what eat or she kills. That would make me question if it's a true partnership; what, exactly, would be the point of the partnership as a mutual venture, other than tax avoidance? But the fact that expenses are not reimbursed is a factor on the side of being an independent contractor. That makes me wonder if someone has already considered the "independent contractor" route and concluded "no" and that makes me think that if the individuals are not independent contractors, then they're not likely legitimate partners either. Just thinking out loud and I could be way off base.

All of the same limits and rules apply, they are just harder to apply because it's a circular calculation. You don't get a pass because it's hard. It's possible to do it algebraically, but it's generally easier to set up in a spreadsheet.

No. I'm not sure what GCM is saying, and I'm not sure it applies to 401(k) deferrals. Translation?

Market value adjustments, surrender charges, and the like are a reflection of the assets' true values. "Making them up," while well-intentioned, is indeed simply a non-elective contribution as you suggested originally, and yes, you'd need a special amendment. It's subject to non-discrimination, document considerations, etc. etc. It often is do-able. If the trustee is liable for some sort of mismanagement and caused a loss, then that kind of loss can be "made up" as earnings. But a MVA doesn't fall under that category.

Recap/probably beating a dead horse. Yes, you've got it, assuming you meant $20,088. You started by knowing the ADP testing limit, $15,088, and added $5,000. When you run the tests, you start by saying anything over $15,500 is catchup - 20088-15500=4588. Then you run the test, and find that 15500/230000 exceeds the ADP testing limit, and that you are $412 over. There is that much additional catchup left over, so it becomes catchup and you're in a happy place.

Thanks Kevin, for the cite and comments. That makes a lot of sense.