Bird

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

I'm not so sure. Had the money been in the plan on time and earned exactly the lost earnings, it would have been shared by all (according to the gain allocation basis, which probably pro-rates deferrals made during the year)7. We're working on one of these now and are still pondering it.

Well, you don't get to exceed the [401(a)(17)] comp limit just because it's hard to keep track of it. That's one of the drawbacks of doing matches on a per payroll basis. The answer is, you either have to improve the system or fix it later.

Once the employer has the funds, it has fiduciary liability, but I don't think that simply agreeing to withhold makes it a fiduciary.

Just for the record, in case someone stumbles on this thread and doesn't link to the other, I strongly disagree that a sponsor has any fiduciary duty to prevent a loan default by forcing a participant to continue payroll loan deductions. I see no harm to the plan if the loan defaults, and also think it's a wild stretch to connect payroll functions to plan functions. I'm not sure I ever said it before, but I agree with GBurns!

In a word - "no." You can certainly ask if they've considered all the alternatives to simply limiting the HCEs, but it sounds to me like they're just doing their job. As noted, if they didn't limit the contributions going in, your wife would have to get money back and it would be taxable this year (probably) so it's all the same. Ah yes, we get that all the time. (I am a third party administrator advising plan sponsors so I am on the other side.) The reality is that the government has made an arbitrary distinction between "Highly Compensated Employees" and "Non-Highly Compensated Employees" and is only concerned that plans not favor HCEs disproportionately. You might find it interesting to know that the government does not care if your employer limits HCE contributions for all HCEs, in fact, it would be perfectly OK to limit them for your wife only. And, if there are employer contributions involved, such as match or profit sharing, it would be perfectly fine to limit them for HCEs as a group or individually (by amendment, not an arbitrary whim, just for the record). You've just scratched the surface of a labyrinth.

If the loan was offset, then I believe that is irrevocable and cannot be reinstated. If less than 60 days elapsed since the date of distribution, then I think he could do a rollover of that amount back to the plan, but in cash only. If restoration of forfeited amounts is an issue, then I agree with rcline that he has to pay it all back, including the loan amount (in cash). He might indeed be able to take a new loan, but that doesn't stop the old loan offset that already happened.

By "repaid" I assume you mean the participants complete the purchases by paying for the policies. Maybe I'm a cowboy but I'm not sure a problem exists any more. But if you really want to call it something, I'd call it a loan and pay the penalty on the interest. If by "repaid" you meant return the policies, then I guess that would be a loan as well, same answer.

At the moment, they are simply impermissible distributions to participants. That is, I think, just a qualification issue. Is there any intent to have the participants complete the purchases? If so, then I think they could just finish the purchase now. I guess if there's a feeling too much time has elapsed, you could call them loans or other PTs that are corrected by the subsequent payment, and they could pay the small penalty. But if they don't intend to have the participants pay...that's not something that can be fixed as a PT w/penalty.

Jumping in late, but I agree that these are not qualifying plan assets and affect the bonding requirement. I'd go a step further and say that a K-1, from a retirement plan's perspective, is a useless piece of paper. It is for tax reporting and has nothing to do with anything. (Oh, I suppose you might glean some info if you're reporting UBTI, but for valuation purposes - useless.)

I don't think it would trigger any request to correct all those prior returns, but still I would tell them if they feel it's so important, to do it themselves. Unless of course, as suggested, the effective date is correct anyway.

I think you can still file DFVC after getting an IRS letter; it's a DOL letter that means it is too late. Unless I mixed them up or mis-remembered something else entirely, which is always possible...maybe someone else can confirm.

To be precise, it is the trustee, not the employer (often the same party) but yes, absolutely. We call them trustee-directed or pooled. Not so uncommon in small plans, especially if they started out as employer-only profit sharing, and added the (k) feature later.

An interesting thing about 5500 reporting is that realized and unrealized gains and losses are calc'd from the beginning of the year, not from purchase date. And generally, on the EZ, since you omit unrealized gains and losses, the beginning and ending numbers do NOT tie out. But in your case, for a final return, I'd consider all gains and losses realized, whether you actually sold securities or not, and in that case, you can be fairly comfortable showing -3,658 in 10g. Don't worry about the statements. If you have beginning and end of year that's fine for government work. (Just for the record, we have a higher standard for our clients and are somewhat obsessive about reconciling everything to the penny. But it sounds like you are paying way more attention to this than a typical EZ filer [and that includes filings prepared by accountants]; just the fact that you recognize that you have to file a final return even if you never filed one is impressive.)

LOL, sorry, I just meant any random answer and used "cat" as something nonsensical. Since no one answered the questions I will. Phone # - just use your current number...it's not like they're going to call anyway. Or use the old number if you want to be sure you're not hassled by anyone. Yes, 0 participants at end of year. You are correct in all other assumptions except that 10g (amounts rec'd other than contributions) is looking for interest and dividends and realized gains - but not unrealized gains. And 10h would be any expenses, such as account fees, paid by the plan. If you kept your account statements you did about all the recordkeeping that would be needed. Actually, I shouldn't make too much light of all this, because if you had both employer and employee money in the plan, it could make a difference for certain purposes and you should have kept track of the total account by "source" - i.e. allocated gains or losses separately to the two types of money so you'd be able to say "I have x dollars of employer money and y dollars of employee money" at a given time. And we do keep track of it for our clients and it does, or I should say, it could, make a difference. But if you've terminated the plan, and everything was pre-tax money and you rolled it all into a regular IRA, then it turns out that it didn't make a difference. (I assume you didn't have any Roth money in the plan.)

After looking over the previous responses, I'm going to give someone else the satisfaction of providing specific answers. I'll just comment that your concern for doing this "right" is admirable, but you could probably answer some of those questions with "cat" and I don't know that anyone would question it.

I think we're all agreed on that. I guess the moving/not moving money and special recordkeeping that might or might not be involved just boils down to whichever of the somewhat unattractive, but legit, choices you want to take.

In layman's terms, a catchup is created when "some limit" is exceeded. That limit could be 402(g), so is accurate. That's accurate too, you "could have" that scenario. But to get there, $4,000 would have to be some kind of limit - it could be plan imposed ("participant X cannot defer more than $4,000") or it could be that the ADP testing limit is $4,000. And yes, you could have $0 regular deferrals and $5,000 catchup, if $0 represents some kind of limit. I've seen plenty of payroll systems that designate contributions as catchup as they are withheld, but unless a limit is known in advance (402(g), or a plan-imposed limit, or possibly a limit known from prior-year testing), those classifications are subject to further review.

I think the logic is that a QNEC (which is used in testing) is really a deferral that is made by the employer, and tested as such.

Neither. You are ceasing sponsorship of a SIMPLE IRA, and starting a new SIMPLE 401(k). If it were me, I'd do it at the end of the year; I believe the restriction on having a SIMPLE IRA in the same year as any other plan includes SIMPLE 401(k)s (as "any other plan"). If I can ask, why do you find a SIMPLE 401(k) to have any useful purpose?

Yes Yes. But whether or not this plan may do so should be dictated by the plan document. FWIW, if it were me, I'd rather move the money (to PS) than try to treat it as a QNEC.

I doubt it. I would have assumed one of those "this chapter" or "this section" things that meant SEPs weren't covered, but if not, then the question is - how much? Certainly the sponsor is not "handling" plan assets once they are in the IRAs. Is the sponsor even a fiduciary if there are no employee contributions? I have no doubt the practical answer is "no." Even in the case cited, they didn't prosecute for failure to obtain the bond, as far as I could tell.

I'm not sure that I'm right, but I think the only argument that proves it can't be done is something that says the estate cannot act for the sole proprietor to establish (and fund*) the plan. Clearly, if it were a corporation, the SEP could be established by the board of directors, and then all IRA accounts would have to be funded, whether the participants are living or deceased. I know a sole proprietorship dies along with the owner, and the estate is limited in what it can do. But at the same time there are certain functions that it can do, otherwise you could never close out the business bank account, pay taxes, etc. I'm just not sure if this is one of those functions. *It could boil down to discretion. For instance, if the plan exists already, and the sole proprietor/sponsor has already funded other participants' accounts to the tune of 10%, then I think that 10% would be owed to the owner's account as well. If the plan exists already, and no contributions at all have been funded for the year, it may not be possible for the estate to declare a contribution (but, I am quite sure the investment company won't reject checks in that scenario - not that it makes it right). FWIW

Unless there's a cite that says it can NOT be done, I'd assume it CAN be done. Assuming that's the case, you have the secondary problem of getting the investment provider to accept the new application - it can be done; we've done it for participants who didn't complete them themselves. They (investment companies) can make themselves into real PITAs; don't accept the first "no" you hear.

None of the choices are ideal (ideal is just getting a new form), but I would rather tell 5 people "tough sh**, this is the latest form you signed and we have nothing to override it" rather than deal with one person - who comes back a year later, not a month later - who complains about missing deferrals (and maybe matches). I like your practical approach of adjusting deferrals going forward but that doesn't work after a certain point. I am really surprised, following other discussions about not enrolling participants, where I'm quite sure the consensus was that the plan should follow the EPCRS procedure and make up payments on their behalf, that I seem to be in the minority here. I just can't get my head around the fact that there's a form on file and that anyone here thinks it should be ignored (unless it's darn clear that there's a procedure in place to reset it to 0, and that's clearly not the case here). I certainly don't think the IRS/DOL/court system would ignore that form. I absolutely agree that procedures should be in place, one way or the other, and explained in employee communications. Maybe the discussion went to "What should be" rather than "what is" and I didn't notice.