Bird

I don't have "definitive guidance" but I've always thought of a SEP as a vehicle to get money into an IRA...that is, ultimately you are dealing with an IRA and IRA rules for such matters. The IRA designation forms typically make some disclaimer about state law when designated a non-spouse beneficiary.

The issue is that the company needs money. The owner of the company is looking for cash on behalf of the company, and happens to have an account in the plan. If he can, and wants to, get at that money through a permitted distribution or loan, fine, but then he needs to lend the money to the company or otherwise get it into the company coffers. There is no direct transfer from account to account.

I'll be contrary and say he's treated as a rehire, and that you would measure on the calendar year in the first year rather than the employment year, at least according to my documents and my interpretation. Under the determination of years of service for eligibility after rehire, it has the yada-yada about the 5 year break rules and counting or not counting prior service. Then it says "If such former Employee’s Years of Service are disregarded under this paragraph, he or she will be treated as a new Employee for eligibility purposes. " Well, your guy never had a Year of Service to regard or disregard, but if he did, you wouldn't disregard them since there weren't 5 one year breaks. So, applying that logic, I would not treat him as a new employee and would look at the calender year, not the first (re)employment year.

7c. "Entitled to future benefits" means "entitled to benefits but not receiving them currently" IMO. Yes, 7b would most likely be someone receiving annuity benefits (unusual in a DC plan).

There's the flaw in his reasoning. He could argue that it's his option to do catchup if he puts in over $15,500, since one of the things that determines when a contribution is a catchup is exceeding the 402(g) limit. Of course that's an irrevocable option, FWIW. But if he puts in $15,500, he has no discretion in determining if part of it is catchup or not. The reclassification procedure is formulaic and nowhere does it say you ask the participant for input.

I would say upfront "we took this over recently and everyone recognizes that there are some problems with prior administration." I wouldn't tell them about the specific problems but I think it helps if you acknowledge that you are expecting them to find "issues."

Yes, the trust number is the right one to use for the 1099-R. Yes, the employer EIN is your sole prop EIN. No, don't use the plan/trust # for the administrator number. You (the sole proprietor) are also the administrator so you just write "same" where it asks for the plan administrator name.

I agree with Appleby. Direct rollovers only. I remember seeing something stressing that point, but I can't remember how official it was. But I think the statute is clear enough.

I'm thinking that even if the participant got a stub or confirmation the next day that it was too late to do much about getting the money back from the IRS. The short term loan is the easiest fix. It's not great but beats the alternatives.

jpod, I think you are correct (that you can create separate accounts post-mortem - it's actually as late as Dec 31 of the following year - and also that you could just pay to the separate IRAs without establishing separate accounts at the plan level). I believe that you have an RMD due for this year, and then can pay out the balance as non-spousal rollovers. In that scenario, post-death RMDs never commenced from the plan and so the individual IRA owners will be able to establish their own life expectancy payouts. (I couldn't find anything directly on point, and I don't think there is anything, so this is an interpretation.) If you're running this through an admin system, you might create separate accounts in the system (i.e without doing physical separate accounts) and that should nail it down but if not I wouldn't obsess with setting up separate physical accounts. (Unless of course someone else chimes in and proves me wrong!) (FWIW I have some doubts about the investment companies getting it right in the scenario where separate accounts were not established and bene A, born 1/1/52, does a rollover and is supposed to continue getting RMDs based on sibling B, born 1/1/50. But I digress.) Also, I think you are on the right track in amending and terminating the plan. The plan will not cease to exist, IMO, simply for lack of having any participants.

In the absence of [required!] guidance we are providing a list of assets and values at the end of the year.

Thanks, that was what I was looking for. In the case in point, the missed deferral was for an HCE, and while the examples on the IRS website both say that they are NHCEs, EPCRS does show an example of an HCE getting a contribution made by the employer when that employee was not given the opportunity to defer, so I think I can conclude that the correction would still apply when elected amounts were not withheld for an HCE (50% of election). It's a non-elective SH plan so ADP is not an issue and matches are not an issue.

Someone please refresh my memory on current thinking about what should happen if a participant has made an election but nothing was withheld. Is this covered under SCP?

I noticed that too but decided to ignore it. FWIW.

Not an accountant but my guess is that this is easier, or perceived to be easier, than paying spouse on a W-2 (and certainly easier than filing as a partnership). I agree that she should (probably) be included in his plan. Anyway, I learned something today.

I don't believe there's a problem at all. It's a pension plan and may be amended to increase contributions after the end of the year. I don't recall if it's 2 1/2 months or tied to the business tax return...I think it's 2 1/2 months.

While you're wondering, Austin, wonder about how much the so-called ERISA attorney got paid for this advice, and how much everyone else who contributed accurate information got paid. Sheesh.

Right, just make sure the automatic rollover amendment extends to cover distributions upon termination and is not limited to $5,000.

As you note, it will be "nearly" impossible (I believe the word "nearly" should be dropped) to track down all of the individual contracts, and because the contract is between the employee and the investment or insurance company, it is impossible for the employer to force the employee to do anything. I've heard different players say "we're hoping for more guidance" and also "the IRS and DOL probably aren't going to give any more guidance on how to deal with this." There is a school of thought that says you will have terminated the plan and "distributed" the contracts if the employees can do whatever they want with them. Presumably, you notify the investment or insurance company that the plan is terminated and then the 'ees can cash them in, roll them over, or leave them be. With the new 5500 reporting requirements for ERISA 403(b) plans bearing down on us, this sounds pretty good, if it is viable.

I thought the $10,000 withdrawal for first home DOES apply to IRAs, and NOT 401(k)s. That is, you can withdraw (not borrow) $10,000 from an IRA, penalty-free, for the "first-time" purchase of a home. You may borrow from a 401(k) (or other employer plan) and pay it back - IF the plan permits. The plan may have restrictions on the purpose of the loan or it may not, or it may not permit loans at all.

John, I think (and I wouldn't mind being wrong) that the general interpretation of clause two is that it doesn't necessarily mean "eartagged account" as you say, but that it just means "account" as in something maintained in an admin system, even if it is just on paper. Having said that, this suddenly sounds familiar, and I think I argued your point earlier, here or somewhere else! So now I'm confused, but still ignoring it.

I agree, you can't create a new rate group in 2007 at this point. You can do a corrective amendment but I doubt that's necessary... ...rate group testing should pass with 2 out of 3 getting benefits comparable to or greater than the doc, and I'd guess the ABT would pass also unless the doc (only) had 401(k) contributions (and that raises other questions). But then you can just give all three a little more and you should be ok.

You're not crazy. How about this: "I forgot." (Steve Martin) Actually, I didn't really forget but certainly back-burnered it waiting for this: "(1) IN GENERAL.—The Secretary of Labor shall, within 1 year after the date of the enactment of this section, develop 1 or more model benefit statements..." Until that happens, I feel safe ignoring it.

Just to clarify...we are now talking about a "sale" of the policy to the participant, which is permitted. If absolutely all of the cash value is borrowed out by the plan, then the value of the policy is $0 and the participant is buying it for $0 (or some nominal amount if 100% of the cash value isn't borrowed). The participant might want to ask how much she would have to pay in premiums, PLUS interest on the policy loan, before going through with this.

Just stop paying the premiums. Future premiums will be paid by automatic premium loan. (Check with the company but it's hard to imagine that's not in the contract.) As an alternative...I'm not sure exactly what the problem is with paying from the deposit admin contract, but maybe an annual premium could be deducted manually. I agree with your assessment of the problem with the employer paying the premium. And no, the employee can't pay it.