Bird

I think the idea is that you have a special amendment dictating how this one-time contribution is allocated. Yes, there are potential pitfalls with allocation requirements, document form (std prototype is not conducive to this situation), etc.

Yes, subject to 415. But if HCEs get more dollars it isn't necessarily a problem. You just might pass on a current contributions testing basis (i.e. NHCEs get at least what HCEs get as a % of current pay) or if you want to get more complicated you could apply new comp testing to the contributions...actually, to the total employer contributions for the year.

I think it's a problem; it's obviously discriminating in favor of an HCE. There's an argument that since you can (typically) do this in a standardized prototype - that is, there's often a box you can check saying "anyone employed on xx/xx/xxxx is in the plan on that date" - that it's deemed to be non-discriminatory. I disagree. There's something in the 401(a)(4) regs prohibiting an amendment or series of amendments that result in discrimination and I think that's what applies here.

I agree with Beltane; it can't be done. IMO it's an investment loss, not an expense.

And let me add that my general recollection is that John G. has consistently given good advice in the past and I meant no disrespect to his with my reply. It IS a good idea to read the IRS publication. But if we just look at the question posed it's pretty simple and I think our poster has his answer.

Revtheo- I doubt you need to read anything or hire an accountant. The prior withdrawals won't hurt you in the future. As noted, Roth contributions may be withdrawn at any time without tax or penalty; you may or may not have to pay tax and/or penalties on the earnings if you withdraw them. You noted that you paid a small amount which is consistent with the facts you gave, so I doubt there was any problem. Go ahead and add to it.

I agree with doing a 2006 1099-R showing the distribution (assuming that you're going to re-do it now). I don't think I'd worry about the old 1099-R if no problem arose from it. I didn't quite follow if the money was or was not forfeited...if not, then just re-write the check and be happy. If so, then I guess you have to consider whether to try to un-do the prior forfeiture that was not appropriate, or hope you have enough current forfeitures to cover it. It's simply amazing the different ways people can make our lives difficult.

Legally, the plan may be terminated at any time and your company could in fact start a SEP for 2006 and fund it in 2007. However, they may have good (practical) reasons for not wanting to maintain two plans for one year. For one, the SEP would have to cover the whole year, so there might be some overlap. From an administrative standpoint, there's not much difference between terminating a 401(k) plan in February vs. some later date; a full tax return has to be filed either way, so they might be figuring it's just as well to keep the 401(k) for this year and start a SEP in 2007. (Although if they're looking to save on admin fees they might want to terminate the 401(k) early enough in 2006 to complete the payouts in 2006 - any money left over and paid out in 2007 will require a 2007 tax return to be filed.)

I'd say this person is still a participant, and the recordkeeper has to adjust its records accordingly.

I agree. With a SIMPLE IRA, you can shelter up to 100% of your income, up to the $10,000 limit (plus $2,500 catchup if over age 50). There's small required employer contribution too; 2% or 3% depending on how you set up the plan.

Sorry for going off tangent. If that's the way the plan is written, then it IS subject to minimum funding, it's just that minimum funding is 0, so I agree with the IRS' response.

I agree that the bonds should be valued at FMV. Whether there's an intent to hold them until maturity or not is irrelevant. As for the CDs...they should be at FMV too. The value on a brokerage statement should be good. But, I'm pretty sure we have a few clients that have CDs held directly at banks and we're just getting the accrued interest on them, which is wrong. As long as it's a small fraction of the total assets, I'm not going to worry about it.

That'll work (using 0's) but I question whether you should be coding it as a MPP at all if it was merged into another plan. Does the existing plan have any MP language in it (e.g. "The required pension contribution is 0% of compensation.")? If not, I don't see how it's a MPP.

A Simple 401(k) is a successor plan, so you'd have to wait 12 months from the last distribution. Why not just amend it? Or for that matter make it a safe harbor 401(k)? A SIMPLE IRA is NOT a successor plan, so if that's what you meant, that's OK any time.

Just isolating on the contributions that were made after-tax, probably the correct thing to do is return them, as suggested by Nate X, since the plan didn't permit employee contributions at all. But, one of the problems you'll run into is that the investment company holding the money almost surely has the accounts set up as SEP-IRA accounts, which means that they're under participant control, and also means that they will be disinclined to make any distributions without issuing a 1099-R. So the practical thing to do might be to try to adjust the W-2s...but if you're talking 3-4 years...sheesh. (I am making an assumption that these are IRA accounts; if that's wrong, then the above is irrelevant at best.) I might be inclined to try to figure out a way to make ALL deposits employer SEP contributions, and "true-up" as needed to make the numbers work out. I don't know if that's practical or not. Some things are unfixable. This might be one.

Sully's right, I skimmed through and assumed it was a merger, because that's how we did all these. But it says termination, and if that's the case, and the participants had the right to take it in cash or roll it anywhere, and it was simply transfered to the PS, then the MP money loses its identity as such.

You can mathematically keep them separate, so no, the PS $ doesn't automatically become subject to J&S.

I'm not sure I understand the distinction you're trying to make. It's a controlled group, so a regular 5500 is required. In that case, I don't think the assets matter, whether aggregated or not.

I think the gain/loss allocation should reflect reality - the money wasn't there (for the most part) so no gains. You have a problem of failing to follow the terms of the document. I'm not sure if this is covered under the new EPCRS procedure or not, but I'd just scold the client, document it and make notes to the file that you (they) have instituted procedures to make sure it doesn't happen again (the procedure being that they have to ask the TPA before they do anything).

If what they care about is statistics, then your varying experiences might not seem so strange. For the serious problem, they get to say they fixed it (and don't care so much about how accurate/severe the calcs are), but for the case where there really isn't a problem, they don't get to say they fixed it unless you calc and deposit something, anything. I don't want to come off as thinking I know everything about this; my experience is limited, but from what I've seen and heard what I said above is not that far-fetched.

Kevin- It is the supervisor who is probably the problem. I think they want to be able to tell the nat'l office "we got "x" plans to pay earnings on delinquent contributions" and of course we know that they don't care if the earnings are $.02. If your client wants to fight, I say more power to them. It's a bit of a crapshoot as to whether naked aggression or a more conciliatory approach is better; depends on the agent, supervisor and client. I had one of these with similar facts and the client had a VERY strong personality and lots of money and he basically ranted and raved until they caved in. The auditor was sympathetic to our case, which helped. But she was sane and is probably long gone. FWIW.

Yes, it's convenient from a recordkeeping standpoint that trust or brokerage accounts actually show the debit when the money is taken from the account, but (I think) the money flows through the bank/brokerage firm's "main" account and they may or may not ever let anyone know if it wasn't cashed. I guess they follow regular escheat procedures or whatever they do with other uncashed checks, which really isn't proper for retirement plan funds. But we are generally (blissfully) unaware of such a result. I think I remember one case where a participant appeared a few years after "payment" and it was determined that the check wasn't cashed; I think we just had the brokerage firm reissue at that point (and ignored the 1099 issues). It's not clear what the actual situation is so maybe we're all going on a tangent. If it was a plan checking account, then I'd say the distribution was never completed.

Actually, 1.219-2(d)(2) provides a special rule "...if such individual was an active participant in such previous year by reason of a prior contribution that was allocated as of a date in such previous year." The original poster stated that that wasn't the case, so it's irrelevant. Not quite; from the notice: "A special rule applies to certain plans in which it is impossible to determine whether or not an amount (other than earnings) will be allocated to an individual's account for a given plan year." There's a difference. Yikes; checking the "yes" box has anything to do with whether or not the "yes" box should be checked?! I don't mean to be on the attack, but mis-paraphrasing citations is dangerous, and other non-savvy posters need to know.

No. (Frankly, I'm not so sure that in a calendar year situation, if a 2005 contribution and a 2006 contribution are both made in 2006, that that makes one an active participant in 2007. I know the notice says "...when contributions to a discretionary defined contribution plan for two plan years are made in one calendar year, solely for the purposes of determining active participant status, the contributions for the later plan year are deemed to be made in the next taxable year" but I'm not sure that they didn't mean "two fiscal plan years." It's a pretty weird result if no contributions at all are made in 2007 and you're still an active participant. If true, I'm sure there is widespread noncompliance.) I don't think a board resolution without an actual deposit during the year makes one an active participant.

This is from the IRS letter to Kyle Brown: I have no idea how you can conclude that anything in it is wrong. I am angry at myself for getting sucked into this again and will not waste any more time on this topic.