Bird

pmacduff- If we don't have a separate ID number, which is only the case for a tiny handful of our clientsI don't use the Hancock (or whatever) number on the P. We use the employer number just for the sake of having something in there - I think you could just as well leave it blank. But the instructions do say to use the number you would use on the 1099s - however, that just makes no sense to me (if, e.g., Hancock is doing the reporting). For general discussion- I wonder about the value of this form. I know the instructions say that it starts the running of the statute of limitations...for the trust. I question whether that protects the business' deductions that were made to the trust, or just the trust itself. I mean, under what circumstances would NOT filing a Schedule P lead to problems, and what would those problems be?

A client filed last year's return late (his wife found it laying about and put it in a drawer - sounds familiar to me!). He got a late letter from the IRS (that's when he called me) so we did a quick DFVC filing. The IRS wrote back and said they wanted a copy of the cancelled check or letter of acceptance from DOL. Since checks aren't returned anymore, and I want to save him the trouble of asking for it, does the DOL routinely send a letter of acceptance? I've don't remember seeing one although it's quite possible clients received them and didn't forward. thanks for anything.

If the existing plan requires 1000 hours in order to get a contribution, then you can amend until someone reaches that point, without it being a cutback. On the safe harbor issue, I remember a specific reference in one of the notices about adding a 401(k) feature to an existing PS plan and still being able to use the safe harbor. I guess you could argue that you are restating the MP as a PS and then adding the 401(k) feature, so I think it can be done, but you might want to review that a bit. I agree that MP assets must be tracked separately (well, if you make sure that hardships aren't allowed then maybe you don't HAVE to but you certainly should). I would keep the J&S provisions for all sources for simplicity.

There, now, does that feel better? Seriously, sounds like a bad combination of factors. I had heard that they were insisting on having audits at the clients' places of business, but haven't had been forced into that situation yet. We've had success with telling them they're more than welcome to visit the client's office, but that we have all of the important records and that it would be impractical to hold the audit anywhere but at our place. So far so good. (Not implying you did anything wrong, just sharing.)

I vote for the date mailed. But...if the attorney is saying to backdate the check, and all parties are in agreement (that is, the HCEs are OK with it) then I don't have a problem with letting them do it. Call me a who... whatever. You need to get the money out by 3/15 so participants can prepare their returns timely, so if you don't, they don't have to report it in the prior year and there's a modest penalty for making their lives easier. It's not exactly a revenue raiser, and it's not like the IRS is going to make you prove anything in this case, like they would with proving a timely deposit of a corporate contribution. If the HCEs getting the refunds are not on board, then I don't let them do it. My point being that the 3/15 date is more about protecting participants than anything else (IMO).

Well... I couldn't find anywhere that they specified if we're to use the corporate or non-corporate rate, but I couldn't find that exact rate in either place. I double-checked the link and it brought me to the latest notice; the tables are a ways down. I guess they could have meant "...assume that the rate was 8%..." Anyway, thanks for the feedback.

The election is supposed to spell out exactly how distributions are to be made upon death. Good luck; my experience has been that most or all of these things were done at the stroke of midnight without much attention being paid to the requirements. I believe the entire account balance is subject to the election.

Somebody please tell me I'm missing something... The DOL/EBSA faqs on the VFCP, found here: http://www.dol.gov/ebsa/faqs/faq_vfcp2.html give an example where deferrals for the first week of June 2000 were not deposited until October 2000. They say that the correct rate, the federal underpayment rate under 6621, is 8%. Yet, when I go to the most recent chart of rates, here: http://www.irs.gov/pub/irs-drop/rr-05-15.pdf it looks to me like the rate should be 9%. Am I misreading the table or did they pick up the wrong rate?

Plans are not supposed to give that discretion, but I know the Accudraft volume submitters were approved with that provision. That is expected to disappear with the EGTRRA restatements. Most of our plans are written that way, and we're just administering each one consistently one way or the other (generally not cashing out) and will make sure the EGTRRA restatement reflects that approach.

I would just fix it going forward.

Harry O is right; if these are pre-May 5, 1986 contributions, and the plan permitted their withdrawal before separation from service, then they are recovered up front. See Pub 575 page 14. If that's not the case, then you recover pro-rata as noted by jevd. That is, you take the ratio of the after-tax contributions (without earnings!) to the total account balance and apply that to your calc'd RMD. smm, I don't think this is a case where you use the simplified method.

I don't think it's a mistake in fact either. What we really need is a correction for a "mistake in stupidity." (I have clients like that too - imagine getting a "bill" for $200,000 and paying it, without question.)

Mbozek- I think the implication is that the sunset of the legislation means the entire authorization for the accounts and their ultimate tax-free nature disappears. Frankly, I don't know if it reads that way literally or not. As noted, it is more a point of silliness than concern.

The participant completed the forms and taxes were withheld and paid and a 1099-R issued; the participant never cashed the check and it appears that the sponsor never gave it to him. Assuming the above is correct... First observation is that it's obviously screwed up. And the plan is NOT getting money back from the government. I'd argue that part of the distribution was completed - the withholding is a distribution, it just happens to go to government agencies. So the technical answer is that the 1099-R should be reissued, showing a smaller amount for the total distribution, and 100% of it being withheld. Then you're looking at re-doing the valuation report(s) to show a partial distribution and a continuation of the account for 2002, 2003 and 2004. But, I'd guess that the participant reported the distribution on his 1040, since he presumably received the 1099 that was issued. I think I'd want to know that one way or another. But it appears that he's party to the screwup by not asking for the balance, and compounding the problem by reporting it as if he received it. If those assumptions are correct, I'd be inclined to go for a practical solution, which involves leaving the 1099 and the tax return as is. Since the problem has been compounded by taking the check back and reinstating the account, I'd cut another check back to the participant and say "here's the amount we didn't withhold. If you really want to reinstate your account, you can give it back to us, but you also have to come up with the difference (the amount withheld)." I might recommend the technical answer above if I knew there was a lot of money involved.

I think the comment is technically accurate, I've heard it before, but always as a point of amusement, not a serious reason to not add a Roth 401(k) feature. I don't think anyone knows for sure what the expiration of the law would mean, but I think it is a safe assumption that the benefits will be grandfathered for existing contributions. (Well, a safe bet in normal circumstances, but that's about the time that the federal government will be getting increasingly desparate for funds, thanks to a brain-addled president who has borrowed large sums from Social Security and now thinks that Social Security is a problem because we owe it a lot of money...oops, that slipped out...must step off soapbox now)

414(v)(3) refers to 415© which definitely covers both the $ and % limits. I think you can wind up with more than 100% of pay.

I'm not sure I'm willing to do that, but thanks for the feedback.

I think it goes to the beneficiary. One issue (RMD) is a tax issue, making sure that the money gets out of the plan. The other (beneficiary) is an operational issue. That is, you have some money that must leave the plan. To whom does it get paid? The beneficiary, just like any other money leaving the plan in the event of death/

You are correct, since the SEP does not provide for employee contributions there can be no catchups.

GBurns- A partner is a self-employed person for tax purposes. I think Midas has a good understanding of the issue and described it quite nicely. wmyer- Good point that the doc probably does not include W-2 income in the definition of earned income. But then the W-2 is just hanging there...if the individual had been an employee for part of the year, and became a partner during the year, you would add that W-2 income, right (carefully)? I'd treat this the same way - knowing that the way it was presented to me was probably wrong, but not being in a position to do much about it.

My understanding is that a partner should not be getting any W-2 income (unless they became a partner sometime during the year). Having said that - it's done already. Had the partner not received the W-2 income his profits would have presumably been higher. I don't think I'd ignore it. But then that part doesn't get adjusted for SE taxes.

I'd be curious to know how the allocation language reads, but I'm not so sure it really matters. If you have groups, then the administrator is supposed to tell the trustee how much is allocated to each group. If contributions were made quarterly, there's an implication that the amounts to go to the groups were in fact determined and I'd argue that taking money out would be a cutback. Putting it another way, you shouldn't be taking money out of the plan, period, and I can't imagine a scenario given these assumptions where it would be OK to move money from some participants to others. If the allocation is hard-wired, such as with a super-integrated plan, and you decided not to make any more contributions and discovered after the fact that there were misallocations, and you had to move money from certain participants' accounts to others, I'd say that's OK. But I'm guessing that's not the situation here.

A participant called and said their electronic filing was rejected because the employer ID did not match to anything in the IRS' records. This sounds familiar...I think I had one of these last year...don't quite remember the outcome. Any experience with this? Could it be related to the IRS' program to de-activate numbers that aren't used regularly? (But that shouldn't be the case with this plan, which has had fairly consistent activity.)

I think it was the end of the plan year beginning in '94. The definitive answers should be in Rev Proc 93-12 and Rev Proc 94-13.

I assume you're talking about the rule that lets you amend (increase) a PENSION plan's contribution formula after the end of the year...that is inapplicable to this situation. You probably have the ability to make a contribution of anywhere from 0-25% of pay. The allocation of that contribution cannot be changed after participants have earned the right to an allocation under the formula in place at that time. The LATEST date that can happen is Dec 31 for a calender year plan (it could be earlier). So, if I understand the question, you cannot change the allocation formula for 2004.