Bird

No on #1. 50% of total vested balance (not the balance in the available sources) is the absolute loan limit, so the available loan for that participant is the lesser of the deferral source balance ($10K) or 50% of the total vested balance ($7500) so it is $7500. Yes to #2. No deferrals/no loan.

OK, and setting aside the inflexibility of the TPA noted already for 2020 (I think we assumed you were the TPA), for 2019, what would adding a safe harbor do that simply making a regular profit sharing contribution wouldn't do? It (SH) would have allowed the owner to contribute $19K/$25K, but I assume that he would be able to contribute something based on others' contributions, and you're talking about $100,000...which sounds like profit sharing money to me. The existing document would typically already have profit sharing language in it (whether it is ideal or not is another matter) and if not then it can in fact be amended to add it, or amended to change it, although that discussion can go into the weeds quickly...e.g. you could in fact add a second plan if the existing profit sharing language is undesirable and unchangeable for reasons I won't get into right now. And now that we know you're not the TPA (are you the financial advisor?) that raises the question - what is the real Q here, trying to get rid of $100,000? ...and why isn't the TPA answering (or asking) that Q? Not trying to be nasty but this has taken on a different perspective. Is the TPA a...large...payroll company? No need for specifics but if so we can all roll our eyes and understand the real problem.

Yes No. They could pay fees directly and deduct them but can't reimburse as such. Many threads on this.

My experience with recordkeepers is that they can take fees from assets if unpaid. (That doesn't answer your Q...)

Nah. See Lou S. response above. I would do it. I think you have to say "you can't do it, and we won't assist you in doing it, and if you can find someone else to do it, go for it - but it's absolutely positively fraudulent." I agree that starting a new plan is not an answer. Having answered the Qs, I think you have to ask yourself (or your company decision-makers) why it wasn't set up as a safe harbor "maybe" plan in the first place? If not to (potentially) do exactly what the owner now wants to do, what was the purpose of the plan when it was set up? We're going to set up almost all of our (small) plans that way (SH nonelective "maybe"), unless there is absolutely positively some reason not to.

I sure hope not because we do it all the time, and our document allows it. It's not like it's a random thing that's happening, or employer discretion in deciding who has deferral money - that is determined by the participant. Right and so be it. And that's specifically why we would restrict loans to employee money (deferrals and rollovers, typically): we are (or at least I am) old and cranky and don't like loans, and our clients don't typically want employees borrowing "their" (that is employER) money.

Congrats and best wishes!

You can definitely restrict it to certain sources and I think it is reasonable to restrict it to 100% vested sources.

It changes what is in the SPD, so yes

Then I'd turn around and bill the participant for the money he saved. Sounds silly to me, peanuts or no. Is it a celebrity like a Kardashian or a celebrity like Stephen Hawking?

Then why would the existence of investments be a discovery?

So then the Q is, what do they want you to do about it? That's kind of my point, if not "caught" you can either go to a great deal of trouble voluntarily, or you can wait and see what "they" want you to do about it, which might be nothing other than a slap on the wrist, or it might be the same "great deal of trouble." If it turns into a worse scenario I'd like to know.

I don't have experience but I'd take the position that they are excess IRA contributions...(thinking out loud)...no wait, you could roll money into a SEP-IRA but I don't think you could make "regular" IRA contributions to one so it doesn't seem to be a valid premise. I'll go with your second option, but it's not based on anything other than looking at what you presented.

Why would a "new takeover plan" have been terminated? Inquiring minds...

I would pretend that I didn't notice it. Seriously. We go to great lengths to do things right the first time, but stuff happens, and in this case, fixing it involves a chain reaction of corrections that is, shall we say, unpleasant, and the error is trivial, IMO. If "caught" on audit I'd say "huh, I guess we messed that up" and I doubt there would be any consequences.

Mmm. Well, my initial rebuttal would be that if an in-service distribution is permitted then that could/would trigger an offset, but I suppose it could be a hardship. As I said (I think) way back, if the loan defaulted then we would indeed carve it out. I suppose in a scenario where A takes a loan and does not default, then takes a hardship, there could be risk of loss to B. Someone would have to work pretty hard to create that scenario and I like to think that at some point we'd say "wait a sec, this loan needs to be carved out" and take action to do so.

I did not read your proposed solutions because I don't think this is that complicated: if the plan says that matches are calculated on a per payroll basis, then there is no such thing as a true up and nothing to do. if the plan says the match is calculated on an annual basis, then calculate an optional match that approximates what was actually deposited, and consider the prior deposits to be estimates. In a perfect world, you will have some modest additional deposits to be made, "true-ups" if you will but not my preferred term in this scenario. In an imperfect world you will have some people that left after one or two quarters and will have a much higher rate of match than you wanted...then you can either decide that everyone has to get that, or actually take some money out of those participant's accounts and reallocate it to others...not the prettiest thing in the world but ok - note that money cannot go back to the employer. ...and that's why we wouldn't generally have our clients make matching contributions as they go along.

I'm not Larry but it's the latter (my bold), and so be it. The loan is a riskless investment to B, and in today's environment, probably paying 5% +/-. It's superior to any other riskless investment, which might pay 1-2% at best. So if you put a loan and mutual funds on a risk/reward spectrum, it could be argued that the loan is actually a better investment than mutual funds (that is not really the point but it is a sound argument). Bottom line for me remains that this is fine...although we might have a heart to heart talk about the perception of it, in these particular circumstances, which are probably unusual.

I do not disagree.

I think the issue was that the participant requested a rollover and the vendor incorrectly processed part as an RMD. It's a mistake but it's the wrong kind of payment, not an unrequested payment.

What you've described is the classic reason that the controlled group rules exist. Some of your statements aren't quite right, e.g. "all employees within the brother-sister group have to be covered" really should be "all employees within the brother-sister group have to be included in testing" (which may devolve to the same thing but not necessarily). As far as "under what law" it is really several parts of the Internal Revenue Code. The question is how best to rat them out, and I don't have an answer. It is likely to become acrimonious at best. It's worth noting that a SEP can effectively have a three year eligibility period so she needs to be sure of her status before going too far.

Fair enough. My own philosophy is that if I save a half hour 100 times by not filing the form and have to spend 5 hours 1 time I'm way ahead (and my clients in aggregate, in theory). Assuming there is nothing "wrong" that would sink the client that is...but that's kind of the point of my Q, I don't think that filing protects the deductions in any way if they were in fact not legit, and beyond that, I don't really know what is in fact being protected. BTW my thinking on this is influenced by a bad experience...a little off-topic but I think relevant. We used to dutifully file a 5310 and wait for approval before distributing assets. Once (the last time!) the IRS came back and audited the plan, a couple of years later. It was a real nuisance, with the client (no longer in existence) having to go to a storage warehouse of some sort to dig out payroll records, etc. I'm convinced that it was audited because we submitted the 5310, although I have no real reason to think so other than bitterness. But the point is that we were no better off having filed the 5310 - it did absolutely nothing. (And in fact if you work through it, the 5310 doesn't do much more than assure you the document is ok...which if you are using a pre-approved plan, would be pretty hard to screw up. They are not reviewing plan operations - contribution allocations, etc. - as they would in an audit and are not giving anyone a "pass" when they issue a letter on a 5310 submission.) Anyway, ever since, I've taken the position that if I don't have to submit something, I'm not. I'll let you all know the first/next time that is a problem.

Just to be clear on this, there is no negative rate of return on a default. Interest on the loan has accrued and the full balance is "seized." I am absolutely confident that there are no "issues" that the plan should be concerned about with pooled loans - if a sponsor wants to make loans self-directed for reasons of "fairness" or whatever, that's one thing - but for the plan's safety - no.

That's a great Q. I think, I say I think because I don't know that it's happened although it seems likely, that we would at that point carve it out as a self-directed account - effectively seizing the collateral of the participant's account. Of course it has to be maintained "on the books" (but not on the 5500) with additional interest accruing (and then disappearing when it can finally be written off). Yup, that sounds pretty good now that I write it out...

That is indeed some crazy language...makes you wonder what someone was thinking and how it got in there.