Bird

We asked our document provider, FTW, and were told that our plans definitely do not qualify as Puerto Rico qualified plans. At least for deferrals, they would NOT get the benefit of a pre-tax deduction for income reported to Hacienda. I have to believe any/all of that income is not US income and not eligible for any US plan purposes.

Probably fine for a small non-profit, but you specifically referenced an engineering firm. They are fairly easy, but there are pitfalls for the unwary. The last one I saw was probably not atypical - owner contributing the max, and when I discussed the SARSEP DP test I was told that another employee was contributing the max on very low income. Fantastic! Except that the other employee was his wife. And 3% minimum top heavy - "what's that?" Sorry but I've been doing this too long to be anything other than jaded and cynical.

We're working on something similar and I'm thinking that comp is not plan comp for a US plan. Will let you know if we learn otherwise.

New SARSEPs couldn't be established after...1996?...but they can be amended so an eligibility change is permitted. "Standard" is probably "keep everyone out as long as possible" so that's the 3/5 rule. Odds are pretty good though that it's messed up - are they running the ADP test properly? Do they know about top-heavy contributions if it is top-heavy? The few of these that are left would probably not exist if they were actually run properly.

The institution is not correct; it's not their job to police timing of contributions. Whether it's worth arguing with them over it is a different matter, because the year they associate with the deposits is just a number on a piece of paper - it doesn't mean anything* except it makes it easier to check totals each year. *I think...to be honest I don't know if they are required to do some kind of reporting; if so then that would actually explain why they can't code it properly. But I wouldn't think any reporting would be due until 2/28 so it shouldn't be too late. In any event, I might try calling them one more time (different person answering the phone/different answer) but wouldn't worry about it too much; just document it thoroughly in case it comes up later.

I think most of us would consider him employed on the last day of the year. I don't think there is any impact on testing.

I think in a hyper-technical sense the deferrals shouldn't have been allowed. But yes, we would ignore the comp for all testing and the deferral as well.

I disagree with that. But that is the answer I think and it changes my mind! Equal dollar amounts, no matter how derived, appear to be ok. And I disagree with that. Wasn't there a post that an arbitrary allocation resulting in the same allocation as one of the safe harbor integration formulas wouldn't necessarily pass? FWIW

On what are you basing this? Until I saw the post from PAiPal with the language from PPA, I would have agreed with you, based on the current IRS filing instructions, but it appears those instructions have not been properly updated.

If both companies agree then yes and yes.

I agree with Mike 100%. There is a distinct difference between the plan saying "everyone gets the same dollar amount" and the plan saying "everyone gets whatever the plan sponsor says they get" and then the plan sponsor, for that year, saying, "everyone gets the same dollar amount." The first is a uniform allocation formula, and the second is...not. So it will require general testing, and general testing is going to require some kind of percentage based test.

It's deductible; the money was contributed to the plan but wasn't allocated quite right.

I think you always need a code, probably 1 or 7. I guess it doesn't matter if the taxable amount is $0 but still, I'd think it would be rejected with no code.

Well, I must say I learned something today. Thanks so much!

Thanks Mike for the on-point commentary. I am not unfamiliar with the problems of hard-to-value assets, and would never allow someone to do this if asked. Unfortunately, as noted in the original post, brokerage firms make it easy to buy some of these things through a brokerage account and in fact they show up on the brokerage statements, and we only noticed it because we reconcile fully and have a lot of experience picking through statements - I imagine there are a lot of TPAs who just assume the numbers showing up on a brokerage statement are fair market values.

In theory anyway; some self-appointed expert might whine about it...

Ouch! That would be us...even though we explicitly warn them about this when we set up the plan: "Keep the investments simple - don’t buy real estate or other hard to value investments in the plan!" The problem is the brokerage firms make it easy to buy this stuff through a brokerage account and even show it on the statements but they are really not held in the account. Same thing with variable annuities but we can at least get values for them. It's what he paid for it (Nov 2017) and what shows up on the brokerage statement Dec 31 2017 - but they just carry it at the purchase price.

OK by me

Are there any particular consequences to having a small amount of hard to value assets in a one-man DB plan? ($15K out of $650K.) It's some kind of private equity; it shows up on a brokerage statement as an alternative investment/held outside the account and they show the purchase price as the value. That Q on the SF is grayed out for a one-man plan. Do I just say "give me a true fair market value" and move on or...? (I'm not the actuary, just the one providing info.)

I can't find this scenario in the instructions but I assume it is describing allowing a rollover of an RMD and not the second part; effectively correcting it by making a later distribution. I agree that without the later deposit, this is fixed by issuing 2 1099-Rs and the participant could/should withdraw that as an excess contribution. But I also think that the way it was handled was fine; frankly, the IRS doesn't care that much about which distribution was the RMD as long as it was done. I also think this guy may be surprised and unhappy if you follow the rules - it sounds like he wants a 1099-R showing 100% rolled over, and that would definitely not be correct. If he has the money and is willing to write a check to the plan but not to the IRA he's just being a jerk and asking for trouble since the 1099-Rs will be spanning two years, and while we might all be surprised at what the IRS does not look at, I'm pretty sure they are matching 1099-Rs to what is reported on the 1040. Further, if he took the RMD from the IRA as he claims, he probably did it as a regular distribution and not an excess, and (again) if the plan processes the 1099-Rs correctly, he's done the wrong thing and should at the very least get that code changed to an excess, not regular distribution. Long story short, it sounds like he wants the plan to report based on what he did, not what is correct. The plan has no way to know that he took the RMD and must report accurately.

It's nice to try to make things perfect, but I'm pretty sure I could find something wrong with just about every plan if I looked hard enough. I have to question whether your time and/or the client's money is well-spent by looking at 2009 issues in 2018. I'd clean up anything that we would be directly responsible for, give the client a heads-up about possible problems and ask if they really (really?) wanted to go beyond that and move on.

Rephrasing what I said earlier, "'"substantially level payments' made at least quarterly" is not the same thing as "substantially level quarterly payments." I think it's ok whether it is done over 4 years or 5 years, as long as the 5 year payments are scheduled to be done before the fifth anniversary. But good grief, why would anyone want to complicate this so? If it's a cash flow problem for the first payment or two, just schedule it normally but let them be 'late" (but not so late that the loan defaults).

Did this happen to come from PlanPremier TPA? I literally just got done figuring out why their amortization amount was different from ours. It is truly bizarre, and told them so. But I don't think it is a problem from the "level" standpoint - "level payments" and "payments at least quarterly" are two separate and distinct issues.

I've seen it, and agree it is a bad idea. Under certain circumstances, it might be do-able, but it's certainly ignorant to put that in a contract with no input from the plan side.

Merry Christmas all!