Bird

Not too big of a deal on the wording but...we work in a business where precision is hugely important, and short-cutting descriptions here sometimes leads to confusion or worse - incorrect conclusions based on bad facts. My take on this is that the advisor is "working with" certain participants more closely than others, likely HCEs because they probably have more money, and (I'm guessing) these participants agreed with whatever s/he suggested. Most recordkeepers have restrictions on what advisors can change, for fiduciary reasons discussed here, and the system worked. The advisor "just" didn't understand how the system works (not shocking). It's a little weird that s/he would zero in on a small contribution but probably just acting important.

It's Fort William (no "s"). I can't speak to the huge plan issues but I can tell you that their customer service is fantastic, to the point of being amazing. I can't think of another company that I've dealt with, professionally or personally, that does better.

Above you said they asked for it to happen, which would make them a fiduciary, if the actions are completed. Below you say they are (just) asking questions, which would not.

No. Think of the loan as a phantom account. You keep accruing interest on the phantom account, so if, a year after the deemed distribution, she has accrued interest of $2000, her total loan balance is $18,000, which is an effective offset against the $50,000 maximum. That's the purpose of accruing interest. When she takes an actual distribution, she gets her entire non-loan balance, and the loan, whatever the amount at the time, is "distributed" but there is no reporting since it has already been reported (on a 1099-R).

I agree with prior responses. I know it isn't likely, but if those assets included accrued contributions, and the balances were under $250K without the accruals, then a return was not required since you may file on a cash basis.

If the policy has been around for any length of time they should not have to pay premiums - let it APL (Automatic Premium Loan; confirm that is the default but it almost always is). Then at least you stop the bleeding while you figure out how to get rid of the policy.

I don't misunderstand or disagree with any of this. It's all a side issue that may or may not be a problem.

The post explained the circumstances that created this situation (pooled account converted to self-directed). I saw (see) nothing to indicate that they pre-funded the match (before deferrals). It would take an incredible amount of effort to discern that there was indeed a problem.

Right, and to clarify, earnings can not be used as contributions.

Does the desire to be protected have anything to do with it? Maybe we're arguing about angels on the head of a pin - I agree with those who wouldn't worry about it.

A contribution that is required is...required. The fact that it has not yet been made does not make it fair game to not make it.

I agree it can be removed. If the plan had annuity options, it could be done but would require some advance notice.

Amen. When I saw that he didn't want to do the SHNE I wondered about the goal.

Or just file a 2022 form now. We are as picky as anyone (pickier) when it comes to a lot of things, but IMO this is not something to worry about. It's not like you are telling them anything is late. Someone please speak up if they are aware of anyone, anywhere, who got penalized for late reporting on an 8955-SSA.

I might be mis-remembering but I'm pretty sure the IRS has said that an investment that has a minimum is ok. It's a plan feature, such as a self directed brokerage account, with a minimum, that is not ok. Back to the general arrangement here, I don't want to be the one defending the it but as I said earlier, it's not a novel concept dreamed up for this one plan(s). The idea is that you have plan 1 with an HCE(s), trustee directed, plan 2 with an HCE(s), trustee directed, and plan 3 with NHCEs, participant directed. There is no discrimination on the setup. The fact that the trustee(s) decide to invest in certain assets is, in theory, not relevant. Lots of people here talk of involving an ERISA attorney for any perceived problem, and here you have an attorney, presumably versed in ERISA, who has blessed the arrangement. I'm not sure what else can be done besides saying to the client that it is aggressive but you are deferring to the attorney. Going to your E&O carrier is only going to give you a headache.

Thanks all. Actually the problem is that the agent was giving an answer (to someone else) that was contrary to what we all think, i.e. the agent was allowing the deduction for any/all contributions. The accountant who brought it to my attention was surprised, as was I.

That is indeed the theory. Again, I am not an advocate of it.

Thanks but I'm not sure what you are saying here - the implication is that anything exceeding the federal 401(k) limit (i.e. 402(g) is not deductible. But someone from the state is directly contradicting that...

I thought that NJ only allowed deductions for 401(k) contributions for self-employed individuals; i.e. not for profit sharing, match or defined benefit contributions. (I was going to say "always thought..." but honestly didn't think about it until we learned the hard way when a client's deductions were disallowed. It wasn't my problem but the accountant had some 'splaining to do.) Now I get the following message from an accountant, saying that everything is deductible: Here is the statute cited: N.J. Stat. § 54A:6-21 (“Gross income shall not include amounts contributed by an employer on behalf of and at the election of an employee to a trust which is part of a qualified cash or deferred arrangement which meets the requirements of Section 401(k) of the 1954 Internal Revenue Code, as amended. N.J.S. § 54A:6-21”) I thought that there was a different cite, which, when read narrowly, didn't permit self-employed individuals to deduct anything other than actual 401(k) contributions, but it's on a piece of paper somewhere and I'll never find it. Any thoughts about this?

...but I think they are. If they paid SE tax on it then it should be plan compensation. Having said that, I was not aware that one could avoid SE tax on partnership profits, at least for a general partner. And as Paul I notes, there is a difference in treatment between a GP and LP. But I'm not a CPA. I have seen the boxes on the K-1 filled out so many different ways I would not necessarily rely on them. When in doubt, we press the CPA to tell us what they paid self-employment tax on and use that. Back to my original point, I don't believe there is a difference between someone reporting $120K of guaranteed income and no profits, versus no guaranteed income and $120K of profits (assuming SE tax was paid either way).

But what you describe below is a spinoff. I think you are using the term "rollovers" incorrectly. Unless the original plan was terminated and everyone elected to roll over money into the new respective plans. I'm not sure it matters in the context of your question but precision matters.

I guess I mis-spoke or mis-read. But the argument (not mine) would be that since the two owners have trustee-directed plans, they as participants do not have special BRFs that create discrimination. Surely I'm not the only one who has heard this argument? Was the original plan terminated and then three new plans created, or was the original plan spun-off into 3 plans? If the latter then these are not rollovers, although I don't believe it matters. But it does concern me that the distinction is being made.

I don't think it matters. The ultimate answer will depend on how the plan is invested (pooled vs. self-directed) and if self-directed, who is the recordkeeper. I don't think I'd be in a hurry to split it unless and until a bene requested a distribution.

I am guessing that all three plans are trustee directed, so on its face the arrangement is not discriminatory. It just so happens that the two docs are trustees and effectively self-direct their own accounts. I've seen it touted fairly often as being clean, but I'm not a fan and have never tried it.

I think that amending the W-2 makes the most sense. If they are going to effectively retroactively create W-2 income, then they should be able to create the deferrals (that did in fact happen). Otherwise, there is no earned income to apply the deferrals against, and then the only option is to use the money deposited as PS.