Santo Gold

Nope, distributions took place well over a year ago.

401(k) is being audited and it was discovered that several prior year ADP tests failed. Auditor wants the employer to now make corrective distributions. Three HCEs have since terminated employment and rolled their benefit into IRA's. I understand that the employer must now notify them that the excess contribution portion of their rollovers is not eligible for tax shelter rollovers. But my question is, who issues the 1099-R for the corrective distribution now? The plan because thats actually where the excess amount came from/should have came from? Or the IRA, since that is where the excess amounts will now actually be taken from? Thanks

Plan fails 2007 401k test, refunds are calculated, and the HCE's get paid out the excess. However, the 401(k) test was done incorrectly and the new result is that the plan did not fail; No refunds should have been done. Do the HCEs have to pay back the excess amounts? If so, are they (or someone - sponsor, TPA, recordkeeper) responsible for also calculating and depositing "lost plan earnings" on the excess amounts and having those deposited into the plan as well? Is this a VCP or SCP correction issue? Thanks

Definitely a problem here, but I'm trying to determine if its a plan problem or a company problem. Certainly a late deposit problem for the plan, but does it end there for the plan?

Plan document allows for participants to change their deferral percentage on a quarterly basis. Owner however, was changing his percentage more frequently than that. sometimes monthly, sometimes bi-monthly. What type of violation is this and is this fixable via VCP? How is a penalty determined? Thanks

Company withholds 401k money from everyones paycheck, but does not deposit the large 401k amount for the owner ($3,000). This amount stays in the company's business account, and is later used to pay off a company debt. This is discovered a year later. We have a late deposit problem. But is there also a problem with that $3,000 being used to pay off a non-plan expense? YES: Its a prohibited transaction, using plan money to pay non-plan expense. NO: The money never left the company account. Therefore, it was not a plan asset and so it doesn't matter what it was used for. The late deposit penalty is all that is imposed. Any thoughts/opinions? Thanks

Thank you for all the replys. After doing a little research, am I correct that a Form 990 is necessary to report deferrals for both types of plans? Due by 5/15 for calendar year entities? Thanks

I gathering up some information for a non-profit who might be interested in a 457 plan. Is there a 5500 filing requirement for either a 457f or 457b? Thanks

A 401(k) PSP does not have a last day worked or hours requirement in place for participants to share in the PS contribution. If a 401k plan participant leaves a company, but will receive salary continuation for the next 2 years as a condition of his leaving, is the participant eligible to receive a share of the PS contribution, based on his compensation even though he may not be employed at all during the plan year? Similarly, can he make 401(k) contributions given his status? Thanks

That answers that. Thanks Tom

If the employer excludes certain otherwise eligible employees from participating in the company's 401(k) plan, do those employees still count (as "zero") in the ADP test? They are not statutory excludable employees; its just that the employer choses to not allow them in the plan. They still pass 410(b), but must they still be included in the ADP test? Thanks

I think I found what I was looking for. When a 401(k) plan is terminating, 401k contributions cannot to be distributed if a successor plan is established/maintained by the employer. This would be for the period as of the 401k plan's termination date and for 12 months after distribution of all 401k plan assets. This really is not the situation that I have here, which is a PS plan and the owner wants to terminate and start a 401(k), with presumably identical PS features. So, the owner can do this, but then it comes back to whether it solves anything, and I think the answer to that is still "no". I would agree with KimS - as an owner of the company in the past, he is still liable. Whether he terminates the plan or amends it into a 401k, that liability is still there.

It turns out that the new owner was actually a minority owner for the past few years, owning around 20% of the company. So, with the old owner wanting out, the 20% owner bought his 80%. I don't know whether due diligence was done and I doubt he has a signed indemnification agreement. Regardless of whether there are problems in the past however, could they terminate and then start a new, identical PS/401(k) Plan immediately afterwards?

What the new owner is really concerned about is whether there were any problems in the past that the old owner may have done nothing about. He sees it that if something was done incorrectly in the past in this plan, he is more liable if he continues it, rather than if he terminates it and starts a new plan. I don't think terminating changes anything and also think he may not be able to start a new plan that easily.

A client has a profit sharing plan. The old owners sold the business to a new owner. New owner wants to continue with the plan as is, except add a 401(k) provision. As a result he strongly believes that he should terminate the existing PS and start a new 401k, effective 1/1/08. While this is obviously unnecessary, isn't it also not permitted to terminate a PS plan, only to start a new one (with or without 401(k)) immediately thereafter? Something about the potential to abuse this situation to initiate a termination allowing for distributions, only to start another plan immediately afterwards? Thanks

Because, as Tom had suspected, the change would benefit 2 of the 3 HCEs significantly while it may benefit the NHCEs little, if at all. They will go to annual as of 1/1/08, but they wanted to do something for 2007 as well.

Can a plan switch in mid year from calculating the s/h match on a payroll basis to an annual basis, retroactively effective to 1/1/07? As a result, the s/h match already deposited in 2007 will be applied to the final year-end s/h match that would be determined. I think the answer is "no", but wanted to check if anyone knows otherwise. Also, if a s/h match is determined annually, can the employer make s/h match deposits on a regular basis during the year anyways? Assuming the employer "plays it safe" and makes sure no one would accidently receive more via these deposits than they would when the final match total is calculated, I can't see where that would be a problem. Thanks

Thanks Mike. Better to have the attorneys sort out the legal mess and then file late. After posting, I read in EOB that a court ruled that the preparer of a 5500 (in that case, the same person who stole the money) was criminally liable for reporting mis-leading information on the 5500. 5500 showed all kinds of $$$ in the plan when in fact it was all gone. Jail-time for that partcular offense was doled out. Thats not too far from where we are at right now.

Financial advisor for a small 401k (eff 1/1/03) is in jail for stealing plan assets. Phony statements were created, 5500 was prepared using these phony numbers. Truth is there was no money in the plan until late in 2006, when the problem was discovered, and the current 401k and match amounts started to actually get invested. Plan should have had around $100,000 in assets as of 12/31/05. Lots of questions here, but can anyone offer some guidance on how to prepare the 2006 5500 (due in a weeks time), especially the schedule I? Should we use actual assets (which were $0) for most of the year, use the number from the previous 2005 5500 as a starting point, or accrue what we think should have been the correct number as a starting point? Also, is the trustee responsible for the lost assets in this plan? That is, if the crook is in jail and we assume they can't get anything out of him, and there was no fidelity bond for the plan, does that just leave the employer who has to make up the shortfall? The company that the financial advisor worked for is still in existence, should the trustee go after them? Thanks

The IRS has informed us that our EGTRRA Volume Submitter document is expected to be approved (like most other VS and prototype dox) sometime in the first quarter of 2008. Our VS document has had several IRS reviews and we believe the form it is in is close to the final version that the IRS will issue the letter on. Is there any downside to preparing the new document for all of our clients right now? Basically our plan is to have them signature-ready so that literally within 2 weeks after the IRS letter is issued, we plan to send out all of our EGTRRA dox for signatures. I'm used to being involved in dox being restated in the last few minutes before the RAP deadline, not doing them in the first few minutes. Any thoughts? Thanks

What about a situation where an employer wants to allocate based on 2005 plan year compensation, but misses the 2005 deposit deadline (in this case, 9/15/06). Can the employer still make the deposit, allocate based on 2005 comp, but take the deduction on the 2006 company return? And furthermore, if the employer also makes a 2006 contribution based on 2006 plan year comp, makes the deposit timely (lets say on 3/1/07), can the employer take a 2006 deduction for both the 05 and 06 contribution on the 2006 company tax return (assuming the total is less than 25% of 2006 eligible comp)? Thanks

We filed a 2006 5500EZ last year for what we thought was a 1 life owner-only plan. This year we discovered there was someone else in the plan in 2006 and that a 5500 should have been filed, not an EZ. Is there any problem with just filing a 2006 5500 as an amended return? Willl there be any problems because the original was an EZ? Thanks

There is a non-elective safe harbor 401k plan for a small employer, effective this year. The plan is effective back to 1/1/07, but the 401(k) portion became effective 9/1/07. We just had an employee terminate employment 9/11/07. She did not make any 401(k) contributions. I know she will get the 3% s/h contribution for her compensation for the 9/1/07 - 9/11/07 period, but should she get 3% back to 1/1/07 - 9/11/07? I do not see where that is clearly addressed in the document. Is there certain language that I should look for that would answer this? There is a good chance the plan will be top heavy and I know that as a result, she will get 3% T/H for comp from 1/1, but that has a 3 year cliff vesting schedule (she has less than 3 YOS), so in terms of what she is actually entitled too, there is a big difference in whether she gets the s/h for the whole year.

A PS plan has a pro-rata allocation formula, and requires last day of employment to share in the allocation. There is not an hours requirement however. Since the participants do not "earn" a share of the allocation until 12/31, can the plan be amended in mid year to switch to a new comp formula? Thanks

What is the fix for when it is discovered that since plan inception, the 2 owners/HCEs used FBO accounts to direct their plan assets, but kept all NHCE dollars in a trustee-directed investment? Should we determine the historical rate of return for the 2 NHCEs, compare that to the return on the NHCE investments, and fund the difference? Thanks