Santo Gold

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

Does the DOL employee contribution deposit deadlines (earlier of ASAP/15th bus day) ever apply to ER contributions? For example, if the plan document calls for a safe harbor match contribution to be calculated on a payroll basis, but the ER does not deposit the s/h money each payroll, is there a violation? Thanks

LVS and JPOD - Thanks for the confirmation. A follow-up rhetorical question (no reply needed) is - given the little information provided on the 5500, what real value is there to the government for requiring a filing every year? Knowing how many 403(b)s are out there? OK; thats the one and only reason I can think of.

This is about as basic a 403b question as it gets: It seems like there is very little in the way of information that is needed when preparing a 5500 for a 403(b). Am I reading the instructions correctly that only the Form 5500 needs filed and that there are no schedules that need to be attached (e.g., not schedule H/I financial information)? Furthermore, participant count information on the 5500 is also not needed (line 6&7)? Finally, if the above is true, then does the SAR omit the financial and participant count information as well? Thanks for your help.

I don't believe that owner-only plans are required to file a 5500-EZ. They could file the 5500 if they want, but since the EZ is simpler, that is usually the way to go. Therefore, couldn't the owner use the DOL compliance program and file Form 5500 from 2002 forward, pay the $1,500 and be done with it?

I have the Schedule K-1 for both partners whose firm sponsors a 401k. There are no employer contributions for the 2006 plan year, just deferrals. Is the compensation for the partners the figure shown on Line 14A of the K-1, or do I need to subtract the 179 deduction (line 12) from that figure? Or is there another amount that should be used? Thanks

mjb: I don't know for sure if the all money is coming directly from participant's accounts. I think they had some old terminees who had non-vested amounts that are in a pooled account currently (which is probably not correct, as these amounts should likely be fully vested now). NAIU: I wasn't clear. The company was owned by 1 individual, who was also the only named trustee. The company is now dissolved, but the individual (not the company) remains as ttee. I don't like how this smells. There is no independent fiduciary who appointed him to the clean up job.

The trustee = employer, and the company is no longer in business, hasn't been in at least 2 years. Another concern I have though, is that it sounds like many of the duties he has performed are along the lines of service provider fees, which leads to ERISA 406(b) that states if the service provider is a fiduciary of the plan, who appoints himself to perform services, payment would be a prohibited transaction as self-dealing. Does that out weigh the fact that he is not getting paid from the company? I looked at the DOL website on self-dealing and still am not sure: http://www.dol.gov/ebsa/regs/AOs/ao2001-10a.html

Apparantly, the company is out of business for several years so the trustee has not been paid anything from the company. Also, I understand that settlor functions cannot be paid from the plan, but I considered most duties involved in a plan termination to be non-settlor functions. Costs involved in the decision to terminate and to amend the plan for termination would be settlor funtions, but the trustee has been doing all of the work sending notices to former employees, looking for lost participants, updating account balances, etc. I believe all of these are not settlor functions and could be paid to him from the plan. Whether they are they worth $20,000 is something he would have to prove to the government.

A large 401k (over 5000 ees) plan is terminating. The trustee has put in a lot of time with both a DOL audit and in assisting with the accountants audit, as well as other admin. issues. Trustee wants to bill his time to the plan, which would result in around $20,000 invoice. He can't do this, right? This would be a Prohibited Transaction. But, given the time spent on all of this, could the employer pay him for his time? Thanks

Calendar year 401k plan. The client last filed a 5500 for the 2003 plan year. The IRS sent a letter last week looking for the 2004 5500. Although the forms were prepared by the recordkeeper, they were sent to the client, who didn't realize they needed filed, so they were put in a drawer: 1) I plan on drafting a letter to the IRS, telling them the trust and asking for mercy. Are there any better ideas? 2) Is it too late to file the 2005 form through the IRS 5500 program, just paying the $750? Is that not an option since the 2004 form is on the IRS radar? Thanks

The the employees other than the doctor are NHCE, so would there really be a discrimination problem by having everyone currently employed on 1/1/07 immediately eligible 1/1/07, while keeping the 4/07 employee out for less than 1 YOS? We are using a prototype document so having less than 1 year of elgibility service means no 1000 hours requirement, and opens the door for part-timers, which the doctor does not want. He'll be OK with 1/1/07 PS eligibility, with 7/1/07 401k effective date and that should solve the elig. problem. However, if he wants this to be a safe harbor 401(k), can he still do that in mid-year since the plan would be effective 1/1/07? Also, I believe if it is a safe harbor, he would have to make the 401 and s/h effective later than 7/1/07, since we are less than 30 days away from that date, correct? Thanks for all replies