Santo Gold

401(k) Plan A is merging into 401(k) Plan B. Plan B does not allow for loans, but Plan A does and has 1 outstanding loan currently. Can Plan B be amended to allow for rollover loans only even if it does not allow for new loans? Does it matter if the outstanding loan being brought over is for an HCE or NHCE?

I assume the "should" part is NO since people are going to be taking money out of this plan left and right, and it operating not really like a retirement plan? Any other drawbacks you can think of?

Can a profit sharing plan have an in-service distribution age requirement of age 21? I know it sounds absurd, but from what I read, the age for in-service w/d can be any age prior to NRA. Does this sound OK?

Found my answer: Since they are participants, but all would have less than 3 YOS, they would get the vested percentage from the old schedule, based on their current YOS. Then, they would follow the new vesting schedule until they are 100% vested.

A 401(k) plan has a vesting schedule of 50% after 1 YOS, 75% after 2 YOS and 100% after 3 YOS. The employer wants to amend to a 2/20 schedule, but only for employees hired after a certain date. Employees can make 401k contributions immediately upon hire (no eligibilty requirements, but have to wait 1 year to participate in the 401(k). Since these new hires are actually participants in the plan, I think that they would be 50% vested after year 1, but would then follow the 2/20 schedule thereafter. That is, 50% after year 1, 2, and 3. Then, 60% after year 4, 80% year 5, and 100% year 6. Does anyone agree with this?

The person who begs to differ is a financial advisor who, for selfish reasons, would prefer the plan not offer after-tax Roth contributions. I think he is thinking Roth IRAs and assumes the same rules apply to Roth 401ks. Thanks

Roth 401(k) contributions held in a trust as part of a qualifed plan has the same protection from creditors as traditional 401(k) contributions, correct? This is spelled out in ERISA.....is it Title I? Someone outside the office begs to differ Thanks

Thanks to everyone for commenting. I read Rev. Ruling 86-142 and am coming to the "undesired" conclusion that in this specific case referred to, that payment of these transaction fees cannot be deducted as a business expense. They appear to be more like a broker's commission and thats what 86-142 is dealing with, that commissions cannot be expensed. If the employer pays for these transactions, either directly to the broker or through the plan as reimbursement, they are considered contributions for 404. Its also interesting (at least I did not know this) that for other investment fees, that if the ER pays them directly, they are an expense. But if the ER reimburses the plan for the fees, then its a contribution.

What is your authority for treating commisions and other transaction expenses as contributions? Hope this helps. I think the conclusion is that if the employer put those amounts in the plan to pay the commissions, etc., it would be a contribution. Question: Are plan expenses paid by the employer deductible as business expenses? Or, do they count towards the deduction limit for plan contributions under Code Section 404? Answer: They are deductible as business expenses, and do not count towards the 404 contribution limit. The exception would be if the fees relate to commissions, which the IRS regards as contributions (for 404 purposes) even if they are paid directly from the employer to the service provider. The following is from the PWBA Opinion Letter 97-15A: Concerning the portion of the "Wrap Fee" arrangement consisting of fees paid to the brokerage firm generated by services rendered on behalf of Plan X, Rev. Rul. 86-142, 1986-2 C.B. 61, considered the deductibility of broker's commissions charged in connection with the purchase and sale of securities for a qualified employees' trust or an IRA. It notes that broker's fees are not recurring administrative or overhead expenses incurred in connection with the maintenance of the trust or IRA. Rather, brokers' commissions are intrinsic to the value of the trust's or account's assets; buying commissions are part of the cost of the securities purchased and selling commissions are an offset against the sales price. Based on this analysis, Rev. Rul. 86-142 held that employer contributions to the trust of a qualified plan, or direct payments by the employer to a broker, to pay brokers' commissions cannot be separately deducted as ordinary and necessary expenses under section 162 or 212 of the Code. The fees in question are for self-directed assets held in a pooled brokerage account. Twice each month 401k monies are deposited and subsequently invested into mutual funds, as directed by the participants. There is a $10 fee per transaction so for 8 mutual funds, thats $80 a payroll, or at least $160/month. The employer wants to pay for these costs. Would you agree that this is a transaction fee, but not a commission? I think the employer can deduct as a business expense. Thanks

An employer wants to pay certain plan fees, but will only do so if he can deduct the fees as an expense against income. If the company pays for these expenses and takes a deduction, then the amount the company pays is really an employer contribution and is subject to the allocation formula in the plan, correct? It seems like this could lead to problems, but I'm not sure why. Does anyone have experience with this situation? Thanks

After some prodding and more digging, SS#'s did turn up for all terminated participants. Now we just have to locate these people. J. Simmons: I think what you suggested is reasonable. Its an interesting problem though, that if there are no records (other than their names) of their employment, and if no one currently at the company worked with the terminees, it would be difficult to be 100% certain if the lost participant is who he says he is. Thanks for replying.

There are several terminated participants who have account balances in a recent takeover plan that we are TPAs for. For 2 of these terminees, they left years ago, and the employer has no information on them, not even their Social Security Numbers. Any advice on how to go about finding someone without SS #'s? Another concern is that even if we "find" these lost participants, how can we identify that they are who they are? They can say "Yes, I am John Doe, here is my SS#" but since we can't confirm that the SS# is correct, doesn't that create a potential problem for the Plan Administrator. Paying out to someone other than a participant or beneficiary?

An individual owns company A which has a 401(k) Plan and in December 2005, the same individual buys 85% of company. We have a controlled group, but the transition rule allows exlcusion of Company B's employees through 12/31/06. A plan amendment is done so that Company B's employees are excluded from the plan, but we know that they must be counted for testing, starting 1/1/07. By the end of 2007, the owner of company A is expected to decrease his ownership in Company B, to less than 80%. There are no other common owners. Ownership is expected to stay below 80% thereafter. Is it correct that starting 1/1/08, there is no longer a conrolled group and we can ignore Company B's employees for testing purposes of the Plan? Also, if Company B started its own 401(k) Plan on 1/1/08, there are no combined issues relating to both plans. That is, because there is no controlled group, the plans are tested separately, no reason to look at employees of the other company. Thanks

It's a confusing solution to what should not be a tough decision to make. Employee A made 401k contributions totaling $1000 in 2006, but her W-2 says she put in $1050. Rather than fix the W-2, the employer wants to make a deposit of $50 into her 401(k) account, call it a 2006 401(k) contribution, and say "see, now her 2006 401(k) contributions equal $1,050, which is what the W-2 states". Do this for the other 200 or so participants and that is what is being proposed. To me, this solves 1 problem by creating another (and I'm not sure it really solves the first problem either). If the employer makes this extra contribution and shows it as a deductible employer contribution, then it should be allocated as called for in the plan document. Instead, it is just going to a select group of employees, namely only those who made 401k contributions, and in varying amounts.

masteff: I do not know if its box 12 or Box 1. I suspect its just box 12; otherwise, I think the ER would not be so quick to try to fix the contribution only, and not the wage information. The problem I see is that if its treated as an employer contribution, then only those participants who are putting money into the plan actually benefit from this contribution. And while that may or may not be discriminatory, it certainly won't be allocated in accordance with the plan document.

From the no good deed goes unpunished file....... Employer faithfully deposited 401(k) contributions during the year. However, due to a payroll glitch, everyones W-2's reflect a slighlty larger 401(k) amount than what was actually the correct (and deposited) amount for 2006. W-2's were sent out with the wrong amounts. There are quite a few people in this plan so, rather than fix and re-issue the W-2's, the employer decided to make an additional contribution to the plan for the difference between what the W-2 shows and what was actually deposited (Again, the actual amounts deposited as 2006 401(k) contributions were correct, it was the W-2 that was incorrect). This was done recently, well after 12/31. The proper thing to do would have been to correct the W-2s, but that apparantly is not going to happen. If the employer does not take the amount of this additional deposit as an employer contribution deduction, does that help the situation somewhat? Also, would you consider this extra deposit as a "late contribution"? Really, its not late because it shouldn't have went into the plan in the first place. This is messed up. Any comments or suggestions are appreciated.

#1 - I do not know the price of the house but I suspect the downpayment is what is needed; the auction will determine that. So, the request for hardship will likely be for a maximum amount allowable. #2 - Assuming that amount is more than is needed, could we then put the excess hardship money back into the plan? Once money comes out, it can't go back into the plan, other than a mistake of fact, correct? I do not understand how escrow would solve this.

A participant is requesting a hardship withdrawal to purchase her principal residence. However, because she is purchasing the house via an auction, she does not know the amount needed. Also, if she does not "win" the auction, she would want to put the money back into the plan. #1 - Can a hardship be taken without knowing the specific amount of the hardship, as is this case? #2 - i'm guessing the answer is "No", but can she put the money back into the plan if the reason for the hardship goes away (i.e., she doesn't get the house)? Thanks

New client (for us) has a money purchase plan, effective since 1985, that they want to terminate and then start up a 401(k) plan. The MP document is out of compliance though. They have a standardized TRA prototype document signed in 1993, but nothing after that. No UCA, GUST, EGTRRA or other amendments since EGTRRA. The plan appears to be in compliance with all other matters. There are only 2 people in the plan. They will file via VCP to fix. A couple questions: #1 - The user fee is $750. Is there any fee in addition to this that can be imposed upon review? #2 - The VCP Application Guide on the IRS website seems to require an additional 5300 filing along with the application. Is there an exception for a standardized prototype plan that would not normally need a Det. Letter? Also, if a D-Letter is required with filing, its a 5307 that is used, not a 5300 correct? #3 - As the new document is drafted, what effective date should be used? Current date? First day of current plan year? Different effective date corresponding to all of the missed deadlines for amendments? #4 - Finally, we will request an acknowledgement letter back from the IRS. Other than receiving this back from the IRS, is there any "approval letter" from the IRS stating the the submission was successful and we can move on? As I said, the intention is to terminate this plan, and we can't terminate until the document is up-to-date. We want to move ahead with distributing the assets, but can't until we know the document is accepted. How long does this normally take and will the IRS send a letter of approval? Thanks for any comments

Thanks MJB. Could you clarify how a payment can be made from a plan for more than 5 years if the distribution must be paid to an IRA no later than 1 year after death? Or wait, is it that the distribution is rolled with 1 year after death, and then payments from the IRA can be spread over more than 5 years?

I have a similar situation that perhaps someone could comment on. Client did not file 5500's for the past 2 years and just realized it now. He was not aware of DFVCP and just last week filed the late forms as he normally would. The potential penalty for filing late would exceed the $1,500 DFVCP fee (small plan). Would anyone recommend filing them again through DFVCP right away. I think that is the way to go, but I am concerned as to whether the plan could be in "double jeopardy" of paying the $1,500, plus also having to pay additional late fees because of where the original filings were sent last week. Any comments are appreciated

When is the latest than a non-profit has to make an employer contribution (403(b) Plan) for the 2006 plan year? Is it 3/15 (unextended) like for profits or something else? Thanks

Non-spouse beneficiaries no longer have to take distribution of a participants account balance within 5 years. Is this correct and if so, was this part of PPA? Also, if true, is a plan amendment needed to allow for this? Does the answer change if this is a 403b rather than a DC plan? Thanks

3 sole props (no employees) decide to merge and form an LLC. 2 of them have their own 1-life 401k plans. They will all be equal owners (33%). Their intention is to "run" things as separately as possible, yet share employees, building space, etc. They also may want different contribution levels for themselves for retirement plan purposes. For example, the older owner wants to put away as much as he can, while the younger owner may want to fund his plan minimally. Can they maintain 3 separate plans, 1 for each of them, with different levels of funding? I assume the answer is no since when they become an LLC, I assume the sole prop are no longer in existence and hence, there is no sole prop income from which to fund the plan. However, could they set up a 401k with with separete classifications for the 3 owners, much like a new comp plan. Each classification is funded however much each owner wants to put in for himself. A 4th group would be all other employees. We would have to test for 401a4, but if they would pass, then this would work? Is there a better way to accomplish their goals?

Accounting for Roth 401k contributions must be separate from that of pre-tax elective deferrals, but do the actual contributions have to be in separate accounts? We have several Roth/401ks that are self-directed but pooled (don't ask:), and therefore all plan monies - roth, 401k, PS, match, etc - are held in 1 place. I believe that as long as their is separate accounting for all the different money types, that is sufficient. Also, Roth 401k contributions were initially set to expire when EGTRRA sunset in 2011. Was this obstacle for Roth 401k contributions removed when the other sunset provisions were eliminated last year?n Thanks