Santo Gold

I wasn't clear in my post; its is the financial advisor and their firm who are paying the costs of executing the trades, and $14,000 - $19,000 estimated transaction fees would be absorbed/paid by their office, not by the plan sponsor. He is seeing only 2 options - either this approach where the financial firm pays all of these extra fees, or the common approach (which I will call Daily Val) without the transaction fees. It is this latter approach which he claims is more expensive for the sponsor and he does not want to use. In other words: Brokerage accounts = lower sponsor fees, but sky high fees paid by the financial firm VS. Daily Val = higher sponsor fees but no fees paid by financial firm. Do these options sound correct and something that most financial pro's confront with most plans, with 99% opting for the daily val approach? My impression is that he wants to stand out from the crowd and show the plan sponsor how his fees will be so much lower than that of "the other guys", who lock you into higher fees by using this daily val arrangement. So he hooks them with that promise, but then wants to limit the number of buys/sells so as to no get killed on transaction fees.

Any thoughts or ideas on this situation are appreciated: Most self-directed 401(k)s and PS that we work are run through a fund or multi-fund family, with all the bells and whistles of web-access, unlimited trades at little to no cost, (within the same family), etc. I am working with a new financial guy who seems to have a problem that no one else does. It appears that he wants to/must use brokerage accounts for the 401(k) prospect. However, with all trades will cost approximately $15-$20 to execute. So, for 10 participants, who have 401(k) money deposited each month, into on average 4 funds each, there would be $1,200 - $1,600 in fees that he would have to pay each month to accomplish all of this. Obviously that is not workable. When I asked about using the more common approach above (big daily val system), he claims that the employer actually ends up paying more in fees using that approach and he wants to avoid doing that. Its really not my problem to solve, but I just wanted to understand this dilemna a little better, as no one seems to have run into this before. Even the few other clients that we have that use brokerage accounts have never mentioned this problem before. One solution would be to no permit self-direction, which would allow the trustee to control things and that would reduce the number of trades. But in allowing self-direction, the trustee is obligated to have the partiicpant's money invested "within a reasonable time period". Could the advisor impose a minimum deposit threshold for the funds, say $1,000? No investments into this fund until there is at least $1,000 to invest into it? Doesn't that violate a BRF if the HCEs are reaching that threshold sooner than the others? Thanks for any comments.

The sponsor of a small PS plan received a letter and forms from the state's child support enforcement office, requesting that a portion of any compensation paid to the employee be paid to the agency for child support. The letter and follow up conversations indicate that a portion of any payments from the PS plan should also be sent to the child support agency. The employee has now terminated employment and wants to take his money. He is aware of the above situation and is OK with receiving an amount less than what has been determined must go for child support. He wants to take a cash distribution. Would he be taxed on the child support portion? If not, who would get the 1099-R? Thanks

So if they are taxed as partners, their "net earnings" on income from service to the LLC will be determined, in part, factoring in any employer contributions to the plan, similar to the "loop calculation" that is prepared for other sole props and partnerships?

That is correct, they have made that election to be taxed as a partnership.

I think the answer is obvious, but I have to ask anyways....does this mean that these 3 members/owners are considered to be self-employed individuals?

I am working with a company that was just created within the past few weeks (May 1) that was established as an LLC. Right now the only "employees" are the 3 members/owners, with other employees expected later this year. They want to start a retirement plan, likely to be a 401(k). But as an LLC, they do not/cannot receive salary and receive no W-2. They can take draws that will be reported on Schedule K-1. Can this form of compensation be used for plan purposes? Are there any potential "issues" that this may involve? Other subsequent employees will receive regular W-2 wages. Thank You.

Just wanted to be clear about 1 thing. If we proceed and start up a 401(k) s/h, the employer indicated that he would like to make the plan effective 1/1/06, with the 401(k) feature effective 7/1/06. If they opt for the 3% non-elective safe harbor, would that 3% be based on 6 months worth of compensation (7/1 - 12/31) or the full 12 months? Also, would the s/h notice would still have to be distributed by 6/1 correct? Thanks

Thanks for replying. After some additional research I arrived at that same conclusion.

Employer currently has a SEP, but now wants to stop funding that plan and start up a safe harbor 401k. To do so right now would mean the plan year (they want calendar year) would be less than 12 months. Since the initial plan was a SEP, does that make a s/h 401(k) a successor plan, and therefore we would have to wait until 1/1/2007 to start the s/h 401(k)? Thanks

Can sponsors of target benefit plans allow participants to self-direct their accounts? Because these are DC plans, I would think yes, but the DB nature of them causes me to doubt if that is the case.

If a sponsor terminates a Target Benefit Plan, and wants to start a PS plan in its place, does the TB have to be terminated or can it be merged/amended into a PS plan? If it terminates then the participant can take distribution of their funds which may not be what the employer wants to do; rather amend it into a PS plan and just keep the assets where they are at.

I guess it doesn't surprise me that an auditor would check on both segragating and final investment destination. Although my question was mainly about hurdle #2, I have to admit about not having completely understood hurdle #1. I thought that the deadline was assets being segregated ASAP in the month following when the 401(k) contributions occured, but no later than the 15th business day of the month following withholding. So, In other words, If the company's payroll is May 5th, the 401(k) contributions have to be segregated ASAP on or after May 5th, but no later than the 15th business day of June. Is that correct? As for depositing those May 5th contributions into the proper investments, that would be anothe ASAP? Thanks to all for the responses.

ERISAnut is correct, I was referrering to 2 separate transactions; #1 segregating the assets, #2 investing according to the participant choices. I understand the timing hurdles for #1, but was checking what the hurdles are for #2. Thanks to all for taking the time to reply.

A company has a self-directed 401(k) planm but the assets are not in individual accounts, but are held in a pooled account. TPA produces quarterly report/statements. Would it be acceptable if each month, the employer deposits the 401(k) money in a money market or plan checking account, but only transfers these monies into the proper funds (per employee investment direction) on a quarterly basis? By segregating the 401(k) monies from the company assets monthly, they will satisfy the ASAP/15 business day requirement. Are there any other cut and dry deadlines that pertain to the actual investment of 401(k) contributions, per the employees instructions?

A state office of Child Support Enforcement sent a letter to a Profit Sharing Plan Sponsor, stating that a participant owes a duty of child support. This is not a DRO. The letter states how much is to be withheld from gross income each month for child support. It seems to focus strictly on employee income. However, an attached information notice has a small 1 sentence blurb that states that gross income includes any payment from a pension plan. The individual in question is on disability but is not receiving monthly payments from the plan. He only has about $2,000 in the plan. I read the Notice to mean that if a participant is receiving monthly checks from the plan, it is included as a source of income, but that is not the case here. Would you agree? Since this is not a QDRO, does that automatically mean that his plan assets cannot be touched for child support? Finally, the participant in question has more problems than just child support. He is about to be evicted from his house and wanted to take as much as he could from the plan as a hardship. Do you think he can still do this given the child support issue? Thanks for any replys.

Do you think that Plan A's Loan Procedures would have to specifically allow for this or are loan rollovers always allowed? Also, would Plan A simply report the entire distributioin ("cash" plus the outstanding loan) as a rollover out of the plan?

Several participants who work for company A have outstanding loans in the Company A's 401(k) plan, Plan A. 2 employees are leaving company A (amicable) to form their own company, Company B and a few of the other employees will be joining company B as well. Company B will be completely separate from Company A, no controlled group. Company plans to adopt a new 401(k) plan, Plan B immediately. Some of the partiicpant in Plan A have plan loans. Can Plan B be written to allow for rollovers of loans from Plan A? Can Plan B allow such a transaction to occur? The desired result is that most of the Company B employees wish to rollover their Plan A account balances to Plan B. They'd also like to avoid taxation on the remaining loan balance they have in Plan A. Thanks

I will check on the service agreement between the accountant and client. Thats a good place to start. Accountant may not have been responsible for monitoring any violations, but he was aware that the plan was not in compliance and should have at least said something. If I see a bank being robbed, I do not have to stop the crime being committed, but I am obligated to at least call someone for help. The accountant should have at least made the sponsor aware that violations existed and were ongoing.

EAIE: I should have been clearer....the accountant's only involvement with the plan appears to be determining the contribution each year (including determining who is eligible). He would had to have had payroll records to make that determination, so he is the logical choice to request the data from. I agree, a fee to recover those records is fair, as long as it is reasonable. Accountant handled all other aspects of the employer's payroll and company tax transactions. I think the problem is that accountant is pointing fingers at the financial advisor, since he (FA) set the plan up and it was his responsibility to inform the client of all of the compliance issues that would need to be handled (probably true). However, I don't like the accountant's apparant "ostrich" defense in that he knew about the plan and did the contribution calculations, but kept his head in the sand regarding other possible violations. Our objective is to bring the plan into compliance and then terminate it. The plan has a lot of exposure for all of the neglect over the years. I would think that the accountant should be more helpful in resolving these problems, even if he is not the main person involved. To not do so would seem to put his client at ongoing risk, which is not in their best interests.

A small MP plan has several violations going back to the plan's 1999 inception, including no 5500 filings, document not updated for starters. The accountant determined the annual contribution for the plan, but did nothing else plan related. Our TPA firm was brought in to help clean up the mess, which apparantly has ruffled the accountant's feathers. We would like to see payroll records going back to 1999 to confirm that deposits were correct, as well as to get accurate partiicpant figures in order to complete the 5500s from 1999 - 2005. Accountant has told the owners "since you have hired a TPA, we are not going to retrieve this data". Is the accountant obligated to provide this information? A reasonable fee would be in order of course. How would you proceed?

Small employer has a 401(k) plan but, after several years has decided he no longer wants to allow 401(k) contributions. He wants to eliminate the 401(k) feature, but keep the discretionary PS piece. Is a CODA a protected benefit and therefore, is he prevented from eliminating it? Also, since this is not a plan termination, the participants could not take distribution of their 401(k) monies, correct? Finally, since 401(k) language is throughout the entire document and SPD, if the above is permitted, would you restate the entire document and SPD, or handle the change via a 1-2 page plan amendment, with an SMM? Thank you

I'm not certain yet as to the reasons for this, but the employer of a 401(k) profit sharing plan wants to "freeze" the plan, but not yet terminate it. In other words, he does not want to let anyone else into the plan, and he also wants to prohibit current participants from making any future 401(k) contributions. I assume there will be no more PS contributions either (there is no match). They will eventually terminate the plan and pay out either later this year or sometime next year. I can't think of a good reason for the delay, but, assuming the proper plan amendments are made, do you see anything wrong with doing this?

Bird - are you saying that all plans that are not self-directed must have the small plan audit? So, even a 10 life PS plan that has the bond, has enough qualifying assets, but is trustee directed, would require the audit?

A company had a 401(k) plan for several years back in the 90's. Business got bad, they terminated the plan in 2002 and paid out in 2003. There were only 5 employees, 3 of which were HCEs/Key's and the plan was top heavy. Business is better now, and the employer wants to start a new 401(k). Same three HCEs/Key's but with about 8 NHCEs now. Would the distributions to those 3 keys still count toward top heavy in a new plan? It's possible that the new plan would not be top heavy starting fresh in 2006, if we do not have to count anything from the prior plan.