Santo Gold

Very small employer wants to look into setting up a 401k for 2005, here in the last week of December!!! There's only about 5 employees (3 of which are HCEs) and the objective is for the owner to take a big bonus and defer some/most/all out of it. Lots of mechanical problems obviously, but lets assume that the plan can be adopted as soon as today, and that investments are chosen and ready to go. If only the HCE chooses to defer, then this won't work (failed ADP test). Could a massive QNEC to NHCEs only solve this problem? Alternatively, let's assume 1 or both of the NHCEs agree to have some of their bonuses deferred and there is room for the HCE(s) to contribute. Would this be acceptable? Would 401(k) comp. have to be limited to earnings paid on or after 12/19/2005? This is pushing the envelope but is their anything inherently wrong here? Thanks

The tax credit for emloyers who start new retirement plans (less of $500 or 50% of start-up costs for the first 3 years), is that tied to EGTRRA and still available for 2005 and 2006?

A related question regarding terminating a SARSEP. I understand the need for an amendment to terminate the SARSEP and an employee notice about the termination. Is there any advance notice needed for either of these? Can the employer take action on 12/31/2005 to terminate the SARSEP, notify the employees on that day, and start a 401(k) on 1/1/2006?

Upon termination of employment, can a plan be written to prohibit rollovers out of the plan? Allow just for lump sum (cash) distributions?

If a 401(k) plan is 100% self directed, and all monies go into individual brokerage accounts for each participant, is a fidelity bond still required? I think the answer is yes, since the bond is needed to insure against mishandling by the person(s) who is responsible for getting the money to the brokerage accounts. However, I noticed on my 5500/SAR software that when I indicate that all money is 100% self-directed and participants receive statements directly from the investments, that I am not prompted for bond information. This leads me to wonder if the bond requirement is N/A for such accounts. Does anyone have a comment or 2 regarding this? Thanks

Small 401(k) plan operates on a 7/1 - 6/30 plan year. if the plan is safe harbor (3%) for 04/05 plan year, can the owners (they are the only hce's) make 401k contributions of $13,000 in 2nd half of 2004, and then $14,000 in first half of 05? Then, skip the safe harbor for the 05/06 plan year, in which the owners make $0 401(k) contributions. For 06/07, back to safe harbor, with the owners again doing double 401k? Do you see any problems in doing this? Thanks

We may try for a safe harbor or 1/1/06, but they may want to sneak in the 401k for 12/05 given their bonus situation. Thanks for the replies

A company wants to start a 401(k) plan effective 12/1/2005, with a 1 month SPY, before operating on a calendar year starting in 2006. It is a doctors office, with about 17 employees. The 2 owner docs will receive very large bonuses in December, from which they will make 401k contributions. ADP testing is always a concern, but other than that, is there anything else to worry about with this situation? For example, if the docs get bonused (and do 401k from the bonus) and no on else does, is that a problem? ADP may not be too bad, since although there will be a small dollar amount of 401k for the NHCE's, we would use only 1 month of comp which would drive up the ADRs. Thanks

Thanks to all for the help.

The financial advisor is giving investment advice to the participants. I do not know how specific or tailored it is to each participants. The trustees have picked the investment choices available to the participants, based in part on the FA's advice. Commissions are paid; this is not a fee for service arrangement. The FA is saying that their is an indemnication agreement with the trustees that will hold harmless the FA for any investment performances, and that therefore he is not a trustee. Can this be true? FYI, based on the link the EAIE provided, there are instances where FA's will not be considered fiduciaries. I need to research further to see if that applies here.

If an employer uses a cash basis for company accounting purposes, does that mean that the company's 401k plan must also use a cash basis? For example, if the company decides to make a $20,000 profit sharing contribution in Feb. 2006, because it is using cash accounting, it would show the $20,000 on the 2006 tax return. Would that mean the employer could only allocate the $20,000 based on 2006 wages (pro-rata allocation). And since the 2006 wages will not be known until 12/31/2006, they could not be allocated until probably 2007?

Thanks for the great link. Financial advisors can limit their services to avoid fiduciary responsibility, per page 3. Very informative.

Is a financial advisor automatically a fiduciary for a plan? I looked up the definition of fiduciary and read that "...a person who renders investment advice for a fee or other compensation, direct or indirect, with respect to any assets of the plan, or has the authority to render such advice (even if not actually rendered), is a fiduciary". In my specific situation, the financial advisor will receive commissions on the assets, but I take this to mean something different than receiving a fee or compensation. Also, all assets are self-directed. Thanks for your help.

My wife's grandmother passed away in 2004. Aside from a few thousand dollars in her bank account, her estate consisted only of her house. Back in 1999, she had a will made, in which she named my mother-in-law and her sister as her beneciaries, 50/50 split. At that time, the house was put into all three of their names, with each owning a third of the house. So the house is now about to be sold, with the sale price around $130,000. The 2 sisters will split it 50/50. But is their any type of inheritance tax or income tax in this situation? Someone from the closing company called and stated that since the grandmother owned 1/3 of the house at the time of her death, that taxes will have to be taken out of her share of the sale price. But if the will states that only the 2 sisters are getting the proceeds, does this make sense? An attorney will be brought in to sort this out, but I was hoping to hear from others what they would expect in this situation. Thanks.

In Ohio, our 4 seasons are known as: almost winter, winter, still winter, and road construction season. Graduated from college and somehow fell into the retirement plan field, and have been at it for the past 12 years. Our company's structure puts me into a lot of situations where I'm working without a net, hence my hobby of making frequent posts on benefitslink looking for help or verification. I try occasionally to offer my own input to others on this site, or at least try to sound like I know what I am talking about. Like the old saying goes: " You can fool all of the people some of the time, and some of the people all of the time.....and those are pretty good odds".

RTK: I think I meant to say that. My concern centers on this: If the sponsor adopts an IRS approved prototype, the sponsor has assurance that the form of the document is OK. As long as the sponsor does not change the approved prototype in any way, adopts it timely, and complies with the language contained therein, the use of that document can be relied upon as a legitimate plan & trust (assuming trust language is contained in it) and the plan will enjoy the tax qualified advantages offered under 401(a) (Ongoing operation might jeaporize that, but I'm concerned right now just about the document). So, given that the preceding requirements are met, regardless of the legal disclaimer that Janet M mentioned, we would have still have a qualified plan document. Am I right? Thanks to all.

Janet M: Regarding your second post.....I would think however that if their documents have favorable IRS opinion letters, that the disclaimer is somewhat not applicable. If a prototype has the IRS blessing, and a sponsor uses that prototype, all is well, regardless of the legal CYA on their website. Would you agree?

Has anyone heard of or used Fort William online document services? They offer prototype and volume submitter documents at what seem to be impossibly low prices. Their website doesn't indicate who is responsible for their product. Buyer Beware of course, but has anyone worked with them before?

Thanks Pax. This is a pretty straight forward union 401(k) with ind accts, all with 1 fund family, and it does not appear that any of the exceptions to filing the accountants report apply. I'm going to check back with the cpa. Sometimes I think "read the instructions" should be named honorary moderator of all of the boards at benfitslink

I have a collectively bargained plan with about 150 participants. Is an accountant's report still needed to be filed with Form 5500? I would assume yes, but I have an accountant who is saying no.

Employer wants to start a 401k plan and wants to have life insurance as an option. He has money in an IRA that he would like to rollover into the plan, and use either some, most, or all of the rollover to purchase a life insurance policy. Is it allowable to purchase insurance with rollover money, and is it discriminatory if only he purchases the insurance (ie, no one else wants insurance)? Thanks

We've already done that, and the clients response was: 1. They are happy with us 2. They are suprised we knew about this 3. They are not real "serious" about doing anything right now, but if they like what they hear, they will give the current financial guy an opportunity before making any final decisions. I informed her that we will make a proposal with the new person. I was just looking for thoughts on how to handle the situation with the current advisor. He brought us in on this case, as well as several others. I feel like a cheating spouse if I bid on this with someone we do not even really know, which would take the business away from the current advisor. The client did request that we not say anything to the current advisor just yet. I understand that business is business, and maybe we should quote and leave it at that. It just seems that if this progresses to the point where they do look to make the switch, current advisor will eventually learn about our involvement and sour future business with him.

Our firm works with many different financial advisors and performs only tpa services (no investment/insurance product sales). We are also approved/recommended tpa's for several larger fund families. Recently, we received an email from one of the mutual fund families requesting that we provide a fee quote on a plan that we already handle the admin for. An outside financial rep got in touch with the client and will be proposing new funds, options, etc, and the fund house contacted us requesting that we provide this rep with a quote. Can anyone offer their advice on how to proceed? To do nothing would jeopardize our tpa role in the plan, and yet to offer a quote would seem to be going behind the back of the current financial guy who brought us in. Our fee quote would likely be less than what they are currently paying since the new investment structure and platform would reduce the services that we provide. Any thoughts are greatly appreciated.

I'm sure someone has a ready answer for this. I purchased a laptop about 3 years ago when in hindsight, I was better suited for a desk top (and could have saved about 50% on the cost). In fact I am essentially using it as a desktop at this point, and that is where my question comes up. Since I rarely have to move it around, it is plugged in (ac/dc power) almost always. Rarely do I need it to run on battery. Therefore, it is always fully charged. Is this a problem now or will it be one in the future? I've had 2 different friends in high IT places who have provided opposite answers. FWIW, it is a Dell Inspiron 8200.

Company owner has a 401(k) plan and wants to rollover about $16,000 in after-tax money into the plan. Assuming that the plan allows for after-tax money and assuming the TPA accounts for this money separately (tracks pre and post money separately), is this a problem? Also, is there any special paperwork that needs to be completed to accomplish? Thanks