Dennis Povloski

Plan is a traditional defined benefit plan. Plan has 4 participants who elected annuity forms of payment, and are receiving their payments from the plan trust. The plan is going to terminate through a standard termination with the PBGC. Can the participants already in pay status make new elections on plan termination if they want to, for example, get a lump sum from the plan. Let's assume that the plan will be fully funded and can pay out 100% of all benefits due. TAG says that 401(a)(9) allows for a change of election upon plan termination, and I just wanted to double, triple, quadruple check with the community as well. Thanks!

Got a question from an accountant who has a client that is the 100% owner of a single member LLC taxed as a sole proprietorship. The LLC is the sponsor of a solo-401k plan and files Form 5500-EZ. The owner of the LLC now sits on a board of directors, and the board of directors will only pay director fees to the individual, not his LLC. So the director fees are going to be reported on a separate schedule C. My instinct tells me that his sole proprietorship should become a participating employer to the plan if he wants to use the director fees as the basis for contributions. If he does have the sole proprietorship become a participating employer, does that somehow ruin the ability to file a Form 5500-EZ? It's the same person, just with two separate business entities that he is the 100% owner of, so I can't imagine that it would, but I can't find anything that specifically addresses this. Thanks!

Profit Sharing Plan has a last day rule for allocations. Employer wanted to make a flat 3% contribution to all employees, so he plugged a formula into payroll and contributed 3% to each participant every pay period (so that he wouldn't get a large lump sum contribution due at the end of the year). A participant terminated during the year, and therefore didn't meet the allocation requirement to receive the profit sharing contribution. The profit sharing was paid out with his distribution. The employer was not able to recover the excess distribution, so he will make a contribution to put the plan back in the place that it would have been, had the error not occurred. As I understand it, the employer can deduct the corrective contribution in the year that it is made. My question: Is the original contribution made to the employee that didn't meet the allocation requirements deductible? It seems to me that it's kind of double dipping if he deducts the contribution to the participant and also deducts the corrective contribution. Thanks all!

Plan has always filed as a small plan. On 1/1/2016, enough new participants entered to bring the participant count above 120. The plan merged into a larger plan on 3/31/2016. I'm preparing the final 5500 for the short year. Is an audit Required for my final short year 5500, or will it be covered under the acquiring plan's audit when they file their 2016 5500? I see the option to delay an audit in a short plan year, but this is also a final return for the old plan.

Profit sharing only, 100% participant directed brokerage accounts.

Wasn't sure where to post a question like this.... One of my clients received a packet concerning settlement of a class action suit against one of the stocks in their plan. The plan consists of individual participant directed brokerage accounts. Does the trustee have any responsibility for responding to the settlement claim? Because it is in a participant directed account, does the responsibility shift to the participant?

Box 12, code W indicates HSA contributions. As I'm learning about this, it looks like these contributions can be made through employee deferral via section 125, or they can be employer contributions. What I can't seem to tell is if the amounts were withheld through employee deferral, are they already included in either Box 1 or Box 5 of the W-2? Our definition of comp is W-2 including all types of deferral, and in this particular case, everything else is already included in Box 5...I'm not sure if I need to add these code W amounts in, or if they're already included in Box 5. Any help is greatly appreciated! Thanks!

If a participant has a pre-tax deferral balance and a Roth deferral balance in his 401k plan account and is required to take an RMD, can the participant choose to take the Roth money first? Assuming that the funds have been in there for 5 year and is a qualified distribution, there would be no tax due on the Roth balance, right?

For 2014, plan sponsor has a profit sharing plan (no 401k component) that is combined with a cash balance plan. Top Heavy test is above 60%, so the plans must provide the top heavy minimum in 2015 (5% provided in the profit sharing plan). Without consulting the TPA, the client opens up a separate 401(k) plan with safe harbor match effective 1/15/2015. No other contributions besides deferrals and safe harbor in this plan. The 401k, of course, has no eligibility requirements and immediate entry. So all employees come in on day 1. Key employees participate in the 401k, profit sharing and cash balance. In my reading, the required aggregation group consists of all plans of the employer in the determination year, which would be 2014. Since the 401(k) didn't exist in 2014, is there any way that I can get out of providing the 2015 top heavy minimums to people that are just participants in the 401k plan. These people haven't entered the profit sharing plan or the cash balance plan. Maybe this doesn't matter since the required aggregation group tells us how to determine top heavy, but doesn't necessary tell us who gets the top heavy minimum. I think the answer is that all the non-keys in all the plans need to get top heavy in 2015, but I'm grasping at straws....

If you have a takeover plan, that has many previously terminated, deferred vested participants, but you have no idea that they were ever properly reported on the form 8955-SSA, what is your philosophy on reporting them? Assume they were reported correctly and not report until they get paid out with code D? Report them with Code B just to make sure they're in the system? Something else? Thanks! Dennis

Wasn't sure where to post this one, so started in this forum.... The 1563 attribution rules have an exception for spousal attribution if certain conditions are met. Husband owns 100% of his own business Wife owns 60% of her family business (her siblings are the other two owners) Husband works in and manages the wife's family business. He is deemed to own her shares for sure. The wife has nothing to do with the husband's business, and her business is completely separate from the his business (no common customers, products, services, no income going back and forth, etc.). Is the wife deemed to own shares in the husband's business? I'm not sure if attribution exception is blown for one spouse, if that means it's also blown for the other spouse... Thanks!

The plan sponsor read an article about whether or not an employee should take the lump sum if offered one. So we were discussing some pros and cons (the biggest being that if he paid out lump sums, his funded status would go down the toilet). The article was written in a way that made it sound like employers were offering lump sums to save a buck and provide employees with a less valuable retirement benefit, so the author made it sound like the annuity was generally the way to go from the employees perspective. In the end, even if they could offer lump sums, it wouldn't make sense for this particular plan to drain it's investments to pay them out.

That's the piece I was missing. Thanks all!

A defined benefit plan that was frozen in 2001 currently doesn't have a lump sum feature. The AFTAP is 63%. I seem to recall that there is an exception to the restriction on paying out lump sums under 436 if the plan was frozen before 2005. If that's true, can this plan be amended to add a lump sum optional form, and then start paying out lump sums? Or would that somehow be considered an amendment increasing benefits and therefore not permitted? Any other ways something like this could blow up? Thanks!

I've never dealt with deemed IRAs inside a plan. If the plan allows for deemed Roth IRAs, is it possible to roll a Roth IRA into the deemed Roth IRA within the plan? I know that you can't roll a Roth IRA into a 401k plan, so if the participant wants to consolidate assets. Would allowing the plan to set up a deemed Roth IRA allow him to roll his money into the investment platform if the platform can recordkeep the Roth IRA separately?

Not sure where the right place to post this question is, so I figured I would start here. Have a client that's looking for a new investment platform for their 401k plan. One of the trustees made it very clear that they want the platform to be able to handle an in plan Roth conversion. I'm finding that some platforms can handle this under the old rules where there had to be a distributable event, but are not quite capable of handling the new rules, where there's no distributable event required. Anyone have any experience an investment platform that is set up to do this right? The issue is that they have to be able to set up money type that is Roth that still maintains the same distribution restriction as the pre-conversion money type. So for example, if converting traditional 401k money to Roth 401k money, they still need to maintain the age 59 1/2 restriction. Under old rules, all the money was distributable anyway, so it could just be put in a Roth Rollover money type.

We set up a cash balance plan for a client for 2013. The client uses a bundled provider for their 401k, and we only administer the cash balance plan. Their 401k is a safe harbor 401k. The client was supposed to have amended their document to allow for employer contributions (back in 2012, there were no employer contributions permitted). We now get to the end of 2013, and calculate their profit sharing contribution only to find out that they never amended the plan. We're combo testing the cash balance with the profit sharing, but if the 401k doesn't allow for profit sharing, how can we make the contribution? The bundled provider on the 401k is saying that since the plan is safe harbor, it cannot be amended to allow the contribution, and in fact it still can't be amended until 2015 because mid year amendments are not allowed for safe harbor plans. What would anyone think about an 11g amendment to a safe harbor 401k that allocates a profit sharing contribution so that we can pass a failed discrimination test?

We have a takeover plan that has maybe 15 participants that are older than 70.5 and no longer employed. The plan has never paid an RMD to anyone as far as I can tell. I'm reading Rev. Proc 2013-12 regarding the VCP program. It says that the plan sponsor should pay out the distributions that should have been made plus an additional interest payment based on the plan's actuarial equivalence factors. A couple questions..... Since they refer to an "interest payment", should there be any adjustment for post retirement mortality? The participant didn't die yet, so I suppose that could be a really dumb question. Does the additional interest payment come from the plan, or does the employer pay that from outside of the plan (like they would an excise tax)? If the plan goes through VCP, and they request relief with regard to the Excise tax, how does the participant prove to the IRS that the excise tax was waived? Should the plan give them a copy of the compliance letter they get as a result of the VCP filing?

Belgarath - thank you! That revenue ruling has a very good example that illustrates what I was looking for!

Is it possible to invest in a life insurance policy on a participant within a cash balance plan with the plan's death benefit being defined as the PVAB? So the insurance policy is basically just an investment of the trust, not a vehicle for providing a death benefit. I guess the real question is, do the incidental benefit rules on insurance not apply if the plan's death benefit is just the PVAB? I know this seems silly (why would you pay for a death benefit that you couldn't have), but I was asked the question, and I can't seem to find anything in writing that addresses the topic. I was told that you can't buy life insurance that provides a benefit in excess of the plan's defined death benefit, but again, I couldn't find that in the regs either. Any thoughts anyone? Thanks!

Takeover Defined Benefit Plan defines the death benefit as the face amount of insurance provided by premium equal to 66 2/3% of the Theoretical Individual Level Premium Cost. I noticed in reviewing the prior actuary's val, that they sent the owner and his wife waivers to sign saying they would waive any death benefit provided by insurance in excess of the amount provided by the policies that have already been purchased. Can a participant waive the purchase of additional life insurance if the plan says the death benefit will be provided by life insurance? Don't they need to amend the plan's death benefit instead?? Thanks!

We're putting together a determination letter filing for the Cycle B restatement of a cash balance plan for a new client, and the client cannot find any interim amendments for their original document. Do we need to go through VCP for non-amenders before we apply for the determination letter? Or do we file for the determination letter, and then have the reviewer assist us with the correction?

Client sets aside funds into an escrow account monthly to save up for their profit sharing contribution which they make in March of the following year. They always put the funds back eventually. That's what I've always heard, but I just found out that this escrow account is in the name of the plan, not the employer! With that knowledge, it sounds more like the plan sponsor is using plan funds for their own benefit. Don't they have a prohibited transaction every time they take money out of this account (even though the funds have not been allocated to participants, yet)? Does this just need an interest deposit into the plan and payment of excise taxes? Do they need to amend past 5500s to check the box saying "yes" there is a prohibited transaction that has not been corrected? Thanks!

Running the Top Heavy test in a 401k plan. A participant rolled money into the plan during the year. This always confuses me.... 1. If the rollover comes from an unrelated employer plan, I know that something shouldn't be included in my test. Is it just the rollover contribution? or is it the entire rollover balance on the determination date? For example, the rollover contribution was $1000 on July 1st, on December 31st, the rollover balance was $1100. Do I exclude $1000 or $1100? 2. Is the rollover excluded forever, or just in the year of the rollover contribution? I think just in the year of the rollover contribution, but am not sure. 3. I think the whole point of this is so that the rollover is not double counted. Does this apply to an IRA rollover into the qualified plan? Thanks!

Got it. Thanks!