AlbanyConsultant

I've looked at several similar threads on this, but most are old enough that I wanted to see if there were any new ideas... 4 participants of a plan have returned to Ecuador - a very "in the middle of the night" kind of deal. Three have balances in excess of $5,000, and the other is over $1,000 (which is the plan's new automatic distribution threshold effective 3/27/05), so there's no basis for an immediate distribution anyway. Can these participants be declared "lost" or "missing"? They have sent certified letters to their last known address (which have all been returned, naturally). They were not in any of the employer's other plans, so there's no information there. Regarding beneficiaries, they either didn't complete it or were each other's beneficiaries, so that's not going to help. And I can't imagine the IRS or SSA letter forwarding service is going to be able to find them - they'll have the 2005 address, and I highly doubt they are going to pay taxes in 2006! Our plan document (Datair prototype) says that if they don't respond within 3 years of sending a certified letter, "the ultimate disposition of the then undistributed balance of the Distributable Benefit of such Participant or Beneficiary shall be determined in accordance with the then applicable Federal laws, rules, and regulations." It seems that I just have to tell my client to sit tight until 3 years have passed and then revisit the issue, right? But let's say that three years is now - what would I do with this money? Thanks.

Philosophically, E. That's what I was trying to ask. Profit sharing contributions are from the employer, too, so why not hold them to the same standard? No, wait, I don't want more spousal consent plans... Point taken, Belgarath, but it's certainly the rare case nowadays where a new PS/401(k) isn't written to neet the QJ&SA exemption. And I've got plenty of profit sharing plans where I'm still carrying the "old money purchase" balance as a separate source still subject to QJ&SA; in fact, that is sort of what lead to the question in the first place. So, not to sound like a typical 5-year-old, but, "Why?"

I had a broker ask me this question, and I had no idea what the answer is. I'm not having any luck finding anyone who knows for sure, so here I am. We know that profit sharing and 401(k) ("non-pension") plans don't need spousal consent for distributions (and the same goes for pension plans where the distribution is <$5,000) if the document so provides. But why those kinds only? Why does a participant with a $6,000 money purchase plan balance need to have her spouse sign a consent form, but not a participant with the same balance in a profit sharing plan? Any help? Thanks for the illumination...

Uh-oh; not so perfect. I just had an accountant tell me that the correct way to do this was to take the ordinary business income (Line 1 of the 2005 K-1), add the guaranteed payments (Line 4), and subtract the Section 179 deduction (Line 12). This comes up with a number slightly different from Line 14 - Line 12. I didn't really get a good explanation (or maybe I just didn't understand it), but he was quite sure that his way was correct. Is anyone else doing it this way?

Perfect, R. Butler, thanks!

I was at a Corbel conference just over a year ago, and I've got a hastily scribbled note that says "real net K-1 earnings are net of IRC 179 amounts and non-reimbursed expenses". Now, not that I don't trust myself, but I can't find anything anywhere that corroborates this. Does this sound familiar to anyone out there? Also, does this hold for Schedule C comp as well? Should I be backing line 13 out of the the net comp?

If a participant leaves company A and begins to work for company B (both of which are in the same controlled group), can their account balance be transferred from A's plan to B's plan? Or is there not a distributable event because the participant hasn't left the employ of the controlled group? Does it matter if the change was initated by the company or the participant? Gut reaction: you would be allowed to make the transfer; it would certainly make things like loan processing easier. Thoughts?

Not meaning to drudge up an old thread, but... I have the same issue w/ a prototype plan, so I actually called the IRS yesterday (!) and got someone who was very clued-in as to what I was talking about (!!). He said that since technically opinion letters are NOT determination letters, 3c on the 5310 must be answered "no", and you are required to send copies of all plan documents/amendments/whatever back to plan inception. That being said, he noted that it is up to the individual reviewers, and proof of a valid GUST document is probably all that will be looked at. We're going to take the policy of sending GUST and subsequent amendments only (along w/ the opinion letter), and we can discuss what else the reviewer will actually look at when he requests more information. The plan I'm working on is over 25 years old, and finding/pulling documents from that far back is a can of worms I don't want to open if I can avoid it!

I've got a controlled group (technically a group under common control, since at least one of the entities is a partnership) where the same four individuals each own 25% of each entity H, G, and S. H and G each have their own plans, which are mirrors of each other (deferrals only), while poor S has no plan at all. Luckily, S is a staffing company that provides per diem employees to H and G, and both H's and G's documents specifically exclude per diem employees, so the vast majority of S's employees are not eligible by class, and since most work less than 1,000 hours, they would never meet the statutory guildelines and therefore don't impact the coverage testing. I know there are issues with long-term employees from S possibly being considered employees of H/G after a year, but that's a question for another thread (though it may be coming soon!). From reading Tom Poje's responses in this thread: http://benefitslink.com/boards/index.php?showtopic=29893&hl= it sounds like I have to make the same aggregate/disaggregate election for both coverage (410(b)) and 401(k) testing, but am free to select either option. Have I got it right? Are there any circumstances that would force my hand one way or the other (besides, of course, that doing it one way fails and the other passes!)? This is my first time dealing with something of this complexity, so if I'm overlooking anything else, please feel free to let me know.

OK, Leopurrd, but then how do you match on that deferral? There's no real compensation to base the formula on. Obviously, the easy answer is to allow for true-ups, but we can only lead the horse to the water; we can't make it drink!

Bird, then how is the s/e participant able to defer during the year? They are not making a contribution based on an election form (which presumably asks for deferrals on a payroll basis, not annual). I too have a safe harbor match plan, and I stumbled onto this problem by trying to advise how to calculate the s/h match (100% of the first 3% plus 50% of the next 2%) on the partner's deferral, calculated on a payroll basis w/ no true-up. Search can be your friend!

I think I may have found the answer, where else but in Sal Tripodi's book. From the 2005 ERISA Outline Book, Chapter 13, Section VI, Part E.1: <emphasis mine> So the prospectus can be provided after the participant buys into an investment, which happens fairly automatically in my experience. I'm willing to interpret (2) as saying that the participant has to be made aware that they are able to use a brokerage account as an investment option, as opposed to a description of every stock, bond, fund, etc. That's how I'd also respond to your "designated fund" issue, MWeddell, although I admit that I've not seen anything concrete on that, either. So unless anyone can point out a real flaw in this reasoning, I'm willing to call this settled. Anyone?

I've read through the 404(c ) checklists and commentaries from Fred Reish, David Pratt, and several others, and it seems like saying you intend to comply with 404(c ) (on the 5500) and actually jumping through all the hoops to do it are two separate things entirely. That being said, can you even make a claim to be attempting to be 404(c ) compliant if all participants have individual brokerage accounts? The participants can invest in anything they choose, so I would think that there is no way the Trustee can provide education and information on everything available. Unless then this responsibility it assumed to be covered by the broker, but I don't know if that is OK. Thanks.

[Yeah, that topic header is a mouthful!] My client is an LLC taxed as a partnership. One of the members told me that they are going to have a reduction in income next year because he doesn't feel right charging one of their clients hundreds of dollars per hour for a service, so instead he will actually work there part-time, earning a W-2 from them. There will be no change to the structure of the LLC, and he will still work on other LLC business as time permits. How will this affect his compensation? The plan is a safe harbor 401(k) with the 100%-on-first-4% match, so I need to know his comp to determine the match amount. Since the W-2 won't be paid by an entity the is sponsoring the plan, it would seem to be excluded for plan purposes. Could it be that simple? What about any effects on the other members (since the LLC will have less income, they will each receive less, and therefore 4% of their compensation will be less)? Thanks.

Based on the following from Janice Wegesin's 5500 Preparer's Manual (Aspen) - which is a fine publication, and one I do not mean to disparage in any way! : ***** The following are common issues raised with regard to fidelity bonding required for pension plans: 1. For purposes of indentifying nonqualifying plan assets held by small pension plans. Common examples are certificates of deposit or Israel Bonds. Typically, these certificates and bonds are physically held by the individual(s) named as plan trustee. page 3-11 ***** there are some in my office who interpret this as saying any CD that is part of plan assets is a nonqualified asset. And by equivalence they extend this definition to checking accounts (because a previous version of the manual included them with CD's and IB's, notably absent in the current version). Granted Israel Bonds are usually a headache to start without further complicating them... But has anyone else read this section and interpreted it this way? It seems a little too "broad stroke" to me. I could see reading it as "a CD or Israel Bond held in the name of the individual as trustee is a nonqualifying asset"; that just goes with what pension people have been saying for years: accounts must be set up in the name of the plan. What gets me is that nothing I see in the section quoted says yes, these are examples of nonqualified assets; it says these are "common issues raised"; what does that really mean? So far, I got a reason of "that's they way we decided to interpret it a few years back, and we'll check when we've got some downtime", but I was hoping to have a solid case for the opposition by that time. Thanks...

Just putting together the 5500 to send out to the client when I noticed that the address and EIN don't match the 5558. I'm not entirely sure what the problem is (probably in someone's vision!), but the 5500 has the correct info. The plan name is the same on both, but I know that the EIN matters more. The 5558 instructions don't have a mechanism for amending the form. Any suggestions as to what to do? How about an attachment to the filing explaining the difference (computer glitch, most likely)? I figure it couldn't hurt... On the daring side, I could wait and see if it generates a letter from EBSA, except that the client actually did file 2003 late (in December 2004), and I'd like to avoid any possible flashbacks.

I've got a client where one of the owners/Trustees terminated, and as part of the agreement the lawyers drew up (without consulting yours truly, naturally), was that he was to receive $X of an employer profit sharing contribution for 2005, payable immediately. It's a cross-tested plan, so we can put this guy in his own class, no problem. There's a last day requirement for a profit sharing allocation, but the remaning owner/Trustee has agreed to amend that out (it's a small company w/ almost no turnover, so he figures that it won't cost him very much). Individual accounts, so there's no issue of shared earnings. He's over the comp limit (even for 2005), and he got $X last year, so there's no reason to suspect that he would not be able to get the same amount this year. However, the "immediately" part is bothering me. I'm sure that prefunding the profit sharing contribution for one HCE only is wrong. I said as much to their CFO, and his response was, basically, prove it in writing and we'll get the agreement changed, otherwise, I've got the check in my hand ready to deposit. So is there a specific something I can quote that says this is bad? Or is it just something that I have to say that we advise against because it may be considered discriminatory under an audit? Thanks.

I've got a case similar to this, where the company went belly-up but still owes a MP contribution and the owner wanted to take it from his account. No go. The bankruptcy trustee/attorney claims that the plan now becomes a creditor of the employer. We haven't gotten past that yet, so I'm not sure what kind of priority claim it has. I'd recommend going to the attorney handling the bankruptcy and get their input.

QDROphile, while I agree with you that in cafeteria plans and the like this needs to be specified, I've never seen a 401(k) plan document that covers it. I've just today checked 3 different protoypes and 2 volume submitters and nothing is ever mentioned. If you're working with a document that spells it out, I'd love to see it so I can send it to our document providers. Let's edjumacate the idiots! WDIK, sure, the document language prevails, if it is mentioned. It's just that it's not.

A question we're debating in the office here: is there any requirement to have the participants update their elections annually (or some other frequency, I suppose)? We're considering things like an election to not purchase life insurance, 401(k) deferral percentage, investment election, beneficiary designation, etc. Most of us believe that such things are in force until changed by the participant. I can't find anything on it for or against, so I'm willing to take the silence as a "no"...

Just picked up a client that didn't make their 2000 ($30K) or 2001 ($9K) money purchase contributions. Luckily, the plan was converted to PS in early 2002, so there were no more required contributions. And now we want to make things as right as can be, given the circumstances. If I understand the pyramid-like way this is supposed to work, I think I submit the following Forms 5330 with the penalties like so: 2001: $30K * 10% = $3,000 2002: ($30K * 2 + $9K) * 10% = $6,900 2003: ($30K * 3 + $9K * 2) * 10% = $10,800 2004: ($30K * 4 + $9K * 3) * 10% = $14,700 2005: ($30K * 5 + $9K * 4) * 10% = $18,600 Total penalty due: $54,000 And don't even get me started on earnings calculations... unless, that is, they're counted in the accumulated funding deficiency (which I don't believe they are). Does this look right? I know I can't be the only one with a plan like this... thanks.

I thought I knew this until someone asked me directly... If you count the receivables in the BOY amount to determine the 20% threshhold, then (usually) you'll get a higher amount and thus a higher limit, so you may have less assets to report. But it seems sort of disingenuous to inflate the number that way, and so maybe that calculation is meant to be done on the actual cash assets at BOY. I can't find anything definitive to support it either way, so any direction is appreciated!

I've seen a few articles lately that reference the aggressive combo of automatic enrollments (or negative elections) and deferral step-ups. The first part (withholding deferrals from an participant's paycheck unless they say no) has been talked about at length for the past few years, but this is the first time I've heard of the step-up feature. Somewhere (presumably the SPD, but maybe also the document), the participant's are notified that at the beginning of each plan year, their deferral percentage will automatically be raised (the articles I saw didn't make it clear if the participant could opt out of the increase, though I presume a participant could change their withholding percentage at the next appropriate time) by 1/2% or 1% or whatever. There were very few details, so I was wondering if this is something that is just gaining momentum, or maybe I haven't found the articles against it yet. Has anybody heard about this, or actually implemented it? Obviously, this would be a great help to the non-safe harbor 401(k) plans, but I'm not wild about being the first on the block to recommend it! Thanks for your input.

Blinky, I realized this on the way home after posting, so, yeah, that's the way I'm going to go. Which means that there is no 945 filing, because there is no withholding to report. I've never seen a plan get in trouble for not withholding - has anyone else? Not that I'm going to advise my clients to stop doing it!

I've got a doctor who worked with his accountant to withdraw money from his PS plan several times last year. In each instance, instead of withholding 20% and remitting it through normal channels (and never mind filling out distribution forms!), he figured what the effect of the distribution would be on his total 2004 taxes and then sent in estimated taxes accordingly. [For example, if he's in a 30% tax bracket, and he took $40,000, he would have sent in $12,000. If the next distribution of $60,000 put him at at 40% tax bracket, he would have sent in $24,000.] Yeah, I had to pick my jaw up off the floor, too. And of course, I first learn of this on 2/7, and am asked to prepare the 1099-R, etc. So I will reflect the gross distributions in Box 1 of the 1099-R. And all taxable, since they were all cash payments. For withholding, I suppose that it would be the total of these amounts that were calculated, even though it will be more than 20%. And since he's 58 and termed, he meets the Code 2 exceptions for Box 7, so at least there's no additional 10% penalty. The questions I have are: 1. Is there a problem in general with withholding MORE than 20%? I can't imagine that the IRS would be upset with getting more money sooner. 2. How in the world is the money already sent to the IRS (presumably under the doctor's SSN and not the employer's EIN) going to get matched up? There's going to be an issue with the 945 showing a payment under the employer's EIN, but it not being there, and I expect it will only get resolved when the IRS sends a notice and really looks into it. 3. Assuming that this all did really happen on the accountant's advice, can I somehow justify grievous bodily harm to said accountant? Mental anguish or something? Thanks for all your replies.