E as in ERISA

You better check the recent IRS rulings regarding the value of the insurance contracts. See http://benefitslink.com/pr/detail.php?id=37746

Maybe he bought real estate in 2000 and had a house built on it during the past few years? I don't recall the specifics of the general tax rules on loan for a primary residence. There are some time lags. You might look under those rules -- can't remember the section -- but I believe that its referenced in 72(p) rules.

They are required to review the 5500 and make sure it agrees with the audit before issuing it. If it doesn't agree, then they are required to footnote the audit noting the exceptions. In the past, some have issued based on an agreement by the client that they will make any changes to the 5500 necessary for them to be in agreement. But they may not be doing that anymore.....

Okay. Now I see that the distribution was already actually made -- without paperwork on behalf of the participant? And you're trying to justify it?

It's indirect. If the person was getting charged $100 for admin of their account in their ex-husband's plan (assuming that is justified by the costs of the plan), then they might choose to switch to a lower cost IRA. Of course, you would have to do the same for all terminated participants....

By definition, "blackout" only includes temporary suspensions, not permanent suspensions.

I'm not talking about legal issues -- I'm talking about practical issues. In order for the new employer's payroll system to take loan payments out, it needs the legal paperwork to authorize it and it needs the necessary loan information from the old plan and it needs that information input into the payroll system. I'm not even saying that you can't do that. I said that you have to determine the logistics in advance -- because it won't happen naturally.

The IRS and DOL have indicated that you can charge terminated participants for the administration of their accounts.

You should determine in advance exactly how you are going to do this logistically. Loan payments to the old plan will probably stop at the time of sale. But the transfer of assets may occur much later. And default may occur in the meantime.

EPCRS would generally allow you to issue it in the year discovered. Since the 1099 issue is generally an individual taxation issue, I think that this answer is good from the IRS's perspective because it keeps the statute open longer.

There may not be a legal rule that strictly prevents it, but practically speaking in many cases the demographics would not allow it (e.g., if most of the keys and/or HCEs are in the plan with the medical spending, you will have a problem...)

Yes. See the example in the 1.83-3 regulations.

I don't think that you want the second company to be an adopting employer in the plan in which it isn't participating. I think that you need to undo it. (But you might want to check and see what is the intended result -- both in the same plan v. each in their own).

Who did the client hire -- the corporation or the individual? What's the documentation? A unilateral document showing he is employed by his own corporation? The company is a contractor; and the individual is not an employee? Possible repercussions: Money kicked out of plan. Deferrals treated as compensation in years contributed. Income taxes due on those deferrals for those years. Same for medical premiums. W-2s corrected to show $0. 1099s issued in their place. Employer's share of FICA/SE taxes paid by individual on ALL income for those years. Individual reimburses employer for employer's share of medical premiums. Individual reimburses employer for vacation pay, sick pay and other employee benefits. "Contract" with corporation, if any, terminated. He's gone...

I think so. If you substitute your years for the language in Notice 98-1, I think that it says "If the prior year testing method is used for the 2003 testing year, QNECs that are allocated to the accounts of NHCEs for the 2002 plan year must be contributed by the end of the 2003 plan year to be treated as elective contributions for purposes of the ADP test for the 2003 testing year." http://www.unclefed.com/Tax-Bulls/1998/not98-01.pdf

Don't you have to wait at least a year after the final distribution from the old 401(k) before setting up the new 401(k) in order to avoid successor status?

Is worker's comp paid through the employer's payroll system -- so that there is a source for withholding? Or is it paid by a third party insurer?

My understanding is the same as yours: that the plan dictates what contributions are "catch-ups." Check legal counsel or sponsor for interpretation of the plan.

I think that the issues more often are with the administration of it. E.g., the payroll system isn't generally set up to work this way -- so it either gets missed....or the deferral percentages get applied to all bonuses and others weren't expecting it. Or one year the bonus doesn't get paid until after year end. So no contribution is made for the entire year. Etc.

As Blinky noted, he should have taken some compensation! Show them you're being proactive: Check to see if there is something that might be considered compensation under the terms of the plan. E.g., was there a little personal use of a company vehicle that could be W-2'd...and then considered as compensation for plan purposes? But then the owner might not like getting that W-2...and decide the other HCE should just get a refund.

What is the old plan negotiated the promissory note to the new plan (assuming it was a negotiable interest -- which most probably aren't today -- since the notes aren't signed).

Isn't the first question whether he is included in the test and then the second question is whether he is an HCE or NHCE? So if he's not included in the test, it doesn't matter what his classification is? E.g., if someone worked for a company last year making $200,000 but terminated at year end, you wouldn't put them in the test just because the HCE determination would make them an HCE for the current year would you? Or is someone was a 20% passive owner performing no services, you wouldn't put them in the test just because they'd be an HCE would you?

I think that you'd essentially count the father and minor son as one. Together with the outsider, they meet the 80% test (they have 100%). They also meet the 50% test (counting only the identical interests -- and attributing all 75% to either the father or minor son -- there is also 100% identical interest in each). I think that the bottom line is that the father would be assumed to be in a position to make all the decisions about each company -- and accordingly he is expected to make uniform decisions about the plans for both companies.

Otherwise where do you draw the line? What if they intend to split all assets 50%. But employee has physical custody of children and wants to keep the house. So for convenience they give spouse 100% of a $250,000 plan balance and custodial employee gets the $250,000 house. In essence employee has received 50% of each asset (including the plan) and then bought the spouse out of half of the house.

Isn't son attributed father's share of 2 even if he is over 21 -- because he owns more than 50%? But he still doesn't own any of 1....