masteff

The $3000 15-Year (aka Lifetime) Catch-up does not appear to be excluded from the annual additions limit. While I can find sources that say Age-50 Catch-up is excluded, I see nothing that says that for 15-Year Catch-up. IRS Pub 571 has a worksheet on page 10 that includes the $3000 as a component of calculating MAC. That pub also specifically says the Age-50 Catch-up is not part of MAC.

I'm wondering if there's something you've not shared (perhaps due to liability reasons) because I can't get from "no one knows for sure" to "we are concerned". (Frankly, those two phrases used together raises the question of whether the "concern" is merely a pretext.) The former plan appears to have accounted separately for regular profit sharing and safe-harbor profit sharing. The former plan sponsor appears to have relied upon that separate accounting. For you to NOT rely upon that same separate accounting requires you to have substantial reason to believe the recordkeeping was faulty at some point in time. Because that's what the IRS and DOL are going to want to see on examination. And, personally, I wouldn't want to change it w/out IRS approval of proposed correction (have you looked thru EPCRS?). By the way, if you continue to pursue this, if your argument is an accounting irregularity resulted in commingled regular and safe-harbor profit sharing, and if you don't have sufficient historical records to simply resplit the money now (as Blinky properly suggested above), you might look at the slightly different tactic of reclassifying all former plan profit sharing to safe harbor profit sharing, which effectively eliminates the w/drwl in question. That would be the more appropriate correction for a recordkeeping error: to adjust the recordkeeping in the most conservative manner. But again, I'd want IRS approval.

k man, the point in this post was valid... if the company itself doesn't have the money to pay for the audit, then the fee can be allocated amongst the plan participants' accounts (assuming its a DC plan, or DB can go directly against plan assets). However review your plan document before doing this to see how it says expenses will be paid; depending on what it says, an amendment might be in order.

I don't remember if it was our plan text or just the SPD's that referred to this type of person as a "restricted participant". Our loan rules merely required an account balance and active employment, so a restricted participant such as this was allowed to take a loan from a rollover. In fact, a few new hires will do rollovers solely for the purpose of being able to take a loan even though they're not yet eligible to make contributions. It goes back to the comment above about what do your plan and loan rules say.

Sole prop would be a Schedule C filer. Employer contributions for employees are reported on Sch C, line 19. All contributions for the owner are reported on form 1040, line 28. And yes, employee deferrals are part of gross payroll expense.

Whoa.... we're confusing ourselves w/ two separate 5-year rules. One applies to excluding years of service. The other applies to the buyback option relating to forfeitures. They work separately from each other. See Code section 411(a)(3)(D)(ii). As the earlier date for the case in question here would be counted from the date of the withdrawal, and as the withdrawal occurred in 2007 (per the original post), the employee has time to repay the withdrawal and have his forefeitures restored (at 0% vesting). I'd suggest a review of your plan text, specifically the section that describes the buyback and any limitation on how long the participant has to complete the buyback.

And if it doesn't allow if it, then the plan will need some amendments so that it does.

Ah, I see the issue now. I guess one question would be whether you allow people to bank vacation or if it expires. I'm used to it expiring so I have to shift my frame of reference. You could do it faster than a year. It just would be much more abrupt to the employees. Just move what J Simmons said above up a year. On July 1 2008, credit employees w/ the vacation accrued since their last anniversary date. Then on July 1, 2009, credit them w/ 1 year. So for example, John Doe who's anniverary date is 5/1 will receive a full year on 5/1/08 and then on 7/1/08 he'll receive an extra 2/12ths. The person who will be mad because he didn't have a full year notice will be the guy hired on 1/1 who used up his two weeks at spring break and only gets 6/12ths on 7/1/08 and has to wait a full year before he gets more. If you had a non-carryover plan, you'd just expire any unused days on 6/30/08 and issue a full year on 7/1.

I think we have to split this into two separate pieces. First we have the seemingly different treatment of the two groups of employees. Second we have the gross up of the gift cards for employee contributions. As to the different treatment. I don't see a problem w/ this in the plan. It's a pay practice outside of the plan and is not providing one group w/ greater benefits under the plan itself. Both groups are allowed to defer on the incentive income and, presumably, receive the same structure of company match, etc. As to grossing up the gift cards. My concern is thus.... How would three different employees be treated if their deferral elections were as follows: 0%, 3% and 15%? Or to put it another way, how much gross up is given to each employee? The problem is that 401(k) deferrals have to be a cash or deferral election. I can't tell you that I'll give you $10 but only if you defer it. You have to have the choice to take that $10 as cash (or other taxable benefit, such as adding the $10 to the gift card). So if our three hypothetical employees were each given a $100 gift card and then given $0, $3 and $15 dollar grossups for their deferrals, then the company might be violating the "cash or deferral" requirement of the code and regs. Note that I use the words "might be" because I'm not an attorney and there may be finer nuiances to the law that I'm not fully versed on. See reg section 1.401(k)-1(a)(3) (especially subparagraph iii which says "a cash or deferred election can only be made with respect to amounts that would (but for the cash or deferred election) become currently available"; the $3 and $15 in my example would not have been available in the absence of the election, violating this part of the requirements.) Edit: revised last sentence, was a in a rush last night when I wrote it and emphasized the wrong final point.

Guess we'd need to know more about what type of formula your looking for (the phrase can mean different things to different people, so a clearer idea of what you're looking for). At my last employer, in our HR system, employees had several dates recorded. One was hire date. Another was vacation date. Typically, vacation date would be 1/1 of the year of hire. So if you have a policy of, for example, 2 weeks of vacation after 1 year of service, then on 1/1 of the following year, the employee would be credited w/ the 2 weeks. One benefit of recording vacation date as it's own separate date is it made it easy to adjust for people who negotiated for extra years toward vacation when they were hired. Maybe you could expand on what part of the process you're having trouble with / need more info about.

One question, is this being discussed for a new plan that hasn't been written yet or is this for an existing plan where someone's dreaming they can have their cake and eat it too? A few more specifics might be of use, although I too am skeptical.

I'm gonna go w/ anyone. The language on form 5330 and its instructions are substantially similar to those used for forms 1040 and 1120, which are definitely anyone who is not an employee of the taxpayer and is paid for the service. Definitely nothing to make me think it's restricted.

Two threads in the past year I can think of have touched on this topic. You seem to have hit on several of the concerns expressed by others. http://benefitslink.com/boards/index.php?showtopic=38352 (this has a link which can lead to some other threads that might be of interest) http://benefitslink.com/boards/index.php?showtopic=36288 My personal thought on it is mixed (assuming one takes sufficient care to structure it properly). On one hand, putting a huge portion of a person's retirement assets into a single startup venture is extremely risky and not necessarily the best investment choice (and even worse if you have employees and offer it to them). On the other hand, too many people take taxable withdrawals from their retirement plans to fund these same startup ventures, so at least this is giving them a mechanism to invest the money w/out the immediate tax burden and possible early withdrawal penalty.

Revenue Ruling 2002-62 ( http://www.irs.gov/pub/irs-irbs/irb02-42.pdf ) refers repeatedly to the "annual" amount. Based on this and on the PLR, I would presume that as long as you consistently calculate the amount received in total annually, then you're fine. So figure your annual amount and divide it by the number of payments during the year (1, 2, 4, 12, etc).

Keep in mind that the following is just one opinion.... I remember some discussions that bordered on philsophical when setting up a heirarchy. First off, you have to leave child support and other court ordered garnishments at the top of the list (right after payroll taxes). After that it became a matter of what is for the best good of the "average" employee. When you start ranking needs, the need for health comes before the need for financial protection in the event of death comes before the need for retirement savings. So med ins > life ins > 401(k). Once we got to 401(k), we put pre-tax before after-tax and matched before loans before unmatched. At my last job (4500+ employees), our plans were silent as to the order of deduction from payroll.... we simply established it as a payroll policy. Our order was something like: Health & welfare deductions Pre-tax qualified plan savings Matched after-tax savings (availability varied by union plan) Qualified plan loans Other after-tax (like unmatched after-tax savings, United Way, etc) Note: the other thing you have to decide is if a deduction goes into arrears or simply gets skipped. Things like FSA and qual plan loans should probably be carried to a future check. Whereas after tax savings might simply be skipped.

No. Code section 410(a)(4), the actual admission date must occur no later than the earlier of 1) the first day of the first plan year beginning after satisfying age and service or 2) a date 6 months after satisfying age and service. This is why some plans use semi-annual entry dates.

While I personally disagree w/ the TPA, it's not the end of the world to follow the TPA's advice. Presumably, it's how they advise all plans they administer, so you have consistency on your side. And the IRS/DOL isn't going to sweat over one pay date versus the next. That said.... today's the 11th, so the real question is what did you do on the 4th? If you took the deduction, then cow is already out of the barn and the TPA ought to go ahead and accept it unless they can make their case citing specific language in the plan.

Is there anything that prevents simply amending 2006? OP says the accountant missed the deduction, which implies it otherwise was qualified to be taken on the 2006 return.

PATA, be careful to not latch onto the concept too quickly... I'll reemphasize something GMK wrote above, as you haven't mentioned the plan in question having employer stock. I'll stand by my previous post. We had two union plans that allowed w/drwl of employer contributions. We had multiple employees do exactly what you're asking about. To our annoyance, a financial planner near one of our sites even started coaching our employees on how to do it.

Some plans allow for the in-service withdrawal of employer contributions, which generally can then be rolled over to an IRA. The plan document would have to specifically allow for this type of withdrawal. It cannot be used in a safe harbor plan as employer contributions are specifically restricted in those. I do believe there's some small restrictions on employer contributions, two years of plan participation comes to mind, but don't hold me to that.

I didn't argue whether or not it was "smart". I simply stated that it's not common. I even sent emails this morning to a few HR consultants I know at various companies and they agreed that while they make every independent contractor sign something, they've had no experience of any company ever requiring temporary employees to do so. One person had a couple interesting stories along that line. An employee of an independent contractor who tried to file under ADA, claiming they didn't have a job for her after she returned for an injury. The EEOC sending paperwork on a claim by a temp (which was countered by saying "sure, we'd be happy to go to mediation but didn't you mean to send the paperwork to this agency over here (or do you just want our deep pockets)"). And the one that made me shake my head was the temp who got let go a day after calling the recipient company's harassment complaint 800-number.

1) Sometimes Google search can be a wonderful thing, here's a brochure on the product: http://www.benefitplanadvisors.com/pubs/GMTQA.pdf At least on the third page they say the limit on the current tax deduction is based on something that sounds like life insurance premium rates. 2) To your point that the LLC has no employees, 419(e)(1)(B) says: "through which the employer provides welfare benefits to employees or their beneficiaries." So I'd agree there would need to actually be some employees. However, as it's an LLC, it's conceivable that an individual owner-member could be construed to be an employee for these purposes; I just don't know. But in that case, Notice 2007-84 warns (emphasis added): Oh, Don, on your "can it be used for non-employees" question. 419(g) does say it can be used for independent contractors. If that's what you meant.

It was by no means an expression of my personal insights on the economy at large. What I said was "here are some reactions you're going to get from people if you walk in w/ this sales pitch". Even if the media is overblowing the situation, either all rosy or all fire/brimstone, it is what's being discussed by people around the watercooler. Therefore I see what I wrote as a valid, current, topical question the person is likely to encounter. But your frustration w/ the current state of media coverage on the economy isn't misplaced, in my opinion. I felt annoyance as Yahoo and others have jumped on the "how to recession-proof your {fill in the blank}" band wagon over the last few months.

The "industry" is the multi-billion dollar temporary employment industry. And I worked enough temp jobs to know you're well off base about recipient companies have any sort of written agreement w/ the temps doing the work. If you've seen such, then yours are the exception and far from the norm. As a temp employee, I have an employment application and I-9 on file w/ the leasing agency. I never had anything in writing between me and the recipient company (except maybe a non-disclosure or internal security form). Are you possibly confusing a written job description as an "agreement"?

I'll just add that sometimes you can exclude based on two other elements of the criteria. First, it has to be a legitimate 3rd party acting as the leasing agency (the "any other person" in Planman cite). I went two or three rounds w/ an HR guy about whether an independent contractor could argue that he was being leased to our company by his 100% self-owned electical company. Second, the services provided by the temp have to be "performed under primary direction or control" of the recipient. I had to interview a few supervisors to find out just how much the workers were autonomous versus company-directed. It becomes the age old contractor vs employee test.