BeanCounterBlues

My understanding of whether document preparation (prototype) fees are a settlor function or not regards whether the plan is already drafted or not. An initial drafting is a settlor function, subsequent amendments are restatements are not. Can someone please confirm or correct me if I'm wrong? I have a client who will restate into an EGTRRA prototype soon, and they pay the TPA's fees from the plan assets. The TPA will do the prototype. I just want to make sure the TPA doesn't need to bill the plan sponsor vs the plan itself for the cost to update the prototype for the EGTRRA restatement. Thank you for any help.

Bird: Thank you for your kind response. I don't disagree w/ you. However the Plan's auditor (>100 lives) is insisting this be fixed and if Plan sponsor chooses not to fix it auditor wants a cite for the position. Any further thoughts? I left the auditor issue out of the original post hoping someone on the boards would have run into this in the past and had suggested fix. Thank you again.

Assume an immaterial number of plan participants elected in writing to have their deferrals be Roth post tax instead of pre tax. The plan was amended timely to permit Roth deferrals. Employer inadvertently set up a few participant's elections in the payroll system as pre tax when in fact s/h/b set up as Roth. Most affected participants have terminated and removed their funds (this happened back in 2006). Not sure that makes any difference. Assume the W-2 was prepared according to the payroll system - eg those participants that elected Roth, but didn't have Roth applied by the employer, did have a W-2 w/ a reduction in box one for the pre tax deferral (that was supposed to be Roth). Assume that none of these participants ever noticed this error. Or if they did notice it they chose not to say anything. Again realize that doesn't matter but want to present all facts. Is the answer different if instead of Roth not being followed - the plan sponsor inadvertently set up payroll to withhold as Roth when in fact the salary deferral s/h/b set up as pre tax. Again assume W-2 reflects what the payroll system actually did. What correction would be recommended under the circumstances? If any cites available would be appreciated. Happy to do any research (if anyone can point me in the right direction) just not having any luck finding anything. Thanks for any help.

thank you much that's what I was looking for

I understand that after tax contributions have to be tested under ACP. In a small 401k plan w/ no testing problems but tight margins on ADP / ACP (safe harbor not an option for this client) - can anyone see any benefit to permitting after tax contributions? I have a situation where certain HCE(s) are interested in this feature but I believe it would create an automatic ACP failure (eg so what's the point of making the contribution). I have not seen after tax deposits in practice before. The majority of what I come up w/ in trying to research the issue pertains to Roth (using the search term "after tax") which is not what I'm looking for. I would like to do some research, if anyone has any comments on the scenario or can point me to possible code / reg cites I would greatly appreciate. Thank you in advance for any assistance.

I've looked into this (a web portal) as well and decided not do do it. I'm not exactly answering your question, but.... I discussed this issue w/ a computer expert and the reason I've decided not to do it is security. As long as the client's data is up on the web, a hacker may be able to access it. To avoid being hacked, I could pull the file off the web as soon as I know that the client has completed. But, until that happens, the request is posted on the portal (usually populated w/ social security numbers) so there is some risk. And following up w/ the client repeatedly to find out when they have posted their information could be a pain. I feel the risk to social security numbers etc is too great. There are some larger investment companies (such as Principal Group) that use web based solutions. However the companies like that that are larger probably have large internal staffs devoted to security. As a small TPA firm, I don't have those capabilities. I'd be relying on the integrity of the portal that I would subscribe to (there are several such service you can subscribe to). I would be uncomfortable w/ their security. What I have been doing is sending enrycpted and password protected e mail attachments (Excel-based census file) to the client. This is not the best solution either but it is some protection. Furthermore, if one e mail is intercepted - then then hacker has gotten only that e mail and not everything off the portal (which could involve multiple clients). If anyone's interested in commenting I would love to hear if there are some better solutions for obtaining the census. I have yet to find one that is both secure and time saving. Robin Vatalaro CPA

Thank you all for your thoughtful responses. The main question I have is, is there any problem w/ giving the notice to all elig ee's (those who are elig to participate whether or not defaulted) to avoid spending time determining who actually has to receive it. Assume that the recordkeeper doesn't have a data base query that will permit easy ID of those in QDIA. Assume that determining who is eligible is an easy two-second query. Assume client doesn't want to switch recordkeepers. Determining who is in QDIA will be much work, client doesn't want to pay TPA for the work (TPA and recordkeeper are separate and distinct unrelated entities). Assume TPA intends to draft the required notice. 401k client then is resposible for distributing it. Right or wrong, assume client won't bother to distribute the notice unless TPA gives client list of who is supposed to receive it. A list of eligible ee's (defaulted and not) is two second 'no charge' job. Determining who is actually in QDIA is lengthy proposition client is not willing to pay for. TPA is trying to find a way to help the client benefit from QDIA w/o having to spend unnecessary fees to do it. An esteemed ERISA atty recently stated it WOULD be important to give the notice only to those that are really supposed to receive it. But didn't really state "why." Thank you for any further opinions.

Regarding determining who must receive a notice, my understanding is that anyone who is defaulted must receive the notice (annually) and that it's okay to give the notice at least 30 days in advance of the initial entry date (the first point that ee becomes eligible to participate) because such an ee MIGHT become a default enrollee. What are recommendations for example, for a hypothetical plan w/ 500 active participants, 300 who are eligible but not contributing and 1,500 employeees. Thus 700 not eligible due to age and service, but will become eligible eventually unless they first terminate. Of the 500, assume it's estimated that 75 are defaulted, but the employer is not certain which employees. The employer could of course log onto the investment company's website and participant-by-participant determine who resides in QDIA and who does not, in order to determine who to give the annual notice to. The first year, this would be more work because all employees w/ accounts would have to be "tested." From thereon out, it would simply be a matter of checking who that was added in the last year as contributing participant, that was also defaulted. Not so much work in second and subsequent years. You are a TPA and you explain this to your client. Client states that is too much work, but does not want to pay the TPA to do the work (TPA is capable of doing the work in terms of time and resources). TPA however not happy to do the work w/o being paid. TPA discloses the notice research requirement but in turn states that the time will be billed, and is not able to procure permission from client to do the work (thus by default becomes the resposibility of the client - assume this is delineated in the services agreement). Client asks if it would be okay to just give the notice to everyone >30 days prior to initial eligibility, and then annually to any one who has an account balance. This would certainly cause all who are required to have the notice, to have it. However, I have heard that it is not considered wise to just pass out the notice on a blanket basis as requested by client in my hypothetical example. What are your opinion(s) of distributing the notice as the client wishes to, in order to avoid the analysis that would be required in order to determine who actually is supposed to receive the notice? What are the inherent dangers of doing so? Thank you.

What's the prize (for winning)?

Agree w/ all previous posts. Regardless of soft dollars (which are clearly illegal) - the sheer knowledge by the CPA firm that "negative" audit findings could inhibit future referrals from this payroll service could cause an auditor to pass on something that otherwise wouldn't be passed on. If the payroll service is offering up the CPA to the plan then there's no independence perceived or otherwise. I'd run far away from this arrangement. I'm a CPA and a TPA; never done a benefits audit and never will but have unfortunately seen an auditor or two pass on things they shouldn't due to referral issues.

To qualify for this credit, the employer must not have had within the last three years another qualified plan covering similiar ee's. I've read some commentary that "qualifed plan" for these purposes means any plan such as those that aren't "qualified" under ERISA like SEP's. What exactly does "qualified" mean here? I have a new 401k plan, effectively that replaced the old SARSEP. Same ee's covered. Can this client take the Form 8881 credit or does the SARSEP knock them out? Thanks for any help.

Facts: ABC PLC is owned 20% by five attorney's who each have their own practices (individual Schedule C's). The PLC handles all admin functions, employs the employees etc. The five attorney's and all the ee's of PLC participate in the ABC 401k plan. One attorney leaves and will no longer own 20% of PLC. He will lease the employees from the PLC. EG the ee's will still get their paycheck from PLC and the leaving attorney will pay a fee to PLC for the services used. He does not have any equity stake any longer in PLC however. Question: My question is, is the leaving attorney simply considered a terminated participant from the PLC plan? The employees that continue to be employed by the PLC and are leased from the PLC to the leaving attorney (note these employees also continue to work for the other four attorney's as well) continue to participate in the PLC 401(k) plan correct? The leaving attorney can no longer participate, correct again? This seems too simple, but on first glance this appears to be nothing more than a terminated participant situation. I just want to make certain that this arrangement doesn't continue to cause the leaving attorney to still be a member of an affiliated group. I am not overly familiar w/ ASG rules (aside from finding them very confusing). Thank you for any opinions.

Replying to Bird - thanks for your help. Wholeheartedly agree w/ the IMO.

I must be missing the boat. I've been getting notices from investment companies stating they are not going to assist w/ new vested benefit reporting requirements. If it's an old requirement, then why the notifications?

I'm curious as to what other TPA's are doing that handle only allocated accounts, where the investment company produces account statements. I'm an independent TPA not in the statement production business. Some investment companies are already stating they will not assist w/ the PPA vesting notice requirements even though IMHO programming this information would be relatively simple. Is it permissible to generate a generic statement to participants at year end that states the vesting provisions of the plan and how to apply them, or does PPA require a customized statement for each participant, stating their particular vested percentage for each money type. Although such a statement would be a redundant repetition of the SPD, the alternative which is to provide a customized statement will prove very costly to the client (in terms of what I would have to charge to recoup the production costs). Thank you in advance for any help.

Thanks all for your thoughtful responses. To clarify, the intention is to establish a new investment contract ("pool") for the newly created DEF plan. Client is aware of asset levels influencing internal asset charges, duplicate fees (eg two 5500's instead of one), maintenance of two plan trust docs instead of one, etc etc. The establishment of DEF, Inc. was completely unrelated to the possible establishment of a second plan. There was a business need to house a certain group of ee's in a separated company, although one individual does own 100% of both companies. It is just coincidence that this new company came into being around the same time it appears the ABC Plan will hit 120. Due to the fact that there is a valid business reason for the existence of DEF and the plans will run entirely separately, albeit w/ identical provisions and permissive aggregation for testing, does the "valid business reason" perhaps mean it would be more likely the IRS would view we really do have two separate plans? My fee to handle annual TPA work (recordkeeping lies w/ investment provider, I process compliance testing, 5500 trust doc etc) is far enough below the cost of the CPA audit that this idea is worth considering to the plan sponsor. If the plan wasn't clean I wouldn't even consider this option however this is a sponsor who always follows the letter of the law, my advice etc. I realize respondent views are professional opinions as it sounds like this issue is open to IRS interpretation, but appreciate any further thoughts. Thank you again.

ABC, Inc. maintains the ABC 401(k) Plan. Plan is approaching 120 eligibles. Sponsor has formed a new company (DEF, Inc.) for valid business purposes, one person owns 100% of both companies. In order to avoid CPA audit of plan (it's a cost issue), sponsor wishes to install a 401(k) plan for DEF that is identical to the ABC plan. ABC has two HCE's and DEF has none. This is likely to always be the case. The ee's of DEF used to be ABC's ee's, the sponsor simply carved off a specific business unit into this newly formed company. Plans will provide the match etc (will be identical). ABC however will exclude ee's of DEG from participation and vice versa. Plans have no problems passing testing etc on aggregated basis as controlled group. Any problem w/ this? Just seems potentially abusive to design in this regard solely to avoid CPA audit. The plans are clean, the sponsor just doesn't want to pay the CPA fee. Thanks for any help.

XYZ 401k plan transfers from Investment company A to company B. A advises client that the GIC surrender charge is $5,000. B agrees to make up that loss to the affected participants. A liquidates, and wires to B, less the $4,500 charge (read on). B prices the contract according to the $5,000 charge. Later we find out that A mis-quoted the charge. The charge really only was $4,500. And in fact when the plan's funds were transferred from A to B, A really only did charge $4,500. However B did not find out about this until after it had already deposited $5,000 into the contract as per agreeement. $500 is now sitting in the forfeiture holding account and B is asking the TPA (me) what to do w/ it. $500 just so happens to exactly = the GIC surrender imposed by A on a participant that terminated employment and withdrew from A several months prior to the transfer from A to B. It's pretty clear that A mis-stated the contract surrender (A did put in writing that the amount was $5,000). Should B just pull $500 back out and take it back? They are not willing to re-configure the contract pricing although they state the impact to the pricing of this $500 is "minute." Or - does this money have to stay in the contract. If yes, then should the money go back to the terminated participant that lost it in the first place? Or, should it be used as forfeitures? Or, should it be allocated to all eligible participants as "earnings?" Or something else? Thanks for any help.