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Below Ground

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Below Ground last won the day on June 2 2020

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  1. Client firm is a Real Estate Broker. The Plan is a 401(k) Plan which covers ONLY the owner and wife, who are both active in the business and the only employees of the firm. Outside of the Plan they are involved in various real estate speculations, and do rather well with these investments; which is why they want to expand their use of real estate under the 401(k) plan. Currently they do have two real estate investment which are solely under the Plan (no involvement of business, or commissions to the firm, with annual independent valuation). I note that they do have other investments under the trust so it is diversified. Anyway, they now want to use the trust's real estate assets in a "cash out refinance" of the 2 real estate investments, to obtain funds which will be used to improve the properties, and possibly buy additional properties. To clarify, it seems that what they are intending to do is get mortgages against the 2 properties (currently owned 100% by trust fund), and use those funds to improve the 2 properties owned, and perhaps to purchase more real estate under the trust. It is expected that this will not involve any monies outside of the trust, and that all proceeds will remain in the trust. However, I suspect this is a prohibited transaction since they are using the two properties owned as collateral for the mortgage loans they take out against those two properties. I also suspect that this will be a PT for other reasons, but am not sure how or why. I greatly appreciate any and all comments and suggestions. Thank you in advance!
  2. While I did not know Mike personally, I did benefit from exchanges with him. My prayers and condolences go out to his family.
  3. I think it all depends upon what the broker is trying to represent themselves to be to a client. You have the "I am the one-stop solution to all your needs", or the "let's work with your other advisors" person. The former provides horrible service and should be avoided, while the latter makes sure that the client is properly advised. Unfortunately, this Mega Roth Fad is bring all of the one-stop disasters out as they try to sell whatever pops up on the shelf, regardless of whether it applies to a specific client. Just today, I fielded 3 call on Mega Roth for clients that could never use that type of provision. Does the broker care that what they are saying is wrong is a really telling question. One that I had today I had tried to call the broker last week, and got no return call. Of course, the client then calls us to find out how this great idea will apply and you have to tell them it won't work, so of course the broker calls you to complain that you contradicted there oh so wonderful advice. Of course, even after you point out that you tried to minimize the damage with your attempted call from a week ago, you are still at fault. How dare you tell the client the actual facts!
  4. As suspected. I HATE when these new fad strategies start going around. Yes, I understand that for some people this is a good choice, but the niche is small. So far, just today, I had to explain to 2 clients that it won't work for them specific to their plans given the coverage of employees, the low participation rate of employees, and the impact of both ACP and Top Heavy being put back on the table. This is being done all the while that the investment advisor is saying how his manager says there is no such problems. Right.
  5. Just as a follow-up to my above comment. Just this morning I had another client who is being advised to do Mega Roth, and guess what? They have 10 other employees under the Plan. It is a 401(k) Safe Harbor Plan, so the broker thinks that ACP Testing doesn't apply. As I understand, Voluntary Post Tax Contributions are NOT considered Safe Harbor Contributions, so the ACP testing would apply. Is this correct?
  6. I find myself wasting too much time explaining to the owner of a firm with a 50 life plan why Mega Back Door Roth won't even work for that plan due to ACP Testing (among other issues), because the client's broker read some article that this is the ultimate way to save for retirement. Oh, and that owner often tends to be close to retirement already.
  7. A number of years ago we had a plan where the workforce unionized, making most of the employees an excludible class. Subject to attorney review, all impacted employees were deemed to no longer be eligible to share in contributions under the Plan. Interestingly, they were also deemed to NOT have a distributable events, so the monies had to remain under the trust until the person satisfied a condition that allowed distribution. (I also note that vesting continued to accrue provided that a vesting year was completed to allow for the credit.) In summary, the effected participant received no further contributions, and their accounts remained under the trust until a distribution could be made. Regarding the OP, the question appears to be can the person be paid now since a termination of employment was realized. I would suggest no since the person is no longer terminated. A distributable event must be realized, but until then the person's account just accrues investment return and vesting credits. That was my experience with a similar situation.
  8. To confirm Bri's comment, yes they are an Employer Contribution in all respects.
  9. Thank you Paul. I will look into this since this is just wrong. And to top this off, the guy is rude and arrogant. Self impressed I would say! A bit scary though.
  10. I must admit I was totally speechless when I saw what was done. Both the Client and FA (Financial Advisor) were like, did you approve this? I look at it and said no way, and pointed out several areas where we actually stated in earlier letters and the actual cover letter used to forward the documents, that the dates he tried to put in would be incorrect if used. While I can't talk for the Client, the FA has an incredible dislike for this attorney, which has been voiced on several occasions. I can't say whether the attorney claims to be an ERISA Attorney, but I can say from my experience this guy wouldn't even pass an intro course. He is that bad, IMHO. Also, thanks for the kind words. I am a big believer in full and open documentation, which has served me well over the past 39 years. But I must admit, the mere fact that the attorney made the changes and then forwarded to the Client using the actual letter I originally sent saying the dates he wanted to use could not be use, was pure foolishness. (He did use another brief letter over mine that just said use this version.) Like saying here are the documents from the TPA. Oh, and ignore his comments about the dates being used are wrong in his letter! Amazing!
  11. Just as an update, and maybe a laugh. Anyway, we did documents for the termination of the Plan, using proper dates, etc... Would you believe the attorney revised the dates in materials to use the retroactive date that he was recommending. Luckily, it is well documented that we used proper time frames and such, so we easily put the kebosh on that! Client understands the "reality of the situation" so termination is being done properly as we processed. For "venting", doesn't it just roast your butt when some "outside expert" comes in and acts like they know it all, and then they actually modify the work that you did to reflect their error, and then send to the Client as if we made the changes? As I said earlier, I don't claim to know everything, but one thing I would never do is modify someone else's work WITHOUT DISCUSSION OR EVEN NOTIFICATION, and then try to pass it off as the work of that other person. We wouldn't have even known if the Client didn't send us a copy of what the attorney changed and sent to the Client asking us if this was correct! We, of course, were not even copied on that mailing. It just went to the Client under a short cover letter that said "use this version". I don't know, but that seems that someone has a bit too much chutzpah, and at best, is not someone we should ever work with again since they change our work and send to the client as if we agree with the change! I can only say I would never do something like that. Isn't that illegal?
  12. Again, thanks for the replies, especially in light of the time of year. Anyway, the advice to terminate retroactively is not from us, just to be clear. That advice is coming from the client's attorney! I was pretty sure this could not be done, but figured I best ask since I don't claim to know all things. We will look into the amortizing as suggested, though. Again, thanks.
  13. We have a defined benefit plan that is seriously underfunded, with a required contribution needed for 2022. Benefit accruals have since been, prospectively, frozen with appropriate advance notices. (This was actually done several years ago.) I also note that the plan is NOT covered by PBGC. One thing that the Client is being advised to do is to have the Plan be deemed terminated retroactively. For example, amend the plan NOW to say the plan was deemed terminated as of 12/31/2021. Is this allowed? Thank you very much for your replies, especially in light of 10/15!
  14. Again, my thanks for your comments. I have since sent the 5500 sans IQPA Report to the Trustee/Plan Administrator to file. My policy has always been that absent some strong circumstance, signing your 5500 is part of the responsibility to have a plan. I will take responsibility for my actions, but I also believe that if you are going to have a plan, you really need to have some direct input/insight into the operation. Signing your plan's 5500 to me is saying yes, I know what is going on with my plan. I also note that this is reflected in our fees. If you want me to sign in the past, it cost you extra. In this case I also wrote a fairly detailed explanation of how and why the IQPA Report was omitted, which is also spelled out in the form's attachment. Of course, I learned something new with this, which is an added bonus. Regardless, within the service definition of my written agreement with the client, it is now up to them. And yes, this is kicking the can down the road, BUT I have spelled out to them that they need to reconcile with the auditor (or get a new one) now, since there is no additional deferment. Will they do the right thing? We shall see. Again, thanks!
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