Below Ground

My experience has been (1) late contributions corrected, (2) 5330 filed and tax paid, (3) 5500 filed with listed late contribution, (4) DOL sends letter about late contributions => they still want VFCP Filing. I have faced this issue at least 5 times with tax amounts under $50.

Thanks for the replies. Very helpful, indeed!

As a practice, we always try to discourage plans from using "payouts on demand" for termination, especially for HCEs. Waiting until after the close of the year of service termination is the plan design we recommend, when possible. Of course the one Client that decided to ignore that advice is the one that has an ADP Test failure where the person due a distribution of excess contribution has already rolled out 100% of his account balance. They want the person paid almost when the person walks out the door! Any advice on how to correct a rollover of excess contributions to an IRA would be much appreciated. Thanks!

Well, those can be connected. You have to wonder why do certain people persist in making your life miserable.

Yeah, that is what I am afraid of. (I guess that question was rhetorical.) While we have signed off schedules saying they are not a controlled group, ect..., this stuff can give me an ulcer.

Client has always been evasive when it comes to firm ownership. Always says there is numerous owners, too many to list. Every year signs off on a statement that no employee has any ownership, AND firm is not part of a controlled group. Recent events "uncover" that the firm is actually owned by a "foreign trust", which also owns other firm(s) in the US. Knowing that ownership by a foreign can create a controlled group, I fear that this foreign trust means that the plan we are working on now has controlled group issues to address (i.e. coverage). Assuming this trust has a controlling interest in the 2 firms, do we have a controlled group? From what I currently know, the 2 firms I have knowledge of have comparable benefits as the plans are currently identical with only salary deferrals. Unfortunately, I do not have the complete history of the two plans AND there could be other firms and plans. Assuming there is a controlled group, just how big of a mess could this become?

In what I believe "expands upon" on Mr. Poje's concise response, in this situation you would typically apply the "otherwise excludable employee rules". This would in effect remove the "short term participants" created by the 401(k) Plans liberal entry provisions. As I understand the aggregation rules in this situation, you must first start out with the covered workforce created by the lowest age/service standard under the 2 plans (Tres. Reg 1.410(b)-6(b)(2). This defines your total testing population. You can then reduce that population by employing the Otherwise Excudable Employee (OEE) classification to reduce the size of this population. The mechanics of this tool are found in Treas. Reg. 1.410(b)-7©(3). An important consideration is how does one handle any HCE who is classified as an OEE. If the testing was ADP or ACP Testing we could include them in the population that is NOT excluded by this rule. If not, they must be tested with the other OEEs, as if that group represents a separate plan. This option does NOT exist for other forms of testing; meaning, the OEE must be tested as a separate plan if using this tool for those tests. This condition is well explained in Q 6:37 of the Coverage and Nondiscrimination Answer Book, which is in part authored by Mr. Poje. If you do have HCE in the OEE it is very likely that you will have a testing problem; if those HCE are receiving a material benefit. Of course, the types of plans and benefits provided will determine if the "OEE Tool" should be used. Finally, if the Profit Sharing Plan does not have the same liberal entry terms as the Elective Deferrals (Matching too?), that has a potential material impact on testing results. Mandatory disaggregation as applies to coverage/nondiscrimination testing would have the 401(k) and 401(m) parts are tested separately. Caution: When performing Cross-Testing on the Plan as a whole for a rate group that fails the ratio percentage test, this disaggregation does not apply. Hopefully, the provided detail proves helpful.

Correction. 18 months, not 180 days. Sorry bout that.

My concern is that the AP will contest the value which was segregated; in other words, decide that the AP should be getting more than was computed. Since these computations are rather straight forward, when this becomes an issue it is always related to the amount of interest credited. Personally, I have had a situation when a new court order was issued, after an original QDRO was processed. (The validity of that action was dubious at best.) In great part my concern is related to the 180 day period during which the determination period where rights of the AP must be protected, and exactly what is the meaning of "determination period". We know that the DOL views this period to start on the first date the QDRO requires payment to the AP. Since an AP must be afforded the same rights as the participant with respect to elections, does this mean that the protection period ends 180 days after the AP gets elections?

Received QDRO and processed benefit package for alternate payee (AP) to make elections. While waiting for reply, found out that since package was issued the AP went to prison. Our normal practice is to suspend distribution until AP returns elections, which is normally not a problem. Logic is that if person returns elections there should not be any further issues about QDRO, such as contesting amount. Anyway, is there any required period for suspension, since the participant has terminated and wants payment of benefits? I note that AP's benefit is segregated into separate account for the AP.

Hypothetically speaking, with names changed to protect the innocent, I find myself somewhat befuddled by an RMD quandry. Say Sally Strothers is a "5% Owner" of Company A. Since she has turned age 70.5 in 2014, she must receive her first RMD before 4/15/2015 from her account under the Comapny A 401(k) Plan. In the middle of 2014, the Company A of which she is a minority owner (> 5% though) is sold to Company B under an asset purchase. Sally elects to have her monies rolled into the 401(k) plan of Company B. During 2014, before any RMD is paid to her, Sally's entire account is transferred to the Company B 401(k) Plan. It should be noted that all of the Company A 401(k) Plan is liquidated before 12/31/2014, and we were not involved in that processing. Clearly the RMD Monies should never have been rolled into the Company B 401(k) Plan, but they were. To "correct" this problem we are having the RMD paid from the Company B 401(k) Plan before 4/15/2015. The question is, since Sally is NOT a 5% Owner of Company B (she is just an employee), and she is not terminated from the service of Company B, does she need to receive additional RMDs from the Company B 401(k) Plan. I believe the answer is no since she is not a 5% Owner under the new plan, and her status is active employee, so no RMD is required. Of course, the RMD that should have been paid from the Company A 401(k) Plan needs to be paid. Does a 2015 RMD need to be paid? Thanks for your insights!!!

Thanks!

Yes Bill, that would help. The amounts they used were not used, or applied for 2013. What is "Checkpoint Tools". Thanks as you may have found something that might help!

Where do you go to renew? This will be my first time renewing so...

I wish to again thank everyone for replies. Unfortunately, logic and good sense have gone out the window. I used every suggestion and not a one cause for an eyelash to twitch. They believe they know everything being this is their first and only plan they have ever audited. They demand that the 5500 be done as they say or they will withhold the Opinion Report! With the deadline looming, capitulation is the only sensible course of action. I did remove my name as preparer, and also in my cover letter stated I totally disagree with method used and can provide no audit support if used. In effect, heavily caveated garbage in garbage out. I hate that with a passion.

Very, very helpful. I just keep getting a mental block on this topic. Hopefully it is finally hammered home.

Found it in some seminar materials I saved. Thanks.

Thanks Lou. For some reason this issue always slip my mind. I can never seem to find anything on this topic. Can you say where this is stated?

If a Plan allows a person to defer immediately upon date of hire, can that Plan apply an age 21 and 1 Year of Service on the Safe Harbor Matching. Basically, do deferrals and the Safe Harbor Match need to use the same standard for Plan entry?

Thanks for the feedback but they will not. They do not care. They have made that clear.

Not disagreeing Austin, but is there anything that proves this is a non-event, and therefore is not recorded on the Schedule H. From what I am gathering, the way I want it done is accepted practice, BUT doing it the accountant's way is not necessarily wrong. It will create the problems I note in earlier posts, but it could be used. I am using that logic in my "roll over and die conclusion". I figure that if I can prove it wrong later, then I will do an amend filing. The alternative is miss the filing date.

Trust me, if I could, I would love to refer a different auditor; but that would not be professional, so I will refrain. ESOP Guy, I can only say, "If only". Of course, it appears that this level of ethics (stupidity?) that I hold is not shared across the line. Questioning what we are doing in areas that are not their expertise is their approach. Curiously, they have made themselves look bad with that behavior, when shown what they were saying was just wrong. Anyway, I totally agree that this is an issue of applying corporate accounting rules to a pension plans 5500 Schedule H. Too bad there is nothing cause that would solve the problem. My accountant says it is in GAAP. Unfortunately, he hasn't been able to provide anything that sways the client. Oh well...

I really wish there was some cite related to this. I did find in the 2011 Draft Audit Guide by the AICPA that Schedule H accounting may have different results than the Financial Statements of the Accountant's Opinion, and some other vague statements. I have also had at least 4 different CPA's say the auditor is total wrong, and this is an item for the "statement of reconciliation for Financial Statements to Form 5500". So no one knows of anything like that? This whole situation is going sour real fast, with the accountant questioning things like was top heavy testing done? (Stuff like that was in a report we issued last April. ADP/ACP in January.) Was it done right? Our position is that the Schedule H should reflect actual plan operation. It appears the account's position is if the Schedule H is not GAAP then it is wrong, and suggesting otherwise is incompetence. Oh well, I know we are doing the job right.

The Plan is very specific and does NOT include the 2014 payroll date. The accountant keeps saying that under accrual accounting it must be included because part of the period is related to 2013, even though it is all 2014 income for Form W-2. That is not in dispute. Also, we are not going to change our valuation or testing, as that is not being questioned. The accountant agrees that our work on those issues, and data used, is correct. The issue is exclusively what values are reported on Schedule H. My real concern is that our work, and W-2 Forms, will not tie into values being reported on Form 5500. My experience is that an auditor from the IRS or DOL always wants values to tie into W-2 values. If not, the audit by the IRS/DOL becomes a major headache. So I am I right that there is nothing that support our desire to have the 5500 values coordinate with the actual operation of the Plan?

I totally agree ESOP Guy. Normally changes are issues of classification of an asset, or defining income to be mutual fund earnings versus realized and unrealized depreciation. Stuff that I am kind of like "who cares", but this creates a serious problem. Every audit that I have every been involved in during my 30 years always looks to have 5500, testing, allocations, etc... tie together. For a calendar year plan the auditor ALWAYS wants to see values tie into W-2 values (assuming those are values used). What method should be used to divide that payroll into 2013 vs 2014. Can we just cut in half? Look at Hours for the periods? To me this seems to be opening up Pandora's Box in so many stupid meaningless ways. I guess my frustration is showing itself.