Below Ground

The problem is timing. The daughter was alive at the time of his death, but dead at the time payment could be made. Note that this was a 2 week period! Jpod - You believe the estate of the daughter, not the worker? I can see the logic. Either way, this is messy.

Worker dies in late February. His name beneficiary, who is also his sole living relative, is a daughter. She then dies in early March. Her remaining relatives are two minor children (grandchildren of worker), who she defined as her beneficiaries in a will (not related to Plan). A court order has been issued that says pay to either (???) the estate or the minor children. If the latter, monies are to be sent to a "trust account" for the 2 children. My thoughts are that the payment should be to the estate as the grandchildren were never named as beneficiary of the worker. Comments?

Plan has been operating for several years under plan terms that were supposedly modified by an amendment. Problem is that amendment should have changed allocation requirments to no conditions, but did not. Plan languange still says 1000 Hours and Last Day required to receive allocation. Operationally, the plan allocated to all participants, regardless of hours and employment status. While this was exclusively a benefit for the NHCE, it was still an operational failure. This went on for over 5 years! How should this be corrected? Thanks for any and all comments.

Rcline - Me too, but it doesn't look that way.

Rcline, as I understand the 2009 5500 Forms will only be allowed to be filed under EFast2 System. That system will not be available until 1/1/2010. As I also understand, software vendors can't even be "certified" until August of this year. I suspect that I was not clear with my OP, leading to the answer you provided. To clarify my question, I have a small profit sharing plan that uses the calendar year for plan year. This Plan was terminated earlier this year (2009). At this time the benefits are being paid out, meaning the trust will be liquidated very soon. My question is.... Do I need to wait until the EFast2 Systems is up and running, or is there a way I can file the 5500 Forms for 2009 at this time? I do thank you both for your replies, and also appreciate comments toward this post.

If Plan is Top Heavy ANY participant who is employed on the last day MUST get Top Heavy Minimum, regardless of any allocation conditions like the 1000 HoS.

Plan is a small profit sharing plan. It is expected that termination and trust liquidation will be completed any day now. Can we use 2008 paper forms (marked as for 2009) for last 5500, or must we wait until the electronic version for 2009 is available?

Rates are found under Rev. Rul. 2008-54. I believe these rates are referred to under EPCRS. Oh yeah, thanks for your replies and input to all!

Go to the ASPPA Members Page and check out the discussion forums. While I am fairly certain that the source of help for me won't care, I always try to not impose on anyone. Let me know if this doesn't help. Oh, check Section 5.01(3)© of the EPCRS Procedure.

K2 I had to run out so I couldn't reply properly to you. I figure that since people spend time answering my questions, I should do my best when I can answer a question. Anyway... It is my understanding that you use the Overpayment Rates that the DoL publishes to compute interest needed to make the plan "whole". I also understand that you can use the DoL Calculator as applied to late deferral interest to compute this value. While I can't support this 2nd option, it is my "belief" that this would be acceptable. Hope that this helps you. Again, sorry I could not reply earlier.

Masteff. The current document does allow for more guidance under "Overpayments". You are correct and I should have looked more deeply there. I note that I have since had help from another source who has proven very helpful indeed! I'm not sure if that party would like me to name names, so I will refrain beyond saying I got some very valuable help! K2. That becomes a problem.

Thanks for the reply K2. Just some thoughts I wish to share with you. I found an old post related to this topic that referenced a communique on the EPCRS. In summary, this event was discussed as a sample of a problem, but there was no discussion on what the solution was in that "government issued guidance". That poster complained that there was not much help there! Anyway, I suspect that TPA's are going to see this problem happen more and more. Unless you literally sit in the office of each client, this is very likely to happen. Why? No matter how often you tell people that monies can't just be paid out whenever the person wants, there will be the person who concludes that NOT paying the money is wrong -- it being the person's monies. :angry: Rules and Regs say different? You and I know that and care, but not every "plan administrator" will be disposed to follows those Rules and Regs. The question becomes what should we as advisors do?

Having researched this topic, I still find myself without a "good answer". Any comments or suggestions would be greatly appreciated. Participant in his 30's decides he wants to take his salary deferral money out of the plan and invest in an IRA that has no connection to the Plan, which is a 401(k) Plan. This is not a Hardship, or any other legitimate distributable event. The person just wanted the money, and the plan administrator allowed the payment because "it was the person's money". Subsequent to this payment, another person (30 something) decides that getting her money out would be wise, given the investment results being realized. Again, no valid distributable event. Since the guy got his money, why not her? Unlike distribution #1, the plan administrator came to us to request election paperwork for this distribution #2. After hearing the details, and the "justification" created by distribution #1, we explain that the distribution is not allowed. While distribution #2 was stopped, we still have the problem of distribution #1. Now the problem is how do you fix distribution #1?

No takers on this one I guess. Well, I add this reply to keep it active for one more day. I know 4/15 is taking away my focus.

Building on other comments, the payment does need to come from the Plan; not the Employer. A number of years ago I had to research a situation where the employer paid the person directly, in lieu of depositing money to the trust and then having the trust pay the money. It was concluded that the benefit was still due from the plan, and the monies paid by the Employer were simply a nice bonus to the person they fired for poor performance! Shortcuts are bad. Very, very bad.

Many of the 401(k) plans we service use contracts that have the account recordkeeping done by the "asset vendor". Examples would be the very popular "annuity contracts" made available for 401(k) plans by institutions including Guardian, ING, John Hancock, Hartford, Fidelity, Oppenheimer, Transamerica and T. Rowe Price (and others). Under these contract you will find a fund selection naming funds of Neuberger & Berman, Fidelity, etc... You will also find proprietary funds that are offered by that institution. It has been my understanding that this type of arrangement does not result in self dealing, etc... and does not represent a transaction with a "party in interest". Am I wrong? If so, why and how would this impact 5500 Reporting? As always, thanks for your comments.

I think a short cut will just lead to trouble (e.g. no 1099R done). Just be glad you did not overpay the person as opposed to underpaying. Sorry I can't be more constructive, but doing it right with payouts is always the best way to go IMHO.

What are "missed deferrals"? I can't think of anything other than deferrals that were not deposited when they should have been. That would make them late, would it not?

...and don't forget "universal availability". Oh, and there are some differences with the trust.

No. The term you are looking for is "distributable event" which this is definitely not. Significant event, I believe, is related to COBRA and 125 type plans. Regardless, it has no impact here.

Same here. I find Schedule D to be a waste of paper.

Thanks both for your replies. My biggest concern is whether the penalty tax truly is avoided. I see the logic that deferrals don't impact the employer's deduction. I guess my concern is that the deferrals being refunded would also not be deductible as a contribution under the plan. Maybe I am reading too much into this, but I still fear that the tax may apply.

I have a 401(k) Plan that 2008 was the initial year. It has only one participant, the business owner, who makes well over $230K and is over age 50. During the year the client deposited $57,000. Since the IRC 415 Max is $51K (with the Catchup), there is $6,000 that exceeds both the deduction limit and the maximum individual allocation. I have two concerns that I do not have complete confidence with my conclusions. First, I understand that under this Plan the Maximum Allocation under 415 is the Maximum Deductible, not 25%. If this is correct, the excess $6,000 is subject to the 10% excise penalty tax on nondeductible amounts. Am I missing something? Second, the Plan allows a 415 excess to be corrected via a refund of employee contributions. Does this avoid the 10% penalty tax, and would that create a problem with the application of Catchup? I am almost 100% sure on the Maximum Deductible Amount being the $51K. While less sure, I also believe the 10% excise tax will apply in all cases. I don't think a refund of employee contribution avoids the penalty tax as the Pension Answer Book says "...an excise tax imposed on the employer equal to 10 percent of the portion of any contribution..". I assume that "any" means any. If so, refunding the $6,000 would not avoid the penalty since the tax applies whether the contribution is employer or employee. Any insights will be appreciated.

Tax for late deferrals is based on interest owed, not value of deferrals. Usually best to just pay the tax. No fee for filing. Did one last fall. No problem.

We are in full agreement. (It is almost never that we are not in agreement!) Semantics were "throwing me". I thank you again for the education found in the last sentence of #3. I did not know that this was limited to ADP/ACP only.