Below Ground

How and to who?

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?

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.

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!

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!

I did not know we could do this! So we can file the 5500 without the Opinion saying it will be on the next (final) filing? That filing will be for 1/1/2023 to 5/15/2023, which is the actual liquidation date. Without getting into details about the closing of the firm, we understand that there are several lawsuits and investigations pending. Sounds messy and we have nothing to do with those issues, so we are steering clear there. We were paid since we knew they were closing, as did the accountant, but we demanded payment before taking any action so we got paid. The accountant also knew what was happening, especially since the amount due is for several years. Why they didn't demand payment earlier is beyond me. Luckily, I was finally able to get the owner's home address. It took some kicking and screaming but a certified letter is going today deatiling item needed, potential penalties, and use of DFVCP. Thanks Mr. Presson. I have found your input very helpful over many, many years.

We have been servicing a rather large plan for many years. The business went belly up and we terminated the plan. We even got everyone paid out. Problem is the 5500, which requires an Accountant's Opinion. We did the Draft 5500 in March and sent to the CPA who did it in prior years, but they said "no thanks". They are owed a great deal of money, and will not do any more work until the account is paid up. We advised the Client of the problem at that time and have been waiting, with intermittent contact, on the need to get us the Opinion to allow for the 2022 filing. (There will be another 2023 Filing due which will also need an opinion.) So, as you can tell, we are at an impasse. While our service obligation as defined by service agreement has been completed, we don't want the client to get slammed with late filing penalties. Thus far, in addition to other contacts, we have sent an email detailing the penalties and availability of DFVCP, given the impending 10/15 deadline. I have even sent Facebook messages to the profile of the business owner! I am trying to get an address for a certified mailing, but am not faring well on that. Any suggestions?

Thanks Lou. Does this mean you need credentials for each separate plan? I have credentials for our Plan but not for specific Client plans.

Does a person need to be enrolled to sign the 5500 for a Client, assuming that the Client has provided (1) proper written authorization for the TPA to sign for this Client, and (2) the Client provides the TPA with a hard copy form (as PDF attached to an email) which is signed and dated by the Plan Sponsor? Our normal practice is for the Client to login to our portal and push a button that enters their DOL Credentials, and then push another button to submit to the DOL. Unfortunately, we have ONE client that find that too complicated, so I am considering options. Thanks for any feedback!!!

A few years back I ran into this exact same problem. My research found that Mr. C.B. Zeller is 100% correct. The TH Minimum for Non-Key is required.

With respect to LTPT Employees, do they count in the participant count to determine small plan vs. large plan filing of Form 5500 if they don't defer?

Peter, I find myself confused by the "self-employment income does not count to determine whether the participant is 417(v)(7) restricted. Does this mean that with a 401(k) Plan covering self-employed individuals that the Catch-Up must be Roth doesn't apply even if say that person Schedule C Income is $500,000? Sounds like people with W-2 Income are being punished versus "Schedule C/K-1 Income People"?

Oh on that I definitely agree. The filing and exemption are on a plan level is how I see it, which makes total sense for a controlled group. With regard to a MEP, I don't think you could even use the EZ since it is for a "one life plan" that is sponsored by an employer, which I take to mean a single employer which could cover a controlled group of firm. Conversely, I don't think a MEP of "unrelated firms", even if only covering owners, would fit under that definition since you are not dealing with a single employer, which you would be with a controlled group.

3 years is my understanding for this situation. Can't provide a cite, just believe this is the time frame.

Before 2009 you not use a 5500-EZ for a controlled group. Apparently, this has changed and you can use 5500-EZ if the plan qualifies as a one life plan. Basically, we have a situation with a plan that covers only the owner and has less than $250K, but is adopted by a controlled group with the same owner. One form is a proprietorship and the other is an LLC. Just want to confirm that even though there is a controlled group the 500-EZ can be used. Also, want to confirm that no filing is needed since the trust is under $250K.

I concur with Bri's comment. Assuming that the payroll funding was correctly computed on that basis, you should be fine.

I think most people who have been in this business for a few years, have come across a plan that they wish they never heard about. In this case, the history was a mess. Things like no valuations for years, etc... A case brought by a broker who normal brings good business basically begged that we do what we could to clean up a true mess. The incidental limits were addressed from day one, and ignored form day one. Anyway, the Plan does allow for insurance. Policies were purchased for by HCE and NCE. (sold by Ned Ryerson?) The problem is that for one NCE (Non-Key too) they purchased a policy that just ate up 100% of her employer contribution. (She does no deferrals.) The topic was immediately brought up and the Client advised that they had this, and other problem. We fixed those other issue, but since the premium payment averages between 7% and 10% of annual compensation, and the incidental limit is 50% for whole life, the sponsor decided to ignore the incidental limit. They were not going to pony up additional contributions to balance out the incidental limits. Bottom line, they would continue to pay the premium and nothing more, even though we protested loud and long. Beyond the annual notice of noncompliance, and my belief that putting my gun to the head of the Client would achieve nothing, there is nothing we can do. As stated earlier, VFCP was recommended and passed up. Like I said, a case we regret having; but we did fix other issues like valuations not done for years and late 5500 filed under delinquent filer program. You can take the horse to water, but you can't make it drink. Again, I appreciate the comments and the remarks of caution, as they do apply.

First, thanks for all your replies. They provided very good insights, and confirmed what I felt pretty sure was the case. This was a "take-over case" which one issue we immediately raised was the fact that incidental limits were not even considered under the prior service. In fact, it was clear that those limits were quite simply ignored. For example, for that one person Non-Key Employee, the ONLY asset held under that person's account was the whole life policy! In short, there are no side fund assets from which to pay the premiums! It was something that the had company paid each year, and accounted for 100% of that person's account! I should note that the plan was setup originally with only whole life policies and 100% of the contributions being allocated to premium payments, and that this was done by a "good friend" who was the agent on the policies (of course). We did discuss the options available, including a VFCP Submission, and are in the process of cleaning up the mess inherited. Participants are being given the options of having the policy converted to a paid-up basis, cash surrendered to the Plan, and in some cases the purchase of the policy from the Plan. Anyway, I do appreciate the insights!

Plan is a 401(k) Safe Harbor Plan that includes a New Comparability Profit Sharing Allocation. The Key Employees only "participate" in Deferrals and Safe Harbor Matching. Due to the inclusion of a life policy which has premium paid by Profit Sharing Contributions, there is one Non-Key who get a Profit Sharing Allocation. Does the inclusion of this Nonelective Contribution to one Non-Key Employee (which does provide Minimum to this person) require that a Top Heavy Minimum be provided to other Non-Key Employees? I suspect the answer is "yes" since the Plan is doing a contribution above the "Safe Harbor Contributions", even though that contribution only goes to Non-Key Employees.

Safe Harbor Match is capped. Maximum is 6% of pay. Discretionary, which is allowed under Safe Harbor Rules is capped at 4% total or against 6% of pay deferred, and is NOT subject to ACP testing so as long as limits are employed ACP testing is not an issue. Perhaps I misread your comment. If you are saying do Safe Harbor Match with a Discretionary Match that is uncapped, then yes you are correct. To stay under Safe Harbor the limits must be applied.

To retain safe harbor status your Safe Harbor Match could be 100% on the 1st 6% deferred. You could then do a discretionary match on top of that that does not apply to deferrals over 6% of pay, and the value of that match can't exceed 4% of pay. So you could do 100% on the 1st 6% plus 66.666% of the 1st 6% of pay (4/6), or 100% on the 1st 4% of pay. You can not do the Safe Harbor Match of 100% of 4% pay, plus 100% of deferrals over 4%.

Completion of Form 5330 for late deposits can be a real pain. I suggest that you have a competent professional complete this for you as the potential for error is very high. Your question indicates that you are better off not trying to do this yourself. With that in mind, the following should not be seen as professional advice, just clarification so that you can reevaluate what you are trying to do. Advice is only worth what you paid for it. With this in mind.... Under Schedule C.2. each payroll date that is late must be listed separately. You must detail dates and amounts in the table under C.2. Then, the amount involved is the related interest lost for that specific late deposit; which is used to compute the tax. I note that this amount is computed for the reporting year period, not to the actual date of correction if that is beyond the year end. Then, since you did not make the correction within the year, next year's filing will include this listing and a listing for interest on that interest, and another entry for interest from the start of that year up through the date of correction. Just in case you think you are done, read the instructions for C.4. and the table of corrections under C.5. As I said above, Form 5330 for late contributions is a real pain. Yes, the fee seems high compared to the tax, but did you consider what work needs to be done for the filing? Alternatively, you could go through a VFCP Filing and pay lots of money. I am curious on how you determined the excise tax to be $17.66. While this may be correct, you will need to consider exactly how you determined the lost interest upon which this value is based. Also, given the explanation for C.2. the amount for next year will be more. Lastly, be sure to have lost interest applied to member accounts as applicable. Please do not misunderstand the tone of this post. Hopefully, I am conveying that this task is not as simple as you might think. In all events, I suggest that in the future you avoid being late with deposits. Consider that a DOL Audit almost always puts this issue as a number one topic of audit. Good luck!

Chief Cook and Bottle Washer.

While I can't tell you how long to save emails I can tell you a sad story about losing emails. Basically, as a small TPA, our IT department is me. While we do follow a strict backup schedule, there are some areas that are harder to backup than others. Specifically, the emails on each work station that don't go through our primary server, but use the individual email client. To account for this we periodically backup the individual work stations, but not as frequently as the primary server. (I note that if my terms are a bit off, sorry.) Anyway, in between backups for one workstation, which happened to be an old computer that I used to use so it was no longer considered a priority, that computer said goodbye to the living in the PC World. On that computer were old emails that were from 2014. Wouldn't you know it, in 2021 when I was literally fighting for my life with cancer, those emails became important. While I won't get into details, the lack of those old emails and related files, cost me a great deal. Oh well, just one of life's little misadventures I guess.

The problem is that the person rolled over the in-service distribution to John Hancock, which is where the plan is held. You might expect this would make the issues easier, but they are saying the money must be returned to the plan, and it is they who issue the 1099 Forms. Regardless, I will try to get them to issue the revised 1099 Forms.