Below Ground

As a "me too reply", I just faced this same question. I too was pretty sure the answer was "no", researched the issue, a concluded with "no". Even still, I was glad you asked the question.

Our agreement with clients defines our file as our property. The client is expected to maintain reports and documents as is proper. If the relationship terminates, we give the client 90 days to submit a written, itemized list. We will then provide copies for no charge of those items. (I note that we almost always suggest items that the client should insure are in files.) After that 90 days we move files to storage, so a request made after that time involves a fee, usually $100 - $200. This accounts for time spent to retrieve, organize and copy, and send to the client. Why should that service be free? I contend that this is reasonable and fair; otherwise, is the expectation that we must forever hold files for a client? Can a client come back after 10 years and expect that we have that file in a current status? Doesn't the client have a responsibility to maintain appropriate records? The topic of the client having a responsibility is clear; especially, if they are told that they need to do so, and are reminded of the need at the close of the relationship. I certainly don't see $100 as a "shakedown", or even unfair. (If $100 has a big impact on your business, perhaps you should reconsider that venture.) In fact, I think that to expect that no fee should apply is grossly unfair to the service provider. When we get a "takeover client" that owes a fee for provision of records, or other services provided but not paid for, and they don't want to pay that fee; I always re-evaluate taking that client. Why don't they believe they need to pay the fee? Of course, my "review of the situation" must consider if the outstanding fee is "fair". If the fee is fair, do I really want a client that looks like they could be difficult with paying for my service? That is just common sense.

I find myself confused. Admittedly, this is very common. Any help would be much appreciated. So, for Excess Deferrals taxation is in the year of deferral; except if after April 15th, then taxation is year of deferral and year of receipt. Is that correct? Also, we know that there is no GAP on Excess Contributions or Excess Aggregate. When does it start that there is no GAP for Excess Deferrals?

This was posted on 3 different board basically at the same time?

MJB - I don't do the CPA's 5500 Audit, as I am a TPA, so I can't really justify the related fee. I can only tell you what CPAs are telling me they will be charging. I can also tell you that the audit covers a "host" of items that you might be surprised to find need to be covered by the audited. For example, "payroll controls". Again, I note that I can't justify those fees since that is not my role. I can, however, note that simply because someone says that a fee should not be that high does not mean that it won't be that high; especially when that person (including me) does not do that specific job. For example, should someone, who is not a lawyer, say fees charged by lawyers are not justified? (I know that people do that, but that doesn't make it right.) Since I am not a lawyer, do I really understand the work and costs of that work? I would say "no". Similarly, unless I am a CPA that does 5500 Audits, I don't think I can justify or argue with that fee. While I might shop around for a better fee, ultimately, a person who does that work will set that cost. I would suggest that myself and rcline46 were simply pointing out that the "buyer needs to beware". Given the changes that will apply to servicing 403(b) plans for the 2009 year, the "buyer" needs to consider the impact of "participant count" for both "normal service fees" and fees related to the 5500 Audit. Can use of a 401(k) with its ability to exclude employees be used to keep costs down? Why would you not want to ask this question? Just as an aside, many Not-for-Profit Entities don't have any HCE; meaning the impact of the ADP Test is zilch. If this is the case, and use of the 401(k) prevents the need for the 5500 Audit, why not go with the 401(k)? I suggest that each situation deserves consideration within the context of that firm and plan. Agree?

As pointed out my rcline46, the audit is not cheap. In the situation I referenced above you are going from about $2,250 complete to around $14,000. (I note that the increase participant count also increases the compliance/reconciliation fees.) So that you can compare apples to apples, the compliance/reconciliation fee would be $4,500 given the higher participant count (an increase from the 401(k) by itself). Don't forget, starting in 2009 we are talking about a totally new servicing standard for a 403(b) Plan. From a cost perspective, ADP Testing does not by itself create a big fee. It's all the other issues that now need to be reviewed and reconciled. This creates a situation where the Plan's size does matter.

A BIG problem with 403(b) Plans is the application of universal availablity with Form 5500 and the audit requirement. You may only have a participant count of 50 or 60 (small plan filer) with a 401(k), but have 140 to 160 (large plan filer) with a 403(b). I note that I use those specific numbers since I have a case that has those values. While the exact counts for 2008 and 2009 are not yet final, we know that the costs will basically skyrocketed in 2009! If it was a 401(k) with eligibilty exclusions, the lower counts would have applied, and the fees would have been about 1/4 the expected 403(b) cost in 2009. When applicable, this is a HUGE problem.

Thanks for your replies; especially Sieve. I thought there was that exception for the bona fide administrative consideration. You gave me exactly the answer I needed. George and K2Retire - See last paragraph of Sieve's reply. As stated in my OP, the pay was not to be "issued" on the date it was. The clerk ran checks early dated 1/1 for distribution on Friday, the 2nd. She also processed the contribution. As inferred by Sieve's reply, this does happen more than you would think. Regardless, I do appreciate your thoughts. Bird - 2009 W-2. This, of course, ties in perfectly with Sieve's comment. It was a known factor, but you are right, it is a most critical factor for detrmination of how this should be handled. Again, thanks all.

Just went through an IRS and DOL Audit on a plan where coverage was "improper". For both audits the auditor simply said correct coverage and show proof. Both audits closed favorably.

Client pays every Thursday. This year (2009), January 1st is a Thursday. Since Client was closed on the 1st, and payroll clerk was also taking off the 2nd (Friday), clerk processed payroll for the 1st on the 30th. She also processed deferrals from that pay (this is 2009 pay and deferrals -- not on 2008 W-2 Forms) on that day. Member investment accounts show money for these 2009 deferrals being deposited on the 31st. In effect, money was deferred prior to being earned. What should be done?

Another concern is that you may create a situation where the Schedule I needs a "CPA Audit". Check out the rules for waiving this requirement and you will find that a bond that covers the nonqualified assets is required. Bonds are cheap, audits are not. I note that a "good audit" takes a lot of work; meaning the fee is justified. Of course, getting an audit done when not needed could be said to be a waste of BIG money!

Thanks George! This was exactly what I needed. Thanks!

Thanks John. As usual, your posts are very helpful. Do you, or anyone else, know where I can get supporting documentation (e.g. reg cite) for this issue? I got out of servicing 125 Plans when Schedule F was eliminated, so any help would be greatly appreciated. Again, thanks!

I know that in the past a person who was a "2% S-Corp Owner" (direct or indirect with 318 attribution) was precluded from participating under a Section 125 Plan. I have a new client (401(k) Plan) that has a 125 Plan, and the spouse of the 100% Owner (S-Corp) is buying health insurance under the 125 Plan -- which actually covers the 100% Owner. While I know that there was an exemption for the spouse of a sole proprietor, I do not believe this is possible with an S-Corp. Is there some way that this is possible with an S-Corp? I note that I no longer work with 125 Plans so any recent changes would be unknown to me.

Quoting the The ASPPA Defined Contribution Plan Series Volume 3:... "Reasonable classifications include specified job categories of employees (e.g. secretaries)...." under the chapter for ABT and Special Rules. You can find this on page 5-4 of the 2nd Edition. I think managers are a specific category. Hope this helps.

Please accept my thanks for all comments. Most of our plans are not balance forward so 1099R and withholding becomes an issue. This year, our "problem" totals $48. Still, it needs to be done. Again, thanks!

We service a small profit sharing plan that has a trustee directed fund, subject to an annual valuation. In otherwords, an old style balance forward profit sharing plan. Our practice for this type of plan is to have an employer file an SS-4 to obtain a TIN for the trust. Of course, clients sometimes don't file the form (even though provided signature ready), or lose the number (and coupon book if received); resulting in problems processing withholding. In this instance, the number is unknown, there is no coupon book, and we have federal withholding of about $50 to process. I know that the employer can serve as "agent", but my questions are how is this done? Specifically, what form is sent (945 or 941) to remit the withholding, and what TIN (employer's) is used for that filing and the 1099R? Any details on this processing would be very helpful! Thanks.

Kimberly, I would suggest that the "outside maximum date" would be the close of the following plan year. I know that this does not address the potential of the "due date + 30" for IRC 415, but.... Perhaps you should take a very conservative approach of the funding deadline that would have applied if subject to that timing. Is that legit? No, but... I have also asked this question in the past. Never got a good answer. Sorry that mine is also of little, or no value.

I'm not sure if this applies to the OP, but on page 9-21 of the ASPPA Defined Contribution Plan Series Volume 3 (for DC - 3) for 2008, in the explanation of an interest free loan to the plan, an employer could pay a benefit obligation. There are restrictions which could make this invailid for the original post, but... I note that this discussion on PTE is for payment of expenses that are incidental to the plan's operation. Anyway, just a thought.

A question I have is do you have a controlled group. This matters because it will impact "how" the LLC will adopt the Plan. Basically, the Plan document should have a section that says other firms can adopt as "participating employers". You should have 2 sections in the Plan, one for related (controlled group) and one for unrelated (multiple employer plan). Either way, you would have both companies executing "joinder agreements" that allow the LLC to adopt the plan in accordance with section ???? of the Plan.

Was my reaction "over the top" with too much gloom? Yeah, I would agree with that. As inferred by K2retire's post, there are a few people out there that don't think the rules apply to them. While I can't say this was true for the OP, it just struck a bad chord with me. (As I think it did for K2.) Of course, life goes on.....

Thanks. I was pretty sure of that, but getting a second is always nice. Thanks.

I suggest that BG5150, Mr. Burns and MJB offer important advice. You have a very BIG problem here that can't be corrected by saying it was just a loan that is a little over the limit. You have a fiduciary breach that is very likely to be criminal in nature. I have found it to be very rare that a fiduciary actually breach involves blatant theft of member monies; but, when found they should be dealt with in a harsh fashion. It is transactions like this that have unfairly given the private pension system a bad name. :angry: As MJB notes, your client should be directed toward competent ERISA legal counsel. That is the best advice anyone can give you, it appears.

I think this was a DC-3 Exam example of how a self-directed account can't be used to finance a real estate for a relative. As I recall, this type of transaction was being used to explain that while self-direction does not make a participant a fiduciary, it does make them a party-in-interest for such prohibited transaction.

Currently, this 403(b) only has Employee Deferrals. However, in the past, it did have an Employer Nonelective. Assuming that in all other respects this plan would qualify as exempt (no control by employer, etc...), does this plan need a full 5500 in 2009 given one deposit of Employer Nonelective several years ago. My initial response is yes, it must file a full 5500. In fact, I believe that ever year including and after that year of deposit of the employer contribution needed a 5500 (limited). Does this sound right?