Below Ground

The story I got was that the $11,000 was sent to the broker with instructions (verbal) to deposit on January 1, 2008. The broker instead deposited on December 31. The reason value are "coincidental" is that it was estimated that the amount needed to "max out" the owner would be slight more than $62K. The $11,000 was supposed to provide for the additional sum needed for this goal, with the balance being applied to 2008. The problem is that the deposit was made 1 day early. Now the amount that would have been for 2008 goes only to the "rank and file employees" as the owner is max out when slightly over $62K is allocated. Of course the owner is not happy, but I think that the entire $72,000 must be allocated in 2007 since the deposit was in 2007. Am I wrong?

During 2007 Employer deposits $73,000 to a profit sharing plan's trust fund. The last deposit of the $73,000 was actually made on 12/31/2007, and was $11,000. Review of allocation results cause the Employer to only wanting to allocate $62,000, not the $73,000 deposited. Other points are: (1) the Maximum Deductible Amount is $81,000, and (2) there is no resolution or other documenation defining the Employer contribution to be $73,000. What options exist? Can the Trust simply hold the "extra" $11,000 as advance contribution for 2008?

Does this mean that, without respect to any other limit, a person over age 50 could do a salary deferral of $15,500 and get a profit sharing allocation of $34,500; for a total of $50,000? (This would have only $10,500 of deferrals used for Annual Additions and ADP Testing. I am using 2007 values.) I was pretty sure that this was the case. It does tie in with Janet M's post, I think.

Actually, the "net effect" is the opposite. The 2 proprietorships are set up to account for real estate commisions for Mom and Son. The Corporation, a real estate firm, has the plan and pays the employees (support staff). Why they do this I don't have a clue. Until we found out about these 2 proprietorships, the incomes under these 2 firms was ignored for plan purposes. The principals were only using the income under the Corporation for contributions under the plan. In otherwords, "coverage" was "total" for employees and "partial" for the owners. Of course, since they are HCE, no one cared. I felt this should be reviewed. I suspect that it is an ASG also. Admittedly, this is not my forte (see 1st post), so I posted to see if it was possibly a controlled group (I don't think so), an ASG (I suspect it is), and what the impact would be. What I don't see as being possible is that the 2 proprietorships are a controlled group and the Corporation has no relationship. Maybe I am wrong but that doesn't make sense to me. I am guessing that "Simmons" misread my post, or more likely, I was not clear enough. I hope this provides clarity. Anyway, thanks for your reply.

Could someone clarify the post by J. Simmons with regard to Mother and Adult Child Proprietorships. I am having trouble accepting that. Specifically, IRC 1563(e)(6)(B) says: "(B) Adult children and grandchildren An individual who owns (within the meaning of subsection (d)(2), but without regard to this subparagraph) more than 50 percent of the total combined voting power of all classes of stock entitled to vote or more than 50 percent of the total value of shares of all classes of stock in a corporation shall be considered as owning the stock in such corporation owned, directly or indirectly, by or for his parents, grandparents, grandchildren, and children who have attained the age of 21 years. " Since Mother owns none of Adult Son's Proprietorship, and Adult Son owns none of Mom's, how does this apply?

Thank you for your replies and the link. I'm still a bit confused. I thought that the person needed to own more than 50% of the other entity to be "credited" with the adult child's ownership for these determinations. Also, I know I did not state this clearly, it is Corporation X with the Plan. Does it have a controlled group relationship with either of the proprietorships? To Rigby: The article about problems having TPAs determine controlled groups is so true. Again, thanks. To Simmons: If I understand you right, when a Parent and Adult Child both have proprietorships, they are always a controlled group?

Controlled Group determination is one of my worst skills, along with Affiliated Service Groups. Anyway, Corporation X is owned equally (50% each) by Mother and Adult Son. Both Mother and Adult Son also have Proprietorships. The source of earned income for both Propietorships is commisions from Corporation X. It is my understanding that there is not a controlled group based on ownership for ERISA purposes. Is this correct, and what about the "income relationship" between Corporation X and the Proprietorships? Is it possible that there a controlled group or affiliated service group for ERISA puposes? Thanks!

Catchup Contributions are not Excess Contributions. You don't have an issue.

I think the SIMPLE Limit of $10,500 applies to all SIMPLE Plan. I don't think you can use the "normal" 402(g) Limit to agregated SIMPLE Plans. Can't say definite, but feel pretty sure of that. Keep in mind that these limits apply to the individual, not plans.

Form 5500 Part I Item A(2) says "a single employer plan (other than a multiple-employer plan). Item A(3) says a multiple-employer plan. I know of NO exception that would have you use A(2) for a multiple-employer plan. While I may be wrong, I think that the Form is pretty clear on that issue.

While I am not 100% sure, I believe the date is the date the deposit was expected to occur. The logic for this position is that since the deposit was not made on the "due date for that deposit", it is on that date that the prohibited transaction occurred.

Schedule R to define TIN used for distribution reporting (1099R, withholding, etc...) as applicable.

WSP, I really do share you sentiments. Isn't it always the TPA's fault? It may be rare, but sometimes you get a client that actually wants to work with you. When you do, it becomes their choice. Do they want to know what they can do ahead of time, or do they want to "aggressively run for failure" (failure is not always the result of course). Provided that you get data early enough (as you say) then the latter is fine. In my experience, getting good data early is almost as rare as having that client that wants to work with you. My point was simply that Prior Year is not always bad. Like most things it must be considered when appropriate. If it fits, use it. If not, go with Current Year. Using Age-Weighted with a 27 year old principal and two 60 year old workers makes no sense -- but that does not mean Age Weighted is bad in a situations.

Oh, I disagree. Prior Year works very well for some plans, and not well for others. You simply need to determine what works for the plan you are working on. Not always easy, but possible. There are some plans that benefit from the advance planning made possible by Prior Year for ADP. To say it always "sucks" doesn't make sense to me. I do agree that for discretionary employer matching, Current Year is almost always needed. If the Employer does no match in a given year I always switch to Current Year for ACP before the close of that next year (Volume Submitter Format). I also agree that you should be communicating results in planning with HCE. If done right you can get the HCE to equitably share the DP Points that are known to be available. Oh, having Catch-Ups shouldn't be screwing up results for you. Keep in mind that Prior Year simply lets you know what the Average for the HCE can be in this year in your testing. You can still use Catch-Up to mitigate Cutbacks. Lastly, if your software gives you trouble, look at another package, or make your own.

MJB, $3000 Unknown Unknown, but most likely the member's account.

First, I want to thank all for replies. Both sides appear to be logically presented. Of course, which way to go? That's the problem. As I see, the Plan can fight any demand for adjustment and will most likely win. Of course defending costs money and the disputed sum involved is not large. Sounds like just looking for a simple settlement is the most logical course. This position does have problems given the response of MJB. His points indicate that any adjustment would itself create a problem. By the way, this is a DC Plan and no account was segregated. I suppose this could be the solution as we could compute the expected value of what the account would have been equal to had it been segregated. Does that violate points raised by MJB? At minimum a written agreement on that would be prudent. Guilt? That is an interesting problem. Since processing was not under our service I can't say what the AP received, but she claims that notices provided stated that if she did not act payment would simply be made to her. If so, is the Plan now at fault? Personally, I find the 6+ year delay by the AP to be beyond explanation. Of course, my "personally" is of no value. I suspect that the best course will be to see if parties are open to computing the segregated account value. Then, finding some confirmation that this approach would not exposed the Plan. Next, get a written agreement and do it. Any comments on that approach are greatly appreciated. While we do wish to see that the parties are correctly attended to, protection of the Plan as a whole is the number one consideration. Again, thanks for replies. You help is of great value.

QDRO is issued in 2000. Document holds that Participant's Spouse is due a specific dollar sum, payable on or before a specific date in 2001. Election package is provided prior to that date, but Spouse never responds thinking that since the amount is under $5,000 (apparrently notice of administrative service used by plan at that time must have stated that), the monies will just be paid without an election. That did not happen. Now Spouse is contacting Plan with an election, and demands an interest adjustment. While that sounds reasonable, how do you compute that value (actual experience)? Can you even do this since QDRO originally stated a dollar sum and has no reference to any form of interest adjustment? Is a new QDRO needed or can parties come to some form of agreement, without creating either legal or tax problems for the plan and people involved? Any help would be greatly appreciated!

Typically, the "switch" is documented by a resolution that serves (stated in document) as an amendment. Of course, an "amendment document" (not just resolution) can be used. I think how specific to the document you wish the amendment to be determines format. I suspect that on format you will hear 10 different opinions, including whether a resolution format can be used. Regardless, the document must be executed before the close of that year. Changing from Prior to Current can be done at any time, subject to the need to have executed documentation prior to the close of that year. Current to Prior requires that plan has not used Prior for 5 years. Please note that a new plan, or a new deferral provision, can use either approach for that 1st year (given plan document terms). I note that the timing explanation of the prior post by 401_4_ever is stated perfectly. Check this website (Benefitslink) for links to reference materials. Also you can obtain materials from several services including CCH, Thompson Publishing, etc... ASPPA is another site you should check out. Good luck with your firm.

Beautiful! I really appreciate that clear and comprehensive reply. You hit the problem right on the nail head -- the meaning of "tax period". Thanks!

Rev. Rul. 2006-38 explains how the "first tier penalty tax" is computed and provides an example. It then says that the revenue ruling only applies to the first tier tax. While it does have some explanation of the second tier tax, I am not understanding the "when and how" of the second tier. Could someone explan when the second tier applies, and how much it is, using the example in Rev. Rul. 2006-38? Thanks!

Thanks to both!

Yes, they need a Plan document. No, you should not have a problem with ACP Testing since it sounds like you don't have a Match but a Nonelective that everyone gets same percent of Pay. Yes, you can have a 403(b) Document exclude less than "20 Hour People". Yes, a 5500 Filing is needed. Of course, it is most likely just page one so it should be easy. Hope this helps.

Plan deposited deferrals late. As I understand, there are two "interest computations". First, there is the interest adjustment needed to make the person "whole". Second, there is the interest needed to compute the penalty tax for Form 5330 under self correction. I would appreciate any comments you might have on these computations. Also, where is the table found that defines the interest rates needed to compute the excise penallty tax, and which rate do we use? Thank you for your help!

Prevailing Wage Contributions are sort of like a Cross Tested Group Allocation where each person is their own group. Example: Bob is paid $10/hour. He needs to be paid $11 under the "wage standard". For February he works 40 hours on "rated jobs". His contribution is therefore $40 (40 * 1). Tom gets paid $9/hour. He works 80 hours. His contribution is $160 (80 * 2). Basically, the variance between actual pay and rated pay is contributed for that person, given the hours worked on rated jobs. Yes, I've done a number of plans like this, that have been reviewed and "blessed" by both the DOL and IRS. You can even "offset" these Prevailing Wage Contributions against other nonelective contributions, but that is for another day. I note that many prototypes and volume submitter plans have language for this type of contribution. Hope this helps.

Thanks for the "heads up". Any input toward the original question?