Below Ground

Thanks for the advice. I did call the attorney who is responsible for the DRO. She seemed clear that there would be no changes! I even offered to provide language to address the problems. Apparently, it is too much work to fix the DRO for her.

Ask the lawyer to send you a written signed letter, defining why the Plan terms and related regulations should be ignored. I did that once and the problem magically went away.

I have been asked to review a DRO, and have found a number of issues. While I have done this hundreds of times, this one is a problem. The first issue is the amount is defined as a flat dollar value without adjustment for interest. While this is fine, they fail to even define when the payment needs to be made! Basically, whenever the Plan Adminisitrator feels making payment is appropriate. Not disqualifying, but clearly sloppy drafting. Second problem is the the DRO makes the form of payment election for the beneficiary. The Plan does state that with a QDRO the Alternate Payee is to be provided with all elections that would be available to the participant. In addition, going by the DRO there would be no 402(f) Notice to the recipient. I believe these 2 conditions would be a violation, making the DRO not qualified. The language of the DRO states that if the Plan Administrator determines the Order is not qualified then the parties will cooperate with making those changes for the DRO to be qualified as defined by the Administrator. With that finally point in mind, I called the attorney who drew up the DRO and had it submitted to the court for signature. She proved to be the attorney that one article on QDROs identified. Totally adversarial, and disrespect of all points made because I am only an ERPA. Perhaps she is right, but I do have 32 years experience and her paralegal told me they have very little. In fact, they wanted me to draw up the QDRO for them initially. I said no as my job is to review, not create the QDRO. Of course, my declining the honor of writing the QDRO for them is deemed as a reason that I have no right to bring up problems. I feel I am stuck since I do not believe the DRO is qualified. If I am in error on that, please correct me. Assuming I am right, what should the next step be since the attorney clearly has no intention of working to resolve these issues. Any and all advice is greatly appreciated.

Thanks

Poor choice on my part to reference the "stacked match", since that has the 4% limit. My issue is with a discretionary match that is not associated with Safe Harbor, and the match looks like it will be at a rate of 175%. Is that okay? Of course ACP Testing and all other limits apply, but is a rate of 175% okay?

Thanks!

Firm A bought Firm B as a stock purchase. Both had their own 401(k) Plan before the "corporate merger". It was determined that the Firm B's 401(k) Plan would be merged into the Firm A's 401(k). The merger of plans was done in 2 stages within 2016. First, new money (deferrals) were directed to Plan A mid-year. Old monies (existing balances) were transferred over to Plan A before the close of that plan year Everything went smoothly except for one issue (of course). Firm B had promised its employees matching on their deferrals for the entire year. It was expected that deferrals under Plan B would be matched under Plan B prior to the move to Plan A. I note this is part of the reason for "two stages". Clean up all aspects of Plan B, including matching and testing on Plan B contributions, and then merge into Plan. This did not happen as the match on deferrals made under Plan B was not made. I believe one solution is that the match be done under Plan B as a receivable at plan year end, which is immediately transferred into Plan A accounts in accordance with the merger. Of course, this raises the potential for another 5500 Filing (large plan), as well as issues that might pertain to "merger documents". Comments on this solution are appreciated. Another solution I see would be to have Plan A match deferrals of Plan B by including them in the definition of "Matched Employee Contribution". We would also need to make several other adjustments, such as revising the definition of Compensation and Hours of Service to include values attributable to service to Firm B. Since Firm B was owned by Firm A for the entire year, this is technically acceptable for Compensation and Hours. My problem is can deferrals under one plan be matched under another? Timing is also a concern for the amendments. Comments on these issues are most greatly appreciated. As always, I appreciate all comments. Thank You!

Thanks for correction on my typo. Yes, I got a bit confusing. I also hold contempt, and would normally say "I can't help you" since this firm will obviously be a problem at some point. They are just "bad business" in my opinion. Unfortunately, the broker is a good friend who ask that I look at it as a special favor.

Thank you for the reply. Since you can exceed 100% under a Safe Harbor Plan using Safe Harbor Matching and the "stacked" Discretionary Match, I was pretty sure that it could be done, BUT doing so under one matching allocation formula was the sticking point for me. Again, thanks.

Outside of normal IRC 415 Limits and ACP Testing, is there any problem with doing a match in excess of 100%? Thanks for your reply?

I would like to thank everyone for their input. I greatly valued these insights. I apologize that I did not reply earlier, but had a personal concern to address. At present I am waiting for the Employer to get back to me to give the go ahead on services needed to correct this messy problem. While I may be surprised, I strongly suspect that they will opt to do nothing and I will hear no more from them. (They are not my client at this point.) From what has been made available to me during this period of investigation, it appears that the reason we find such a mess is that this firm does not believe paying for services is not necessary. I do know that I have no intention of providing a "gratuity service"; especially for a firm that has inferred that our industry as a whole provides nothing of value! (We all run into one of these, I think.) Again, thanks for your input.

The Employer.

I have been asked to look into a situation where a Plan Sponsor did absolutely nothing regarding compliance since adopting the Plan in 1994. While I anticipate operational defects, my first concern is toward plan documentation. My understanding is that the filing under the "Non-Amender Program" requires document updates for every required restatement that was not done. My question is what document restatements would be needed for a Standardized Prototype which has an Opinion Letter dated 7/9/1991. I do not have access to the Basic Document or any updates to the Basic Document. Just a 2 page Adoption Agreement and the Opinion Letter. Any suggestions on what needs to be done are greatly appreciated.

Wow, I really appreciate these posts. Knowing that what I am about to say is not relevant, it just seems crazy. A problem is discovered that was previously unknown, and because it was unknown (not something being hidden), the penalty is maximized! A "protective 5330" highlights the utter nonsense. And yes, it shows why good data is so important; and yes the client needs to take that issue seriously. A problem we all face we certain clients. Anyway, if you find that ASPPA article that would be much appreciated. I have also had a follow-up posted to the other site. Again, thanks. Peer review is such an important resource.

ESOP Guy: On another site, the consensus seems to be that the agent can ask for data back to inception, but the computation of the tax is limited to the Open Years. 2013 - 2015. You disagree? Based upon case involving a "pizza outlet". They file because they are over the $250K mark. They had to file starting around 2009. Thanks for your replies!

Client receives letter for typical 5500 Audit for 2015 Plan Year (calendar year). Form filed was Form 5500-EZ for Owner & Spouse. During audit it was discovered that data submitted by Client does not tie into W-2 of Spouse. Looking back it is determined of the years back to plan inception (2007), only 2 years tie into the Spouse's actual W-2 for that year. During the other years the Spouse's income was slightly overstated by $1,400. Result is that monies allocated in those years exceed maximum deductible contribution. Question: Is related penalty tax only applicable for 3 years back, and does that mean 2015, 2014, 2013 and 2012?

Thanks! I really appreciate that. My memory seems to be diminishing. And yes, Mr. Feldt. I really did not explain the email very well. It was directed at every aspect of the plan. Also, this email stated that no matter what action you took, there is no protection.

Thanks. I forgot about the investment comparisons for the 404(a)(5) Notice. Do you know the cite for the 404(a)(5) Notice when using self directed brokerage accounts.

Do these exclusions apply to the 3% Nonelective for a 401(k) Safe Harbor Plan?

I am involved with this sort of event rather frequently. Make sure your paperwork is in order, provide proper notices (balckout, etc..), and don't rush things; and it all works out fine.

I just read an email where the person was telling a client that fiduciary relief under 404© is fiction (no plans comply), and that benchmarking is required by law. To be clear, the email did not say 404© Protection is hard to get. It does not exist? Also, while benchmarking makes sense for reviewing your Plan, required by law? Where is that cite?

Just as followup on this thread, Peter and I did have a very pleasant discussion on this topic. Since the "devil is in the details" I can't really say much more for this thread, except that it does make sense to sometimes take a topic further. This situation if NOT as simplistic as it should be. I recommend that should you find yourself faced with a similar issue, give Peter Gulia a call. His contact info is under his signature.

Peter, I believe you were making your post as I was writing mine. You gave the entire Section from which I made my extraction. Anyway, do you have an opinion on family aggregation of directorships? In my OP, aggregation would create a controlled group for Firm C. My belief at this time is "no".

Below is extracted from related regulations. As you can see there is in fact an issue with controlled groups for tax exempt entities without ownership. The question boils down to does aggregation of directorships apply? So far, my research indicates no, BUT there is a need for regulatory clarification on this narrow issue. No matter, thanks for your reply. (b) General rule.In the case of an organization that is exempt from tax under section 501(a) (an exempt organization) whose employees participate in a plan, the employer with respect to that plan includes the exempt organization whose employees participate in the plan and any other organization that is under common control with that exempt organization. For this purpose, common control exists between an exempt organization and another organization if at least 80 percent of the directors or trustees of one organization are either representatives of, or directly or indirectly controlled by, the other organization. A trustee or director is treated as a representative of another exempt organization if he or she also is a trustee, director, agent, or employee of the other exempt organization. A trustee or director is controlled by another organization if the other organization has the general power to remove such trustee or director and designate a new trustee or director. Whether a person has the power to remove or designate a trustee or director is based on facts and circumstances. To illustrate the rules of this paragraph (b), if exempt organization A has the power to appoint at least 80 percent of the trustees of exempt organization B (which is the owner of the outstanding shares of corporation C, which is not an exempt organization) and to control at least 80 percent of the directors of exempt organization D, then, under this paragraph (b) and §1.414(b)-1, entities A, B, C, and D are treated as the same employer with respect to any plan maintained by A, B, C, or D for purposes of the sections referenced in section 414(b), ©, (m), (o), and (t).

I have researched this to conclude that a controlled group only exits if IRC 1563 attribution applies. It appears that this is not the case and no attribution applies.