chris

Employer has maintained a PSP for many years. Appears that prior TPA had misread plan document and used forfeitures to reduce the employer contribution instead of allocating forfeitures together with the employer contribution. Thus, employer has underfunded PSP each year. I have not scoured EPCRS, but it would seem the following in a nutshell would need to happen: 1. Calculate contribution missed for each year plus interest; 2. Allocate missed contribution for each year to participants in Plan in that year; 3. Track down all terminated participants due a contribution and provide them with the $$$.... All years for which contribution miscalculated would need to be addressed. Am about to jump into EPCRS Rev Proc.... Thanks in advance for any additional guidance....

Twelve professionals are shareholders in Real Estate Corporation (REC). Same twelve professionals are also each a shareholder in his or her separate professional corporation that leases space from RAC. Each of the separate professional corporations maintains a PSP and each of the twelve professionals is also a trustee of the respective PSP maintained by his or her corporation. REC has a substantial loan coming due and the twelve professionals have come up with the idea of having each of their respective PSP's make a loan to REC pro-rata in order to allow REC to be able to pay off the loan. Based on the mechanics it appears that while it is a loan §4975©(1)(B) is not the problem unless you stretch "indirect" in the intro language of §4975©(1). Rather it appears that §4975©(1)(D) or (E) would make this a prohibited transaction in that the loan transaction would be "for the benefit of" each of the twelve professionals (D) or would constitute an act whereby each of the twelve professionals as trustee of his or her respective PSP would be "dealing with the assets of a plan in his own interest or for his own account" (E). Any thoughts greatly appreciated.

Based on your response eligibility of current participants in the PSP must be taken into account when addressing whether or not they would meet the eligibility requirements of the 401(k) (deferral and safe harbor) and if the participants are already in the PSP, then they will immediately be eligible to defer/receive safe harbor. So then the only reason to consider waiving age/service requirements for all employees employed as of March 1 would be to allow someone who has not yet entered the PSP portion of the Plan to be immediately eligible to defer and receive the safe harbor contribution...? Thanks for your response.

Employer has current PSP in place. Employer wants to add safe harbor 401(k) and provide for 3% safe harbor contribution all effective March 1. Employer wants to use age 21 and 1 YOS requirement for eligibility. Employer also wants to benefit current partiicpants in PSP as soon as safe harbor 401(k) is added to PSP. In other words, upon amendment of PSP to add safe harbor 401(k) Employer wants participants in PSP to be able to defer and accordingly be able to receive safe harbor 3% for plan year 2013. Will normal statutory eligibility rules allow this (i.e., all current participants in PSP able to defer and receive 3% safe harbor contirbution) or would plan need to waive age/service requirement for all employees employed as of March 1? Thanks.

Client adopted a Flexible 401(k) PSP in October of 2010 sponsored by First Clearing, LLC. Client only has copy of Adoption Agreement and does not have underlying plan document. Adoption Agreement is entitled "Flexible 401(k) PSP Standardized Adoption Agreement". I know it is a longshot, but is anyone aware of where the "Basic Plan Document #01" might be found on-line? I will try to contact First Clearing, LLC as well, but thought I would give it a try. Thanks.

Individual A owned 100% of shares of Corp X which owned personal property, etc. used at several geographic business locations. Individual A has set up new corporations for each geographic location and each new corporation has purchased personal property used at its respective location. Individual A owns 66 2/3% of shares in each new corporation. Remaining shares of each new corporation are owned by key employee at each location. Key employee has option to buy all of individual A's shares within certain time period. Corp X maintains a profit sharing plan. CPA has been doing plan administration on basis of all being in a controlled group. I understand some (maybe all) of new corporations have signed participation agreements to participate in Corp X plan and have made contributions thereunder for respective employees. Individual A has asked CPA what happens if key employee of particluar location exercises option and buys all shares from individual A as far as controlled group issues go. Specifically, Individual A has asked when that happens will employees at respective location continue on same vesting schedule or will there be a distribution and a forfeiture? Or, will new corporation continue on as if nothing happened retirement plan-wise, i.e., no distributable event for participants of respective location, and new corporation now has a plan document that tracks the terms of an unrelated sponsor....? Individual A believes each new corporation should go out now and jump on a prototype at brokerage firm so that as key employees exercise options for shares each new corporation will still have its same bucket of plan assets/plan participants to deal with and there will be no separation issues. I have yet to review Corp X plan document, but from the controlled group perspective I do not see how having each new corporation set up its "own" plan now will necessarily change the controlled group issues. In other words, sit tight as-is and let each new corporation peel out of controlled group status as the stock options get exercised. So, two questions: 1) what happens when respective entity ceases being in the controlled group if assets have been pooled with other participating employers? and 2) will having each new corporation set up own plan now ease the consequences when controlled group status ceases? Thanks for your replies......

I see what you are saying, but I am trying to see if there is a way to get there instead of having to go through three separate steps as outlined above. Plan loan policy also states regarding a default that the "Participant will have the opportunity to repay the loan, resume current status of the loan by paying any missed payment plus interest or, if distribution is available under the Plan, request distribution of the note. If the loan remains in default, the Plan Administrator will offset the Participant's vested account balances by the outstanding balance of the loan to the extent permitted by law. The Plan Administrator will treat the note as repaid to the extent of any permissible offset. Pending final disposition of the note, the Participant remains obligated for any unpaid principal and accrued interest." Assuming, participant does not want to keep loan intact, would alternative be for participant to default on the loan, let the cure period go by, and then request the in-service distribution of all of his/her account part of which would be the promissory note...? Thanks

Plan document (loan policy) and note language provide for loan to be due and payable upon termination of employment. Both also contain the following language "In addition, any distribution (other than an in-service distribution) from the Plan will be first applied to offset any outstanding balance." I presume that language allows for the participant to take an in-service distribution and continue to keep the loan intact and continue to make payments given that the implication is that participant continues tobe employed. I believe that would be the easiest, i.e., in-service distribution of account leaving loan intact and participant continues to pay. However, my question arises in the event the participant wants to handle the loan at the same time as the in-service distribution such that the account is cleaned out and the loan is no more...

I guess that's a possibility assuming the participant will continue employment for a sufficient amount of time. Presumably, upon termination of employment, then loan will be dealt with at that time as determined under Plan terms...

Participant is 63 years old. Participant just took out loan from 401(k) Plan and has made one payment. Participant now wants to take out entire account balance via in-service distribution provision as allowed by Plan terms. Appears participant does not have the ability to payoff the loan with outside funds. Plan doc is a Corbel document. Can the participant apply for the in-service distribution and state that Participant wants all monies in the account but also direct that the Plan treat the portion of the account equivalent to the outstanding balance of the loan as an offset? Thanks for any help....

Profit Sharing Plan wants to consider offering J&S annuities as distribution option. Practically speaking it would seem Plan would need to deal with current investment provider to see if it could assist with obtaining such annuity contracts in the event a participant were to elect the same or locate one that can do so. Can Plan charge an electing participant some level of administrative expense associated with obtaining the annuity contract if Plan has to do its own legwork to obtain such annuity contract? If so, what might be a reasonable range for such administrative expense? You can probably tell I don't deal at all with J&S annuities based on my questions, but I am grateful for any help you might provide....

I pulled a few DOL Opinion Letters re plan reimbursing employer for plan admin matters as well as the 408 Regs and outlined the same for employer to shoot all of it down. Sounds like consultant was pushing that all of it was ok to do... Thanks for the valuable input.

Sounds like doc/trustee is alternatively considering charging an asset management fee as he has overseen invested Plan assets this year for a 18% to 20% return. I understand that he has not ever charged such a fee in years past.

Not that it matters substantively but the employee actually only devotes 1/3 of time to Plan matters and 2/3's to employer. Medical practice is a small shop -- several docs and various support staff. Employer's perspective is that if it (management fee, etc.) is something that could be paid to outside third party, then it should be payable to employer P.A. Employer has specifically asked if Plan accounting fees (handled by outside consulting firm) can be paid from forfeitures in Plan even if other stuff, ie, management fee, partial compensation of employee providing service to Plan, cannot....

This is an "old-school" employer, still has an annually valued plan and is a medical practice to boot. Employer would still like to contribute as it has been but wants to see if there is a way for Plan to "pay its way" as it relates to employee providing services to the Plan since but for those services employee could be otherwise providing additional service to Employer. Any thoughts on the above three scenarios appreciated.... Thanks.

Employer has one employee who spends 2/3's of time handling all aspects of profit sharing plan administration. Employer now wants to explore the following alternatives: 1. Employer charges Plan a management fee of .25% of assets; 2. Plan shares cost of employee's salary on some percentage basis, e.g., 2/3's of salary paid by Plan and remaining 1/3 paid by Employer; 3. Plan pays employer a set dollar amount for plan administrative services. I am going to pull out the rules on prohibited transactions, but just wanted to see if any or all of these were dead in the water before I jumped into the research... Thanks for any help.

While technically doable, i.e., spin-off and subsequent termination, it would seem that such an approach would be cost-prohibitive and as suggested the common sense approach would be to have all participants direct the investment of their entire account balance, PSP and 401(k). I guess it's possible there might be some participants that would refuse to direct the investment of their accounts.... which would leave trustee with a much smaller amount to worry about... Thanks for the responses.

Employer added 401(k) provisions to existing PSP several years ago. Thus, all in one plan document. Employer now says that it wants to terminate PSP portion of plan and allow participants to roll PSP monies out to IRA or take same as taxable distribution, but kep 401(k) intact. PSP monies are held in pooled account of which individual trustee oversees management. Individual trustee is also sole shareholder of employer and does not want that potential liability anymore. Thus, the termination of the PSP has been proposed by employer as an alternative. Plan document allows for participants to direct investment of all of their monies, eg, PSP, 401(k),... Participants are directed the investment of their 401(k) monies. Employer has basically notified participants that they will need to direct investment of all of their monies in the near future and has also notified them that they may be able to roll their PSP out to accommodate that. Is there any way to declare the PSP portion of the plan terminated such that participants can roll out their PSP balances? I guess what is getting me is that I had always learned that the 401(k) provisions needed to be part of a profit sharing plan and I can't grasp terminating one portion of the plan especially since all provisions are in one document. Please let me know what I am missing... Thanks.

That was my initial suggestion to at least create a separate group for this employee based on potential issues I saw, but Employer wanted to know why it could not go the employment agreement route and why such an amendment was necessary. Just trying to gather additional substantive reasons...

Employer maintains PSP with cross-tested allocation formula which provides for various classes of participants based on various objective factors. Employee would presently fall into one of the classes, however, Employer and employee want to provide in employment agreement that employee will agree to forego x% of retirement contribution based on various factors which are to be looked at upon year-end. Looks like such an agreement would not only be pre-empted by ERISA, but would also be in violation of IRC §401(a)(13) as to the qualified status of the PSP. Anyone see any other issues with this? Thanks.

Thanks for the responses. Was not trying to have anyone divulge fees they might be charging just wanted to know if the proposed amounts were in line. Thanks for the angle as to reasonableness. My concern was with the 100.00 annual fee as well and I am trying to track down how that amount was arrived at. Also, I will need to make client aware that fees will only be applicable to loans taken out after they make the change re fees.

Client that maintains a PSP w/115+/- participants wants to provide in updated SPD that an applicant applying for a plan loan will be subject to a one-time $125.00 loan processing fee as well as an annual fee of $100.00 (on account of audit charges from accountant and plan auditor concerning loans). I am not a TPA and thus don't have a good handle on what the range is on such fees. Can anyone give me an idea if the above is within reason? Thanks for your help.

Tax exempt employer has a plan document or other plan information from TIAA-CREF describing the arrangement as a 403(b) Money Purchase Pension Plan under which employer contributes a mandatory 4%. Employer also has a separate 403(b) through TIAA-CREF under which the employees defer. I do not do much work with 403(b) plans, but I don't believe there is such an arrangement as a "403(b) Money Purchase Pension Plan". Can anyone comment on the same? I guess it's possible that somewhere down the line someone just put a name on it and that's what they called it, however, in reality it may just be a true 401(a) money purchase pension plan. Thanks for any help.

Sponsor wants to amend PSP to allow for self-directed accounts for participants who are 100% vested. Consultant has advised that once added such a right/feature would have to be tested for non-discrimination. Looks like Reg §1.401(a)(4)-4(b)(2)(ii)(B) would allow for the 100% vested requirement to be disregarded for non-discrimination testing purposes. So if that is the only condition, then looks like a non-issue. However, I guess there could be an issue depending on whether or not there is a minimum balance requirement as that does not appear to be something that can be disregarded under the §401(a)(4) Regs.....?

Ends up client filled out 5310 by himself and didn't even send in the user fee much less answer all of the applicable questions. IRS has asked for the user fee, plan doc as well as all amendments thereto. I had considered client not sending in the user fee and letting IRS send the application back, but I would think client's information would still be in their system which would potentially trigger an audit upon filing of the purported final Form 5500. I have told client to turn over all stones -- original financial advisor, cpa, anyone who may have dealt with plan assets along the way. Most likely will ultimately 'fess up to 5310 reviewer re no document able to be located and then go through Audit CAP....??