MSN

I have an anonymous VCP filing out requesting a similar corrective action. Our facts were a little different (we had a Scrivenor's error in the document that effectively caused the coverage failure). We decided that it was worth it to try...

I've also seen this in DC plans. The sponsor does not have any obligation to make distributions available immediately following termination.

KMG- I'd be interested in knowing what the IRS was asking for in Audit CAP under those circumstances.

No disputing that the plan document needs to be followed, but let's look at this from a practical perspective as well. A number of small plan clients that I've spoken to over the last few years have come upon hard times financially. They kept the match for all their NHCEs, but when it came time to fund the owners allocation, there wasn't any money left. I see this as a very low risk situation for the client...how many times has an auditor assessed a penalty for denying benefit accruals to HCEs? Worst case, they deem the plan not compliant with the safe harbor and force ADP/ACP testing for the year and possibly a TH allocation, but I think thats a stretch. I know we've had clients that simply refused to make contributions for company owners due to budget constraints and while we explain that the document doesn't provide the ability to waive HCE benefits for the year, we can't force them to make a contribution they don't have. Not sure if this is the case with the OP, since I see very few doctors offices short on cash, but worth consideration. In my recent experience with IRS, I've found them to be reasonable in assessing the clients overall situation and don't feel that they would come down too hard on a sponsor who was trying to do the best they could for their employees.

I had experienced a similar issue on my renewal when I tried to get clarification, but had the good fortune of speaking with an IRS rep that was helpful. She was upfront initially that she didn't know the answers to my questions, but called me back after she discussed the issues I had with a supervisor. I was told that they know they will have issues with the reporting in this first cycle. I was told that (1) the year is the calendar year and (2) the CE requirements should be prorated to reflect the period actually enrolled(inclusive of ethics). She noted that the enforcement on this first renewal would be reasonable, taking into account that there are open questions and that some of us have had a short timeframe to meet the CE, given the narrow scope of their accepted CE vendors.

See Advisors Act Rule 206(4)-1(a)(1) regarding the prohibition of testimonials.

On similar issues, we have had success engaging EBSA to assist in convincing the reciever to make deposits into the plan prior to paying corporate expenses. Like you, I couldn't, in good conscience, simply ignore this issue.

Earned income is deemed to have been earned on the last day of the year. This can cause problems for partnerships that exclude comp prior to participation and I encourage my clients with earned income to avoid that design.

BenefitMgr- I would discourage you from using the assumption that the payment around the "average" in the industry is reasonable. The fee should be representative of the value provided to plan participants and not weighed against what a typical advisor recieves. Bird brings up many valid factors that you should consider. I would add to that list whether participants are using the services provided, quantitative analysis of the advisors success with regards to the plan and a comparison of the services provided compared with that of like minded firms. The assessment is not an easy one for someone not well versed in plan management. Have you considered engaging an independent plan fiduciary to either take over the plan management or advise you in the areas you feel it may be appropriate?

Thanks!

Smokin- Based on several No Action Letters issued by SEC in the late 80's and early 90's, the asset allocation models would not be considered investment companies if they met the criteria set forth in those letters. The SEC has since stopped issuing letters on this topic since they believe the criteria already provided to be sufficient guidance for us to make an informed decision. I'd suggest looking at Rule 3(a)-4 of the Investment Company Act and using that as a starting point for determining if your models are an investment company. Nobody on here could give you an absolute answer since the facts will be unique for each provider. Mark

How do you complete the 2848 for a John Doe VCP submission without giving away the client name? Anyone run into this before? It seems that I would leave the taxpayer information blank, but then it doesn't seem like the 2848 would be valid.

If you haven't already, make sure the basic plan document doesn't already have this in there. I know we have an optional true up that is hard coded and is not dependent on the allocation period stipulated in the adoption agreement.

Most documents that I've used are worded in a manner such that a participant must be employed on the last day of the plan year to recieve the allocation. If a participant was paid for service through the last day of the plan year, they should be entitled to the allocation.

Interesting suggestion. I think it may depend on the interpretation of -11(g)(3)(ii). As I read it, the -11g amendment to elect fail-safe provision could eliminate a benefit for a participant that would have otherwise benefited if you used the provisions in effect immediately prior to the amendment. At the same time, nobody had met the eligibility conditions for the allocation anyway so there wasn't any accrual to eliminate. I don't think it's clear either way, so I'd be inclined to push the limits.

I was referring to an IRS penalty, prior to the client being contacted by the DOL.

jkharvey- I have successfully used DFVCP after client was assessed a penalty.

I would withhold all of the bonus that is left after mandatory deductions.

Yes, they would be HCE & Key. IRC 414(q)(2) references 416(i)(1) which states aggregation does not apply for purposes of determining ownership.

The reg below would seem to imply that you can treat the key employee's elective contributions as top heavy contributions for purposes of satisfying minimum contribution requirements. §1.416-1. Questions and answers on top-heavy plans M-20 Q. May elective contributions be treated as employer contributions for purposes of satisfying the minimum contribution or benefit requirement of section 416©(2)? A. Elective contributions on behalf of key employees are taken into account in determining the minimum required contribution under section 416©(2). However, elective contributions on behalf of employees other than key employees may not be treated as employer contributions for purposes of the minimum contribution or benefit requirement of section 416. See section 401(k)(4)© and the regulations thereunder. This Question and Answer is effective for plan years beginning after December 31, 1988. [Reg. §1.416-1.]

I'm not a fan of ROBS transactions either, but find it difficult to believe that there would be a BRF issue if only HCEs were in the plan at the time the investment was no longer available. Just out of curiosity, if a plan froze contributios into a particular fund, would you do BRF testing? I wouldn't (I don't believe the availability of an investment is a BRF), but maybe I should be??

The Schedule I was never intended to be a check for total plan fees as the Schedule C is now. The OP was referencing a filing for a small plan filer, so no Schedule C would be required, as you note. I agree that had the OP had a large plan, both direct and indirect compensation become reportable on the Schedule C. I hope the same level of disclosure does eventually filter down to small plans.

If not paid by the plan, why would it be relevent for reporting purposes? It would not have ever been plan assets.

I had a similar situation a year or so ago. I was trying to help a prospect get into good enough shape for us to accept them as a client. I was able to speak with a revenue agent at IRS and it was suggested that in such a case you could file under the VCP and include a document that reflects the plan provisions that have been used in administering the plan. I referred the client to counsel to assist with this and lost track of where it went from that point, so I can't say that it was successful, but I would follow the same approach if the situation ever presented again. Mark

The availability of an investment alternative is not a protected benefit. You can disallow additional contributions into a fund at any time, provided that such removal is pursuant to prudency standards for the applicable plan fiduciary. Even in a ROBS transaction, the mere fact that an investment alternative is no longer available for future contributions does not, in and of itself, create any problem for the plan. The investment was available to all plan participants when it was offered, it just happens that the only participants were HCEs.