wvbeachgirl

Hello! I recently made a duplicative 8955-SSA filing on the IRS' FIRE system in error. The message that the system gives me is " . . . If your file was submitted in error (it was a duplicate filing), this file will not be passed forward to SSA, however you must notify IRS to close the file." However, I cannot find any information on how exactly to notify the IRS to close the file. Has anyone else had this happen, and if so how did you close the file with the IRS? Thanks for your help!

We have recently taken over a pooled profit sharing plan that has several PT loans - 2 loans to disqualified persons and 1 loan in excess of $50k / 50%. The loans have been corrected recently, and I am now preparing the Forms 5330 for the excise taxes. These PTs were never reported on a Form 5500 nor a Form 5330 previously. In the EOB, Sal states that if the transaction is reported on the annual return, a 3-year statute commences for purposes of collection of the excise tax. If the transaction is not reported, a 6-year statute commences. (Chapter 14, Sec V, Part B, 5; he also references GCM 39475). One of these PTs goes back to 2001 - am I understanding correctly that I only need to prepare 5330s for 2009 - 2014 and that the PTs from 2001-2008 do not need 5330s? Thanks!

When I first started in this business many years ago, my boss at the time explained it to me this way: If your date of hire is 1/1/13, when have you completed a Year of Service? Answer: 12/31/13. If the entry date is the 1/1 coinciding with or next following, then your entry date would be 1/1/14. So, when you're dealing with a hire date of 1/2/13, you would complete a Year of Service on 1/1/14, and the entry date coinciding with or next following is 1/1/14 (as GMK said, if your plan document provides "coinciding with"). Looking at it using the actual calendar year beginning and ending dates, and then just adding 1 day to both dates, helped clarify it for me!

Couple of comments from one of the "silent" members: VEBAPLAN, you are making a lot of assumptions about the "silent" members. I happen to agree with Dave's policy. A link to an article is sufficient for those who want to read the entire article. Copying and pasting it here makes a post too long. With regard to many of your comments, they come across as extremely arrogant and bullying, which is a big turn off to me and a big reason why I for one have learned NOT to view any of your posts. As for calling people "cowards" and "dumb" and accusing them of "hiding" - this is not professional and is uncalled for in my humble opinion. There are many legitimate reasons for not listing information in a profile, especially in today's cyber climate. It is a personal decision, and for you to denigrate anyone who chooses to not list information is very unprofessional. Please do not assume that you speak for all of the "silent" members of this board.

Include In Test = all participants, whether or not they have met statutory maximum eligibility Test Seperately = all participants (both HCE and NHCE) who have met statutory maximum eligibility are in the "Non-Excludable" test; those participants (both HCE and NHCE) who have not met statutory maximum eligiblity are in the "Otherwise Excludable" test Carve Out NCHE'sTest = ALL HCEs (regardless of whether or not they have met statutory maximum eligiblity) and ONLY those NHCEs who HAVE met the statutory maximum eligibility are in the test The main difference between "test separately" and "carve out" is that if there are any HCEs who have not met statutory maximum eligibility are moved to the "otherwise excludable" test; in the carve-out test ALL HCEs are included, but not all NHCEs (if there are any who haven't met the statutory maximum). Does that help? J

One other thing - although my example was not exactly correct (compensation), my real issue is with regard to the annual additions limit - the $46,000 limit that I believe needs to be reduced to 1/4 or $11,500. I realize the comp used in my example should have been $57,500, but that was not the main thrust. Sorry for any confusion! J

We are using the Corbel EGTRRA document (prototype formatted volume submitter). The limitation year is defined as " . . . In the case of an initial Limitation Year, the Limitation Year will be the twelve (12) consecutive month period ending on the last day of the period specified in the Adoption Agreement. . . . " So, now even when you have a short initial plan year (i.e., less than 12 months) you do not pro-rate the 415 limit??? I must admit, this change to NOT pro-rating the 415 limit evidently did not sink into my brain whenever the change occurred . . . (I did look at the definition of short plan year, and it doesn't mention pro-rating this limit, only hours of service or months of service and integration level). I guess I'm a little confused also how the compensation limit can be required to be pro-rated for a short plan year, but the annual additions are not? Maybe I'm just being a little dense after all the holidays . . . The language I quoted is in the EGTRRA basic document, although you are correct and I neglected to look at the 415 amendment that goes along with that. The 415 amendment does state that the excess can only be corrected in accordance with EPCRS. I had looked at the provisions for correcting an excess 415 under EPCRS, and what I gathered from that was essentially the same as the first opinion expressed (. . . 415 excess returned from salary deferrals per EPCRs (since after the refund of $6700 deferrals the remaining deferrals would exceed 4% of compensation and are entilted to the match) . . . ) - there would be no employer contributions to be forfeited and used in 2009 as per EPCRS. Specifically, I was looking at Appendix A, Section .08 and Appendix B, Section .04(2). J

We're having a difference of opinion on how to handle this situation: New 401(k) safe harbor with short initial plan year of 10/1/08 - 12/31/08. Pro-rated 415 limit is $11,500. Safe Harbor Match is 100% on first 4% deferred per payroll. An employee deferred a total of $13,000 on compensation of $130,000, or 10% of comp. The match on this should be $5,200, which would make the total contributions/annual addition $18,200 which exceeds the pro-rated 415 limit. One opinion is that the full match should be allocated in accordance with the plan's provisions, and the 415 excess returned from salary deferrals per EPCRS (since after refund of $6700 deferrals the remaining deferrals would exceed 4% of compensation and are entitled to the match) (this seems to agree with the provisions of the document). The other opinion is that all of the deferrals should be allocated, and only the portion of the match that would not exceed 415, with the remainder of the match being credited to forfeitures. The plan document provides that " . . . if as a result of the allocation of Forfeitures, a reasonable error in estimating a Participant's annual 415 Compensation, a reasonable error in determing the amount of elective deferrals . . . that may be made with respect to any Participant under the limits of Section 4.4, or other facts and circumstances to which Regulation Section 1.415-6(b)(6) shall be applicable, the "annual additions" under this Plan would cause the maximum provided in Section 4.4 to be exceeded, the "excess amount" will be disposed of in one of the following manners . . . © to the extent necessary, matched Elective Deferrals and "employer" matching contributions will be proportionately reduced from the Participant's Account. The Elective Deferrals, and any gains attributable to such Elective Deferrals, will be distributed to the Participant and the "employer" matching contributions, and any gains attributable to such matching contributions, will be used to reduce the "employer's" contributions in the next Limitation Year; . . . " Thoughts and opinions appreciated. If the match was a quarterly rather than per payroll match, would your opinion change? Thanks! J

We wanted to see how other TPAs are handling or would handle the following situation. This is kind of long, so please bear with me. . . 401(k) daily val plan. Plan sponsor’s payroll provider calculates the match on a per payroll basis. Plan sponsor uploads payroll file to our website, we download and process the deferral and match contributions. If the matching contributions are included in the payroll file, our recordkeeping system will buy the match that is on that payroll file – it does not recalculate the match to determine if the match was calculated correctly. So, we get to year-end, and in the process of doing the annual administration and testing discover that the payroll system incorrectly calculated the matching contributions. For those that the payroll system shorted the match, that’s no problem – the plan sponsor will simply deposit the additional contribution due. However, for those that the payroll system overmatched . . . We propose doing negative contributions in the appropriate amount, placing those funds in the suspense account to be used to reduce future matching contributions or to pay plan expenses. Additional items to consider: - The plan allows only salary deferral and match contributions - The plan does not provide for forfeiture reallocation - The match is not discretionary – the formula is for example 100% on the first 5% deferred calculated on a per payroll basis; deferrals exceeding 5% of comp are not matched - The match is actually allocated to participants’ accounts per payroll - There are regular “corrections” to payroll files. For example, at the end of the year when the census data is sent to the plan sponsor for verification, it will come back with changes to individual’s compensation (because manual paychecks were issued that did not get included on the payroll files, the payroll file reflected comp that actually wasn’t paid, etc.). This can create a true-up situation as well. - For some reason, many payroll systems are either unable or unwilling to put the appropriate caps in their system (i.e., the 415 compensation limit, the maximum deferral percentage that will be matched, etc.) Couple of examples: 1. HCE whose total compensation was $300,000 ($12,500 per payroll) and who deferred $15,500 ($645.83 per payroll) for the year. His deferral % is 5.17%. The plan’s match formula is 100% on the first 5% deferred calculated per payroll. The payroll system calculates a match of $625 on every payroll for a total of $15,000 for the year, neglecting to stop the match when he reaches $11,500 ($230,000 comp limit x 5% = $11,500 maximum match). So at year end this participant has received $3,500 too much in match. 2.NHCE whose total compensation was $50,000 ($2,083.33 per payroll) and who deferred 8% ($166.67 per payroll) or $4,000 for the year. The plan’s match formula is 100% on the first 5% deferred calculated per payroll. The payroll system calculates a match of $4,000 (neglected to limit the match to the first 5% deferred) when the match should have been $2500. So at year end this participant has received $1500 too much in match. Our position would be that until the administration and testing is done at year end, these allocations are not “final” and that true-ups of this nature are done regularly in the industry (think of daily val custodians who are not TPAs – they process the contributions as provided by the plan sponsor; at the end of the year the TPA determines whether any true-ups/corrections (negative or positive) are needed. The custodian does not receive compensation information, and the TPA may not receive any census data until year end, so neither can determine until year end whether any contributions are in violation of the plan’s formula or the regs). Operationally it would not be feasible to check the calculations on every payroll before that payroll is processed, especially when it is an automated system. An opinion has been expressed that our proposed method of dealing with this type of situation would ultimately result in an operational defect possibly leading to plan disqualification because the plan is not following (1) the plan document (limiting the match to 5% of compensation) and (2) the regulations (415 compensation limit), and that this would need to be corrected via EPCRS. Additionally, it has been said that there is no mechanism in the regs to allow us to remove these types of excess contributions from a participant’s account (our argument is that failing to remove the excess would result in a failure to follow the plan’s matching formula). Finally, the regulations require that all plan assets be allocated to participants; however, if the plan does not allow forfeiture reallocation and does not have a profit sharing provision and the match is not discretionary, there is no mechanism in the plan to allocate to participants. We wanted to get a feel for how others in the industry handle this type of situation. Thanks for any feedback.

We have a situation with a participant distribution. The participant had terminated employment, completed his distribution packet, sent it in, we processed the distribution appropriately (lump sum distribution to participant). The participant's spouse called the other day and informed us that the participant died 2 days after submitting the paperwork. She has the check, and wants to return it to the plan, then request the distribution herself as the beneficiary. We can't seem to find anything to say that this can be or cannot be done. Our concern is that the participant was actually alive at the time the distribution was requested - he died thereafter. Wouldn't the distribution need to go to his estate and be distributed per the terms of the will? As opposed to to the plan reissuing the distribution to his designated beneficiary? Thanks for any thoughts, cites, etc! J

Thanks, that's what we thought as well! Just wanted to cover all the bases. Thanks again to all. J

Another strange situation . . . We have a 401(k) safe harbor match plan; the plan sponsor is an S-Corp. The two owners (husband and wife) deferred to the plan in 2007 and received safe harbor match (they do have valid deferral election forms in place). Their accountant is now telling us that he is revising their compensation amounts for 2007 (the husband from $30,500 down to $3,000 and the wife from $37,742 down to $26,000) and that their deferral and SH match amounts should be $0 (husband originally deferred $20,500 and wife $10,000). We are not accountants (we're a TPA firm), but this just doesn't pass the smell test. In the past I have had sole proprietorships and partnerships who would deposit salary deferrals from their "draw" throughout the year, and then at the end of the year when their Schedule C/K-1 showed a negative income we would then return their deferrals to them as a 415 violation. However, in the situation we have currently, both owners clearly have comp to support at least some of their deferrals and match. And obviously, FICA and federal income taxes have been withheld from their pay throughout the year and deposited appropriately, with the appropriate governmental forms being filed. So, my question is this . . . does anyone know of any regulations that would allow the accountant to revise the W-2 figures in this way (assuming that the owners have actually returned compensation they have already been paid) and take the salary deferrals down to $0? We'd just like to have a little more insight if this is addressed anywhere in the regs before we talk to the accountant about this. Thanks! J

"Assuming there is no legal prohibition to mandatory contributions, they can be pre-tax. If pre-tax, I believe they are NOT treated as elective deferrals for purposes of the 402g limit, but they ARE treated as salary reduction contributions for FICA/Medicare tax purposes." jpod- Can you give me a cite or reference to where we could research your these deferrals NOT being treated as elective deferrals for purposes of the 402(g) limit? Thanks! J

We are fairly new to the 403(b) arena, and have a quick question that we cannot seem to find an answer to. Can a 403(b) plan REQUIRE salary deferrals at a set level? For example, we have a prospect that mandates all eligible participants defer 5% of pay. I know DB plans can have mandatory after-tax contributions, but I've never heard of mandatory pre-tax deferrals in a DC plan. Any info would be appreciated. Thanks! J

Sorry - I guess a monthly loan wasn't the best example. Let's say you have a weekly payroll with a 3 week gap between the loan date and the first payment. A weekly payment over 5 years would be 260 payments, which is what the amortization schedule reflects. However, this does make the final payment due more than 5 years after the loan date due to the 3 week gap. We believe the amortization schedule should have been done on 257 payments (260 less the 3 weeks with no payment) which would end within the 5 year limit. Agree?

Just trying to get a feel for "industry practices" with regard to 5 year participant loans (not residential loans). The regs require a maximum repayment period of 5 years from the loan date. As an example, say the loan is issued 4/14/05; it must be paid in full by 4/13/10. We have run across lately several takeovers (from several different TPAs) where the prior administrator set up the loan payments for 60 months (for example), with a 3 week delay between the loan date and the first monthly payment. Effectively, this makes the loan go past the 5 year requirement. They've all said this is common industry practice. Our feeling is that in order to comply with the 5 year requirement, you would need to reduce the number of monthly payment to 59 (for example) instead of 60 if there's a gap between the loan date and the first payment date. Three questions: 1. IS this common industry practice to count the five years from the date of the first payment rather than from the date of the loan? 2. Has the IRS given an opinion on this practice (other than to say that the loan date could be changed to the date of delivery of the loan proceeds to the participant)? 3. Given that these loans are already issued, what is the client's and/or participant's liability? The INTENT was to comply with the 5 year requirement, but in actuality will not comply since the 5 years was counted from 1st loan payment date rather than loan issuance date. (Which is different than a loan intentionally being amortized over more than 5 years) Will the loans be considered prohibited transactions with the attendant possible disqualification of the plan unless they are corrected through EPCRS? Thanks!

We are possibly going to become the TPA for a 403(b) plan for a church, and have been doing some research. We know most church plans choose to be nonelecting to avoid Title I of ERISA. Can anyone provide any reasons (other than to provide participants with the enforcement provisions of ERISA) why one would choose to be an electing plan? Thanks! J