K2retire

It's an account within the plan.

Employer with a daily valued plan persuaded the recordkeeper to set up an account for unallocated funds to which they made deposits in anticipation of making a profit sharing contribution. The employer has now encountered some cash flow difficulties and wants to take the money back out of the plan and not allocate a profit sharing contribution. I know that, absent a mistake of fact, they can't do that, but the recordkeeper has told them they can. I need a succint resource to show the client explaining why they cannot simply withdraw the funds. To further complicate matters, it is invested in mutual funds that have lost money.

There is very little guidance about what is a Mistake of Fact. That's what makes it difficult. If you search for Mistake of Fact you will find several here. My favorite includes the statement, "A screw up is not a Mistake of Fact."

I've never heard of a problem with moving money to a forfeiture or other unallocated account. In order to return the money to the plan sponsor, they must show that it was contributed due to a Mistake of Fact and that is not an easy standard to meet.

True -- but only if you know for certain that he will have more than $16,500 in earned income after all of the adjustments and deductions.

If he had a deferral election on file before the end of 2010, his deferrals are supposed to be deposited within a similar time frame to employee deferral -- except that instead of a pay check date as your starting point you have the date when his income was known in order to calculate the deferral amount. As a practical matter, that is generally the due date of his tax return including extensions.

As I understand it, the statute of limitations begins to run when you file the return. So if you're asking if you can skip the filing because it has been too long, I don't think so.

Thanks!

A not for profit employer established a 403 b plan with group annuity contracts for participants. Subsequently, the assets of the employer were purchased by another entity and the employer was liquidated. The new employer (a for profit company) is attempting to terminate the plan. There are two groups of contracts, those established before 2009 and those established in 2008 and 2009 intended to recognize the change in rules. The insurance company will not allow the pre 2009 participants to be forced out of the plan. We would like to use the FAB relief to exclude those contracts from the plan, but due to a clerical error, one participant's 2009 and 2010 contributions were deposited to the pre-2009 contract rather than the new contract. This participant has since taken a full distribution, so there is no way to correct the error. The CPA auditing the plan says we are now required to include all of the participants covered by that contract, and show their balances as remaining in the plan. Does anyone have any suggestions about how to resolve this issue? It seems unbelieveable that an employer that no longer exists can have ongoing responsibilities to prepare Form 5500 for an unlimited number of years into the future.

While I agree with your first sentence above, I am continually amazed at how rarely I see it actually done that way.

If there is no entry date between the signing of the document and the end of the plan year, how does anyone (including the owner) enter the plan in the first year unless there is a special entry date, or the effective date is retroactive to a date before the final entry date of the year?

They proposed that rule in 2008 and could be relied upon from that point forward.

I think you mean the next deferral change date -- that is often different than the entry dates.

It says the match is discretionary. The section on the time period for match indicates that it is not applicable if the match is discretionary, hence my confusion.

I think you've get it backwards -- the assumption is that everyone defers on all compensation. They can choose to restrict that by not allowing deferrals from bonuses.

Related question. Employer stopped their fixed per payroll period match 4-1-2011. By year end they expect to have a significant forfeiture balance that needs to be used to reduce matching contributions. In calculating the discretionary match, can they use deferrals and comp from 4-1 to 12-31, or must they use the full year?

While I understand that the relationship is due to the plan, I am at a loss as to what advantage there is to the participant to be required to use a separate advisor if they are already comfortable with someone they met through a plan. What am I missing?

I love the concept. The graphic explanation of how much this withdrawal is really going to cost is fabulous. But in my experience most employers and virtually all record keepers are so concerned about possible liability for giving tax or legal advice that I doubt they will embrace this idea.

Maximum flexibility for the participant, or the alternate payee?

I am told that the same is also true for many legitimate personal injury cases. It's a sorry commentary on our judicial system when valid claims are dropped because they are not sufficiently profitable.

It depends on what the document says. Some automatically cover all members of a controlled group. Others cover only the companies that have adopted the plan. The automatic part is that the employees of both companies have to be considered in testing -- even if some of them are not plan participants.

With a corporation as the plan sponsor, the only people who are allowed to participate are employees who receive W-2 income.

I didn't hear the recent comment. But I've heard the exact thing you described as their position for at least the last 10 years.

Technically, I think that Keogh plans are not considered to be a separate type of plan anymore. But many old timers, still use that term as a shortcut to describe the exact type of plan in the OP.

We had a similar client who had auto enrollment. Because of the turnover, it was a disaster. Adding an age requirement might help, but probably won't solve the problem. A safe harbor matching formula is really their best option.