K2retire

The plan refers to the loan policy, which the client can't seem to locate. According to the insurance company, each loan application also includes the information that the loans are not transferrable. At this point I'm told the contracts have been surrendered, except for the part they've retained as collateral. And they are declining to provide us, as the new TPA, with any further details other than a promise to transfer loan payments received at the end of each year. The thing that totally mystifies me is why they would want to keep the loans after the balance of the plan had been liquidated and transferred. For most of us loans are the thing we want to get rid of!

The problem they are having is because they are depositing as they go along using a document written to make the decision at the end of the year. If they wait until the end of the year when they know what they can afford (or want) to do before making any deposits, the problem is solved.

We are in the process of converting a plan that used to be with a large insurance company, invested exclusively in annuities. I've never encountered anything like this, and I'm wondering if anyone can fill me in on what I'm missing. According to the insurance company, participant loans cannot be transferred to another provider, and they intend to retain sufficient plan assets to collateralize the outstanding loan balances. They say this is because the plan was previously invested in fixed annuity products that could not be liquidated. Therefore the participant loans were made not from plan assets, but from insurance company assets, and must be repaid to the insurance company. That sounds to me like a third party loan for which the participant has pledged his or her account balance as collateral, not a true participant loan from the plan. Is this really standard practice for plans with annuities?

For the plan year would mean you have to do the same thing for the whole year, not one thing for the first 3 quarters and something else for the last quarter. However, since it is a discretionary formula, matching up to 2.25% for the whole year would be close to the same dollars as matching 3% for the whole year for most participants. If they've already deposited the match, there might need to be some adjustment at year end.

But 5-ton bombs are way cooler! That depends on where you happen to be when it detonates!

I have worked for 2 TPA firms. One of them (the only one of the two that offered DB plans) REQUIRED all of their clients to get a D letter for their terminations. The other (which offers only prototype 401(k) plans) strongly discourages it. It is unquestionably very expensive and time consuming. Whether it is worth the time and money depends on the circumstances. Is there anything aggresive about any of the actuarial assumptions or the benefit formula? If the plan were selected for a random audit, what might be uncovered? In case of random audit, would the employer be able to correct and defects that might be uncovered? Could that change over the next few years? Is the plan terminating because the dentist is ready to retire? Can he afford to wait a years or so for the d-letter before taking any distributions? Has he asked his CPA's opinion?

Would it exceed 25% of Company B's eligible payroll?

Pre-tax deferrals in a 401(k) plan cannot be recharacterized as Roth deferrals. In-service withdrawal of salary deferrals is not permitted before age 59 1/2. The document could be amended to permit in-service withdrawal of some (but not all) employer money types before age 59 1/2.

Despite the fact that many sesrvic providers do distribute the money to keep their investors happy, forfeiting the money as BG suggests and paying the participant back outside of the plan seems more consistent with IRS correction methods.

That sound like a pretty clear violation of discrimination laws to me. P.S. Of course I'm not an attorney, so don't take my word for it.

If you look more closely, I believe the QNEC that you mention applies to a situation where the missed deferral opportunity was for an entire plan year, not a few months.

Remember in 86 when these same folks "simplified" the tax code? Be glad it's only 2 page longer than before!

Did the participant have a distributable event? If not, you have more problems than just late tax forms.

Don't you mean it has to be amended before the safe harbor notice is distributed (30 days before the plan year begins)?

Keeping the document up to date is crucial. Some document providers are very good at it. Others will not do it without a retainer. Ask them now before it becomes a problem. Although you won't have to file a 5500EZ for an ongoing plan until the assets exceed $250,000, many people forget that you must file a final return regardless of the assets in the year the plan is terminated and paid out.

For a distribution, that would be possible. That doesn't solve the problem with participants not being able to change their investments out of that fund. Our real issue is that we only administer plans that are 100% invested in the fund family that sells the plan. We have no way to not track this outside asset for participant statements or 5500 reporting.

In January we received most of the funds for a conversion plan, along with an explanation from the prior investment company that there was not sufficient cash in their real estate fund to honor any redemption requests at that time. This is an individually directed plan where the affected participants had chosen to invest some or all of their balances in this fund. Nine months later they are still unable (unwilling?) to transfer the remaining funds and have no estimate of when they might be able to do so. Clearly the blackout period has long since expired. And it is only a matter of time until the plan needs to make a distribution to a terminated participant who has chosen that fund. Is there any sort of enforcement mechanism that the plan fiduciaries could use against this investment provider in this type of situation?

Yes, but because they are owners and key, they don't want to give anything to anyone but themselves. So if they have to give a top heavy and limit their deferrals they see no point in having a plan at all.

All of our "owner only" plans are safe harbor. The thought process was curious. They are obviously going to be top heavy, since only the business owners participate. When they hire employees, they will immediately owe a top heavy minimum contribution, which most of them will resent. If they also fail ADP testing, they are likely to terminate the plan. So, we make them safe harbor to allow them to keep deferring for the same contribution that would be required anyway for top heavy.

I believe that our system will reject any request that is more than 50% of the actual value on the date the check is processed. So in a down market, it would be limited to 50% of the balance on the date of distribution. In an up market, the participant might get less than 50%.

Whether or not they decide to persue the actual form, the distribution must be made at least 30 but not more than 180 after they provide the participant with a Special Tax Notice.

Employees elect to defer or not. Whether or not it is a catch up contributions depends on reaching some limit, not an employee election.

It is only an ACP safe harbor if your discretionary match is limited to no more than 4% of compensation and considers no more than 6% of pay in deferrals to be matched.

Lots of people hoping, but no one acting.

For a question of this complexity, shouldn't you be asking your attorney rather than the mostly anonymous thoughts of people posting here?