K2retire

And then there's always the question of competent. . . .

Husband and wife are each 100% owners of their own professional corporation. I am told that neither has any management responsibility for the other's company, they do not live in a community property state and do not have minor children. They claim this makes the controlled group rules not apply to their situation. However, since both are physicians and could own the other's stock without violating any professional licensing or other legal requirements, I'm having a hard time agreeing with them. Am I overlooking something?

OP says 401(k). Mine were sometimes DC, sometimes DB and most often one of each.

Will you have coverage or non-discrimination problems if this person doesn't get the SHNE contribution?

I suspect you meant a living trust, but the term living will is more familiar to most people. A living trust might be an good choice because it would also be useful if the heart attack or car wreck only disabled you. Definitely don't make a decision based on advertising alone. Ask friends and colleagues for names of people they liked dealing with. The local bar association may have a referral service, or at least a list of people who specialize in the type of work you need. Bank trust officers may also have suggestions. There might even be an estate planning book in the "Dummies" series. If so, it could help you understand what the lawyers are talking about.

We generally do 2 checks because Roth money cannot be rolled to a traditional IRA. Now that pre-tax money can be rolled to a Roth IRA, it might be possible to do one check for that situation, but we choose not to for purposes of basis reporting. Our check stub includes the Roth basis amount, and maybe also the Roth start date, although I'm less certain about that.

I recall shifting deductions in ASG situations, but my facts were a bit different. We had physician or dental groups comprised of 2 or more professional corporations (one for each doctor) and a partnership made up of the PCs. Doctors and their wives were the only employees of the PCs. All staff was paid by the partnership. Often the PC could not deduct the full amount of the doctors' contributions. We simply shifted the necessary amount to the partnership return and adjusted their capital accounts accordingly. Not sure if there is anything in that fact pattern that will help, but figured it was worth mentioning.

Relevant to the current economy: having a separate EIN for plan assets is one way to help prove they are not employer assets if the employer declares bankruptcy.

Mike, Thanks for those helpful thoughts. Since what was done on our system was to reverse the payoff and make it appear as though it had never happened, the payment schedule is unchanged from the original loan payment schedule.

The mutual fund folks among us believe that the client made the loan payment relying on inaccurate or incomplete information that we supplied, therefore the proper correction is to reverse the loan payment. The pension folks among us think that reversing the loan payment looks suspiciously like making a new loan in that amount, which is clearly over the maximum available at the time it was made. I expect that the only way to resolve that disagreement would be to consult the very regulatory agencies that we all hope will never notice it. Thanks for all your feedback.

That's a good idea, except that to get to the legal department, we have to go through the individuals who approved this "fix" in the first place. Since they think it is OK, they are not likely to want to check with legal after the fact.

I know that the officially sanctioned correction is exactly as you describe it. If I am remembering correctly, it was someone from Corbel who said that unofficially it might be permissible (or even preferable) to forfeit the prematurely deferred amounts and make the employee whole outside of the plan.

In this case the participant, trustee and owner of the plan sponsor are the same individual. My employer is the sponsor of the prototype document. But since the same managers who made the decision to refund the loan repayment don't think there is anything inappropriate about it, nothing further will be done. Some of us have pointed out that we create liability for the company by preparing the 5500 without reporting a prohibited transaction, but we have not succeeded in persuading them that this refund might be an inappropriate solution. My employer's position certainly agrees with Peter that the company has no choice but to honor the direction of the trustee/plan sponsor. They also believe that our service agreement (that purports to limit our liability to one year's annual administration fee) will protect us from any financial losses. My concern is not necessarily any sort of whistle blowing disclosure, but rather self preservation and determination of what sort of personal risk there might be to those of us who recognize that this solution creates a bigger problem, but were unable to do anything about it.

I would love to pose this question to the ethics folks on the ASPPA board, but since posting there uses my real name and that would risk disciplinary action from my employer, I'll post it here instead. The company where I work is primarily in the mutual fund record keeping business, but also has a small TPA division. The TPA group is mostly comprised of credentialed ASPPA members, but managed by individuals with mutual fund backgrounds who often don't understand that there are differences between SEC rules and ERISA rules. A plan sponsor who is both a CPA and a stock broker recently called the record keeping part of the company to inquire about a plan loan. He was told that the plan only allowed one loan to be outstanding, and since he currently had an outstanding loan he would need to pay it off before taking another one. Without consulting his written loan policy or the IRS regs that a CPA should know exist, he sent in a payment of $17,000 or so. A few days later he sent in a request for a new $60,000 loan. The processor, without looking into the history of the account, informed him that the maximum loan allowed by law was $50,000. The next day a new loan request for $50,000 was received. When attempting to process this request the computer accurately pointed out that the individual's maximum available loan (due to the balance outstanding within the past 12 months) was approximately $2,600. At this point the request was given to the TPA unit to handle. Although the participant had several valid in-service withdrawal options, he did not want to pay tax on his distribution. After he threatened to withdraw several million dollars of business for his own and his clients' accounts, management decided to reverse the $17,000 loan repayment and return those funds to him. Those of us with TPA backgrounds are left wondering how this transaction could be justified to an auditor. Suggestions?

I'm only guessing, but on some record keeping systems checks are issued one day and mailed the next. So a check issued 12-31 would never be mailed until the next year.

Our policy is to require a signature guarantee if the amount is high or the check is to be sent anywhere other than the plan sponsor's address of record. We only require original paperwork if it needs the signature guarantee.

But isn't there an easy fix for that person to simply opt out BEFORE anything is withheld so that there is no withdrawal to muddy the issue?

If the client is trying to do the right thing (as opposed to looking for a way to make a distribution regardless of the rules) suggesting that you've given them the answer in writing that you are will to stand behind and that they should ask the broker if he or she is willing to stand behind his or her position if the government disagrees will usually cause the broker to run for the hills.

A safe harbor plan can exclude HCEs from the safe harbor contribution. Generally a mid year amendment of such a plan triggers current year ADP/ACP testing.

I agree that such an amendment would need to be effective with the next plan year, not mid-year.

Is that a permanent change, or just for 2008?

If the top heavy minimum goes in as a QNEC rather than profit sharing, I believe that will accomplish what Bird is suggesting. The employer will need to decide if the QNEC 100% vesting is better or worse than giving a profit sharing contribution to the terminated employees.

Unless, of course, the individual in question actually retires at 55.

The earned income before the adjustments for employer contribution to the partner and 1/2 of the SE tax is on the K-1.

And the accountant should know that!