Lou S.

You may need an attorney involved but sometimes a letter telling the invesment company that are in direct violation of the trustee's written direction (along with the relavant portions of the Plan Document and Trust agreement) and that they are assuming full descrtionary fiduciary athourity over the assets that they refuse to transfer at the direction of the trustees and that they will be responsible for restoring any losses for failure to comply with the written request. We've found that rather effective in the past in situations such as this. If this does turn out to be individual 403(b) contracts and not a 401(k) plan though, you may be out of luck.

We have an employee who rolled over their total balance to a ROTH-IRA. The account indulded a ROTH-401(k) potrtion where the total account value is less than the sum of the ROTH 401(k) contributions. Example Roth account at time of rollover $9,000 total Roth contributions $10,000. The instructions for form 1099-R indicate you list the basis in box 5 - the $10,000 but our 1099-R program gives us and error when box 5 is greater than box 1. We think Box 1 - $9,000 (amount rolled) Box 2 - $0 since it was rolled Box 5 - $10,000 (roth basis) To me it seems obvious that the participant should carry over the $10,000 basis from the ROTH-401(k) but IRS guidence in 402(A) code & regs, such as it is doesn't apprear to address this situation. Any thoughts? Since we have about an hour ledt to mail 1099-Rs I think we'll do them with the error and file an amended/corrected 1099-R if we have to.

I would agree with you.

Thanks both of you. I guess my confussion is where does the mandatory requirement come in if there is no real penalty for failure to comply?

While I realize the likelyhood of getting caught is nearly non-existant I was still under the impression that Fell under this rule and the Plan Adminstrator (the client) is still responsible for the unpaid taxes they were supposed to withhold but did not. I was trying to findout what the actual penalties are though and must admit I'm coming up blank despite going through the penalty section of Pub 15 (circular E).

OK so small client had one tiny $500 distribution that they were supposed to send $400 to part and $100 to feds. They were just going to send $100 with 945 on the under $2,500 exemption. Staff person (now gone, isn't that always the case?) accidentially sent full $500 to part. Is the correct thing to do still send in the $100 with the 945, show the withholding on the 1099-R and request the $100 pack from the part? That seems like the way to do it but wanted to know if anyone else has run into this before.

I'm not aware of IRS formal guidance on whether or not earnings has to be restored but when we have encountered a partical termination like yours we have taken the same position you have. On one determination letter request we restored the forfeitures without earnings and the IRS did not seem to have a problem with it but the answer may or may not change depending on the reviewer.

It is coded as a rollover - code G, but the taxable amount in box 2 is the same as the gross amount in box 1, instead of $0.00 like most rollovers. That's my understanding. Does anyone have different info?

I'm with masteff on this one and the correction is to request a refund with the tax return. If you want to be super nice guys because you feel the error is yours, you can give him an interest free loan of $2,000 until he files his tax return. Not sure if that would be a prohibited transaction or the tax implications of giving him an interest free loan. But even if there are no tax ramafications and no PT, that would probably fall under the heading of "no good deed goes unpunished" before the saga ended. If you do go that route, you might want to run it by counsel which might be more more expensive than the fix.

Can't they file their taxes and get a refund?

The penalty applies to the year the distribution was not taken. (though you can request a waiver which I hear is often granted) The distribution is income in the year it is actually taken.

We came to the same conclusion when we researched a few years ago.

Great question! But unfortunately I think you answered it right here.

Not sure, I've never seen this particular set of fact but with the economy the way it is not surprising. You could try calling the reviewer who has been assigned to the case and see if they have a suggestion.

While we have done it both ways in the past I wonder, if B isn't buying A, how does B satisfy the exclusive benefit rule if some (or all) of the participants in the assumed plan A never work for B?

No. Unless there is an imposed limit on deferrals that would restict him to $5,000 if he was not catch-up eligible. Otherwise you don't have a catch-up until after you fail the test at which point you recharacterize.

fiona, thanks for the clarification. we amended out for everyone and couldn't understand why anyone would want to put themselves through gap period income if they didn't have to but I thought it was still optional, guess I was wrong on that.

My understand is that PPA eliminated it for most and WRERA (or PPA technical corrections) extended to excess deferrals that gap period income is no longer required. If your amendment(s) eliminated gap period income you no longer calculate it; but you could have kept the langauge for gap period income without it being a disqualify defect. That is you could make an optional election to keep gap period income. I don't think valuation method: daily, monthly, quarterly, annual or other changes this. Anyone have anything contray to this?

Unless there is a diffrent reporting code (and I don't see why there would be in this case), why would you do two 1099-Rs?

If the plan as whole is failing the avergae benefits test, how are you passing 401(a)(4)? My understand was if you failed the ABT you are dead in the water on cross testing and you need to either rasise benefits for some/all NHCEs or reduce benefits for some/all HCEs to pass if you are corss testing. Am I missing something?

We have done this too with mixed results Some have worked like a charm, others a few years later we get a "late/non filing" notice on the old EIN. Usually solved with a quick letter and a copy of the filed 5500 with item 4 circled.

I think something similar came up a few weeks ago in this thread which may be helpful - http://benefitslink.com/boards/index.php?showtopic=37665

I'd agree if the SH notice for 2011 was not already handed out. I think since it was distributed to ees and you are now less than 30 days from the end of the year the IRS would treat it the same as a mid-year change in 2011. Though I'm not aware of any formal guidance on these specific facts.

You can amend out a safe harbor match. But I'm pretty sure you need 30 days advance notice to participants so they may need to make the safe harbor match for one or more payrolls in January. edit Sungard has a nice pice on the steps required http://www.relius.net/News/TechnicalUpdates.aspx?ID=432

I don't think so. I think the IRS will treat the SEP as defined contribution/ individual account plan when you start looking at the 404(a)(7) combined limit. I think using a protoype allows you to have a SEP instead of a profit sharing plan but I don't think it extends the deduction above what you could get with a DB/PS combo.