Lou S.

Elderly client got check books mixed up and wrote a $10,000 charitable contribution from the profit sharing account. I seem to recall charitable contributions could be made from IRAs (up to $100,000), but that the legislation trying to extend it to qualifed plans never went anywhere. I also seem to recall that provision also was set to expire for IRAs but can find the year of expiration. IRS Pub 590 for 2009 indicates it was still in effect for 2009. Questions 1. Am I right this is not allowed in qualified plans? 2. Can it be treated as a taxable distribution of $10,000 from the qualified plan and then a $10,000 charitable contribution for her accountant to deal with on Schedule A of her 1040? Any thoughts are appreciated.

3 years ago I would have agreed with you a 100%. With the economy the way it is and with staff turnover combined with cuts in employee contribution rates, often coupled with reduced or eliminated matches, we've seen a lot more plans in the 20 - 35 life range moving towards or becoming top-heavy. And possibly more will as some of the hardship distributions in recent years fall off the books after the 5 year look back period.

Form reading a few other threads it sounds like others are having the same problem we are with Sundgard - not timely returning any calls for government forms support. It is very irritating to say the least. We had several plans fail yesterday when e-filing, kind of stressful being the 13th and all and still haven't gotten a call back from Relius. Fortunately it was the 13th and not the 15th and the problem seems to have cleard today and we were able to file our last 3 remaining plans. We once switched from then Corbel to Hyperprep over a similar issue one year but Sungard just went out and bought up Hyperprep a few years later and we got sucked back in. I'm wondering if we should change again next year? Question for people using other government forms software, what has been your experience with them for ease of filing, helpfulness of support and timeliness of return calls, when software is initially available, ease of using program, etc.? Any thoughts (possibly after the 15th I understand) would be appreciated. Thanks in advance.

The instructions say for DC plans to "leave that question blank" so I think it is clear it applies only to DB plans.

If you are using a prototype the restrictions are probably listed in the relavant secetion of the master text as opposed to the adoption agreement. Also the language is often in the distribution section of the SPD. As for "generally" some of the money (like deferrals without earnings) is sometimes available for hardship if the plan allows before age 59 1/2. If you have someone who takes an impremissable distribution you have a qualification issue, see EPCRS for correction methods.

One of the questions on the SF is, "Is this a DB Plan subject to minimum funding" - if you answer yes they should be looking for an SB, if you answer no they should not be looking for one. As for the 5500 I think if you just don't check that an SB is attached in Q10, they shouldn't be looking for one on their audit check. As to to OP asking about sending in w/o Sch SB, that's one I haven't heard. I've heard of a lot of plans in the past that would file w/o an audit and use it as an unofficial extension to get the audit finished. My understanding is that you can still try that but due to the new error checks the letter asking for the missing audit is going to go out within days of filing now it instead of about 2 months after you filed like it did in the past.

Short plan year = prorated comp and 415 limit.

No, the lost earnings would need to me made up by the employer.

You don't have a problem with the Form 5500 for this issue. You do have a compliance issue though that should be corrected through EPCRS; I believe a QNEC of some sort to the people who were not auto enrolled is the correction method the IRS wants.

Yeah, my understanding is refund is still allowed to correct 415 excess but not by document provsions. Only through EPCRS.

But aren't they all terminated with 0 hours worked? And can't you exclued terminated with fewer than 500 hours from the testing as excludable? I have a similar issue with a guy who was out all of 2009 on disablity leave. He has no comp or hours and is not yet terminated. I ssume you would leave him out of the 401(k) test too. But what about top heavy? - This plan is going to be top-heavy eaither way so it is moot in this case but this is the first year (2010) where they will be top-heavy in a long time and they are like 62% if I exclude this guy out of leave then it changes to like 70%.

I whole heartedly agree! Sounds like the auditor just made up his/her own rules to the benefit of the client, though not necessarily the benefit of plan participants.

For a new administrator it sounds like you've covered the bases of a straight forward cross-testing 101 scenario. On 3, yes you can exclude them unless they received some 401(a)(4) allocation, such as in a safe harbor 401(k) with 3% non-elective - in which case they might need additional allocation if your gateway is over 3%.

thanks. I never really thought of it that way but makes sense you could run them in any order and correct that way, at least to me. Though the IRS I suppose could have a diferent ideas.

I'm pretty sure that EPCRS does not allow the use of forfeitures to fund lost earnings on late deposits.

Plan match formula is 50% of all deferrals (including catch-up) and has only one HCE. Assume no earnings to make it easier. The inital ADP refund is calcualted as $5,000 but $1,000 is recharaterized as catch-up eligible and retained by the plan so the ADP refund of excess contributions is $4,000. The Plan also fails the ACP test and needs correction of an additional $5,000 for the match to pass. - the plan's ACP correction is method in the document is to refund the excess aggregate contribution to HCEs however any match "related to excess contributions" is forfieted. The related match on the intial refund amount is $2,500 (half the $5,000) but the related match on the actual amount distributed would only be $2,000 (half the $4,000 ADP correction). So for the excess aggregate contribution would the plan refund $2,500 and forfeit $2,500 or refund $3,000 and forfeit $2,000? Any thoughts?

I'm sure this is not comprehensive but... 415 & 401(a)(17) are prorated while 402(g) is not. This can lead to some interesting results if SPY is less 5 month or less and someone maxes out deferral.

term with more than 500 and no allocation, yes zero EBAR.

I believe you need to pro-rate beween taxabale and non-taxable recovery but I don't have an exact cite for you off hand.

He pays back the gross amount. Depending on where the funds come from he may have an after tax basis in the plan.

The last 2 DB plans we submitted took about 8 months to get a DL. neither was PBGC. In the past we we gave out all PBGC and IRS notices to participants and the same time (unless timing of dates conflicted for some reason) usually with a caveat that distributions would be after IRS DL.

Yes. The correction is outlined in EPCRS under the final 415 regs. For some reason the IRS eliminated the ability to automatically correct the 415 excess by refunding employee deferrals, although the method for correcting under EPCRS is identical to pre-415 regs as far as I can tell.

Thanks for the reply! How did you arive at the $250 for penalties and interest? Rough estimate of $1,000 * 6% * 4 years. edit: Oh and the $250 is just the estomated excise tax, penalties and interest for late pyament to the IRS would be on top of that. Presumably the first payment should have been 4/15/2008 for the 2007 Excess IRA contribution.

Probably not the best advice but if the money was rolled in 2007 doesn't she have an excess anount for 2007, 2008, 2009 and 2010 already? I would write the plan and tell them that due to thier error she now owes an excise tax of approximately $250 plus penalties and interest and will now need to consult with qualified tax counsel. She would be happy to return the overpaid funds if the trustees of the plan will agree to pay any IRS taxes, penalties and interest due to the Plan's error as well as paying for all attorney and accountant costs incured in filing the late returns. I'd also request the plan trustee indemnify her against any and all loss she may experience due this error by the plan. Furthermore since 2007 is likely these funds have declined in value if invested in the stock market, I would also mention that the funds returned will be net of any investment loss experiences since December 2007 as well as the cost of the accounting to detrmine such loss.

From what you are describing, I don't see any problems.