actuarysmith

Consultant, Last sentence-I think you meant that they are "Preying on" not "Praying on". You covered a lot of ground in the last thread. I am aware that the contract charge is greater due to the TPA override. However, if that override was not there, I maintain that there would simply be expenses built in somewhere else in the contract. When clients ask me to compare the Contract charge to the straight expense ratio's of a single mutual fund family - I always shoot straight (at least I think I do......??) and tell them that the contract charge is above the normal expenses of the underlying mutual funds. This results in a higher total cost. However, the difference is that with a platform ala Nationwide, the clients have access to multiple fund managers all under one roof. If we (the client and TPA) were to try and duplicate this by simply offering a mix of specific mutual funds from unrelated families, we would have a nightmare of a plan (in terms of administrative issues and cost) on our hands. Am I missing something? (I am sure you will tell me that I am. I would appreciate your opinion.)

I am unsure whether to "chime in" on this thread or not - apparently there are some hot and bothered folks looking at this column. I am a principal in a TPA that uses Nationwide as one of our primary strategic alliances. As many of you know, they (Nationwide) pay an administrative override to TPA's. Some of the responses to this thread imply that they are kickbacks or some sort of scam designed to incent TPA's to steer plans their way. First of all, most of our referrels come from brokers, agents, and financial advisors who already know what investment product they want to use. As a TPA, we have limited influence in that decision. Therefore, this would be a weak incentive at best. Secondly, Nationwide requires TPA's to perform many functions that other insurance companies and mutual funds handle in their own home offices (i.e. proposals, enrollment kits, getting contracts produced and signed, and discussing pricing and compensation with financial advisors). Our firm refers to this as contract administration reimbursement fees. Nationwide has fewer people in home office than they would otherwise need if they were handling these functions. They are passing along the savings as a reimbursement to TPA's for the additional time and expense incurred handling these cases. I've lost track of the number of times that a disgruntled client confuses our functions as adminstrator, with that of the financial institution -due to this unusual relationship. In several instances, we have had to waive or reduce our fees due to a mistake or problem that had nothing to do with our administrative services. These overrides are anything but gravy money, as some would imply. Let me assure you that at the end of day - it is well earned by the TPA. However, my real point is that these overrides do not equal extra contract expense - it would have had to been charged by Nationwide in some other fashion anyway to pay for the services being provided. ( All financial institutions have these fees. There is no way to get around these expenses, unless you drop services). I want to make it clear that we are not upset or disgruntled with Nationwide. Nor are we defending the way they do business. We have a large number of plans with Nationwide, and we have been very successful. The vast majority of our plan sponsors that use Nationwide are extremely happy with their retirement plan. If you compare features, fund selection, Multi-family platform, expense ratios, and returns, it is a tough program to beat for small to medium size retirement plan sponsors. There are not that many institutions providing this sort of a platform to smaller employers at any price. In closing, I just would like to express that fact that I am tired of people thinking that TPA's should somehow be ashamed of getting the override, or reducing the fees they normally charge because of the perception that this is easy money - it is not. It is well earned............

Katherine is correct. K1 income is not considered earned income for retirement plan computation purposes. Amm19- why would the CPA want to keep the income "below the Social Security Wage Base"? Once you exceed that number, your payroll taxes decrease. I understand wanting to keep income low, but the reference to the Wage Base makes no sense to me.....................

Hellooooooooo! Between 10/15 and 1/15 of any year - aren't you setting up new plans or taking over other plans during this time? This is our busiest season for new business.

IRC 416(i)(1) - The term "key employee" means an employee who, at any time during the plan year or any of the 4 preceding plan years, is- etc............ I think that you have a key employee on your hands.........

Austin is correct. Go see the "Q&A columns" on the benefitslink.com homepage. Select the "Correcting plan Defects" link. They discuss the procedures for correcting missed contributions.

To chant a familiar mantra on these message boards- "what does the document say?" While many (if not most) 401(k) plans accept rollovers, they are not required to offer the option. Please consult the plan document for guidance. Some documents will permit rollovers to any eligible employee, whether they participate or not. Some will permit rollovers only after employee meets the plan eligilibity requirements (i.e. 1 year of service, age 21, etc.). Some plans do not permit rollover at all............

We weren't told in the fact pattern whether or not the union employees would receive and matching or non-elective contributions from the employer. Therefore, it is uncertain without more information as to whether a partial plan termination has any relevance. In regards to the "partial plan freeze" comment above - I am not familiar with the term. What does it mean? What is the relevance to the topic?

Katherine is correct. I am assuming that the physicians are paid based upon personal production (i.e. % of revenue, etc.). I am also assuming that they are not paid until the patient accounts are settled. Under these assumptions, the item you are calling a receivable is a "receivable" from the veiwpoint of the employer, but may "income" from the standpoint of the physician. It depends upon how the compensation formulas are constructed...............'

Sounds like compensation for services provided while employed to me............

Gary- I think that your answer implied, but did not explicity state one overall deduction limit. In other words, the 404 deduction would have to be based upon the two plans being aggregated. The only exception to this would be to qualify both businesses as QSLOB's. There are many different tests on this issue- however, to even start down that road I belive that each of the seperate businesses would have to have a minimum of 50 ee's each (if memory serves - which it sometimes doesn't )

I am unclear whether you actually do have a permanancy issue if you use one plan. The original plan has already been around awhile. Further, it appears that it will continue to be around. I don't see how even changing the definintion of eligible employee for a couple of years creates an issue.

I agree with PAX. However, I was merely pointing out the fact that you probably could get away with a single plan. For all the reasons listed, two plans would probably be the preferred solution.

How are you "disadvantaged"? If you had not taken the loan, you would have had to come up with $10,000 after-tax dollars to buy whatever it was you spent the loan proceeds on in the first place. Same difference. At the end of the day, you have a 401(k) account, yet to be taxed, and something else valued at $10,000. The only difference that I can see is whatever the opportunity cost is of the dollars earning the loan interest rate versus whatever the investment returns would have been in your 401(k) account on those dollars. (Right now, not much!)

Given that the BARF's are the same, you should be okay with one plan. Since Collective Bargaining employees are a statutorily allowed exclusion, you should be able to suspend eligibility at a later date without problems. These participants will not automatically be entitled to distributions if they are still employed by the employer - they will not have a distributable event. I am uncertain whether you would incur a partial plan termination if contributions were later suspended. Any other thoughts?

Hey, don't forget to include the S'Mores!

I believe the doc is still on the hook, unless the leasing organization provides a minimum 10% of pay money purchase allocation (fat chance in most leasing orgs.........)

It is for this reason that many practitioners are recommending only allowing for something like 75% of compensation to be deferred - to allow for such complications.

Outside of my area, but.................... I think that this participant may be having cochlear implants. This is a relatively new procedure that has restored hearing abilities for many people (Rush Limbaugh for one.........) The cochlea is in the middle ear and can be damaged by bacteria, virus, disease, or certain medications. Cochlear implants are electronic devices that replace a damaged cochlea. This is definitely NOT a cosmetic procedure.

An age-weighted or cross-testing profit sharing plan is only subject to ACP testing if it allows for 401(k) pre-tax salary deferrals and the employer makes a matching contribution. If the plan is a stand-alone age-weighted profit sharing plan, ACP testing is completely irrelevant.

Operational Failure or Form Defect??? Would you say that the plan has a form defect because it doesen't allow loans even though they were clearly taken, or an operational defect - loans were taken even though they were not allowed. If it is the latter, you could probably self-correct. If it is the former, you may have to go VCR/CAP. I would probably have the owners re-pay ASAP with a reasonable rate of interest imputed. Then create a formal loan policy in the plan doc, and then have the owners take loans back out (with legitimate paperwork). Any thoughts to the contrary?

without knowing something about your 401k provider (like who it is) it is a little hard to answer your question. However, the loan regs only allow a person to borrow up to 50% of their account balance. In theory, the half the balance remains in the plan as "collateral" for the loan. I can think of no reason why they would be routinely checking your credit, especially if you have made all payments on time. Is this one of those credit card 401K loans?

RUN FOREST, RUN !!!! I don't have an exact answer to your question. However, I am interested in the topic. Our firm has not brought up flip-flop with any clients or advisors because in our estimation we don't have any combination of clients and plan advisors that can follow directions that carefully. Do you? Does this really work in practice?

If your husband defaults on the loan (i.e. fails to make repayments timely), it will be considered a taxable distribution. He will receive a form 1099R showing the amount of the distribution and it will be included in his taxable income for the year. If you are married and filing jointly, I suppose it will affect your taxes too...........

Just to clarify or expound on Jarels comments- It it irrevlevant to your top-heavy determination whether participants rolled their funds from the DB to the 401(k), took a cash distribution, or rolled them to an IRA. Distributions Would be added into the top-heavy fraction in both the numerator and denominator for all distributions from the other plan. Please remember that EGTRRA slightly modified the look back years, etc.