Cynchbeast

Husband owns 100% of CA business. In determining HCE status, is wife HCE solely due to family attribution, or is she also HCE as an owner of the company (due to attribution or community property rules)? Explanation - plan excludes HCEs who are HCE due to family attribution rules. Purpose is to exclude kids, not wife. I say this excludes wife, too. My boss thinks not.

We need a crash course in cafeteria plans. We have done strictly retirement, but have an opportunity to take on a client with a plan covering dental, health and disability. Plan has over 100 people and so would require a 5500. I would be particularly interested in any course that would give ERPA credits (kill 2 birds with one stone?). We need to address both testing and reporting.

Thank you Mike - this is what we advised the sponsor and how we intended to handle it. Then he went and moved the money directly to his wife's IRA. So I suppose only absolutely proper way to correct is to have fin'l institution "undo" the transfer to wife, putting money back in husband's IRA, then return wife's portion of IRA to plan as mistake of fact, then distribute to wife. I do believe it is highly unlikely we will get this to happen. So I have to deal with how to report 2015, and is this a prohibited transaction reported on 5330? (if show, where?). Is this eligible for EPCRS?

The rollover was done in December and the transfer of money to the wife's account just yesterday. So if we issue a (late) 1099-R to husband for correct amount ($50k), how do we close out 2015? Do we show $75k distribution with a $0 balance and plan terminated, or what?

We have single person plan covering only owner & his wife. He is terminating plan, and before advising us he rolled over ALL of the money to his IRA. We advised him that some of the money belonged to his wife and that he had to re-open the plan's account to put her money back in so the plan could pay her out. He of course got it all wrong and transferred money directly from his IRA to his wife's IRA. Not only has the wife never been properly paid by the plan, but we are also concerned about the tax consequences to both of them. Some of our concerns: Can husband transfer IRA money from his account to wife's? What amount is reported on 1099-R as rollover for husband? Does wife get 1099-R from the plan? How might IRS view the plan in all of this since the plan never actually paid out the wife?

Thank you for your response. John Doe was hired on 10/27/14 and should have entered plan on 01/01/16, but he started deferring 11/01/14. Based on your response, it sounds as though it would be acceptable for the amendment to allow John Doe (identified by name) to enter the plan on 11/01/14. Is this correct? Two others were also hired in 2014, and we would therefore not be allowing them in? Nor would anyone else get immediate eligibility? Here is the kicker: the one person affected was hired at the salary level of an HCE and is currently an HCE but since he only worked 2 months in 2014, he was actually NHCE for 2014 an 2015. Do we have a problem with that?

We have a 401(k) that allowed a person to start deferring before he was eligible, and want to retroactively amend for SCP correction. We are unclear as to the form and substance of the amendment: 1. Does the amendment name the specific individual(s) allowed in in error, or to all persons who would meet the amended eligibility criteria? (ex: change from 1 yrs svc to immediate entry is need to make that person eligible; does this apply to him, or to everyone) 2. Does the amendment apply only for those year(s) when ineligible person(s) deferred or prospectively from that time forward? 3. Using SCP, does this amendment have to be submitted to IRS for determination letter?

We have a 401(k) that allowed a person to start deferring before he was eligible, and want to retroactively amend for SCP correction. We are unclear as to the form and substance of the amendment: Does the amendment name the specific individual(s) allowed in in error, or to all persons who would meet the amended eligibility criteria? (ex: change from 1 yrs svc to immediate entry is need to make that person eligible; does this apply to him, or to everyone) Does the amendment apply only for those year(s) when ineligible person(s) deferred or prospectively from that time forward? Using SCP, does this amendment have to be submitted to IRS for determination letter?

If we have a PS plan set up 01/01/16 with a 401(k) feature effective 01/01/17, can we have a special participation date for the 401(k) for it's first year (which is actually the second year of the plan)?

We have a client (calendar year) who has already made 2015 PS contribution and filed their tax return (no extension). We discovered due to a misunderstanding they contributed less than the minimum required. Can they pay the additional now (2016) for 2015 and deduct in 2016, or must this be a non-deductible contribution for 2015?

Thank you for responses. A couple comments in response to the replies: Not, it is not an asset of the plan. Unbeknownst to us, the accountant was listing as trust assets both the cash value AND the surrender value of an annuity as though they were two separate assets (listing cash value as "Life Insurance". So for the years this was done, we carried the annuity in the trust accounting twice. Of course this is ultimately up to the sponsor. But we are seeking some feedback so we can determine what we believe to be the best course to take. Let's face it - the sponsor doesn't know; he will just do what we say.

Due to bad information received from our client's accountant, we incorrectly included an insurance policy in the PSP trust accounting (and Schedule I) for 2011-2014. This policy was segregated from all other assets and was entirely part of the owner's account balance; NO OTHER PARTICIPANT WAS AFFECTED. Rather than amending several years, we thought we could simply remove it from the plan's assets in 2015 by listing its value on Schedule I - probably as Other Expenses (line 2i). We would then include a "Schedule I - Other Attachment" with the filing, explaining the adjustment to correct for an accounting error and stress that this affected no one other than the owner. Thoughts/comments please.

If an eligible NHCE in a non-top heavy plan receives a 0% allocation for the year (the participant is not excluded, just receives 0%), is that person still included in the Gateway Minimum testing, which would therefore cause plan to fail test? We use Datair, and when I give such a person 0%, the Gateway test still passes because the lowest allocation (to anyone receiving $) is 5%.

Thank you - your response was concise and very helpful. Now about how to correct this. Actually, I was wrong about year - this was all for 2014 - the 5500 was already timely filed, but with incorrect contribution. So we will amend - and show additional TH contributions as receivable. 1. Since this is for 2014, the additional due would be non-deductible for 2014, correct? 2. Since we are still before deadline for 2015 contributions (03/15/16), can this be deductible for 2015?

We have a PS/401(k) plan that only had deferrals and SH match prior to 2015. Starting in 2015, the plan was amended and excluded classes were added to the adoption agreement. So now, we have existing participants who are already in the 401(k). The plan is top heavy. Q1 - if we exclude people from only the PS portion, do we still have to give those 401(k) participants a top heavy minimum? Q1.1 - If yes, one of them deferred and so received 4% SH match. Will that not satisfy the TH minimum for that person? Q2 - If we exclude people from the entire plan - both PS and 401(k) components - what do we do about top heavy with respect to those people who are already plan participants (entered plan prior to adoption of exclusions) but who now are in the excluded class?

So now I'm totally confused. Can someone please put all the pieces together for me: 2015 instructions for 5500-SF say you must file electronically "..if you are required to file at least 250 returns of all types during the calendar year ..") All 5500-SF must be filed on EFAST2 (which is electronically); paper filings are not permitted IRS compliance questions on 5500 reports is optional - at least for 2015 5500 SUP comes into existence for 2015, and allows you to submit compliance questions on paper So what does this all mean? I don't understand the instructions about the electronic requirements as stated in 1 above. The compliance questions on 5500/5500-SF are optional, but does that mean the SUP is optional, too?

So I am working on my first 5500-SF for 2015 - just adore those changes Part IX - Compliance Questions - some of these are a bear; especially asking about last amendment/restatement dates and codes. But looking at the instructions, I see that entire section is Optional. Does anyone have a sense of what might happen if we simply don't complete it? Is anyone completing it?

This is a wierd one. The plan is not top heavy for 2015 because the owner's 12/31/14 balance was $0 - she started deferring in 2015. But for subsequent years, would that be an issue if there are no employer contributions? I thought TH min only applies if there are ER contributions.

We have a small 401(k) with only 3 participants. The owner is the only one who deferred in 2015 - $3,800. She is over 50, so since all her deferrals exceed the maximum allowed under ADP testing, it seems that technically all her $3,800 deferrals may be re-characterized as catch-up. So - owner has $3,800 catch-up, 2 HCEs have no deferrals and receive no ER contribution of any sort. Does anyone see any problems with this???

Additional question: we are preparing package to send which normally includes full tax disclosure. Is the standard tax disclosure good when paying beneficiary? In other words, are the tax rules any different?

Owner of company is deceased; wife wants to rollover his money to her IRA. This is permissible, is it not? (Just double checking)

I had an earlier thread discussing a plan sponsor who borrowed money from the plan, not realizing it was prohibited transaction. As of yesterday, all money borrowed plus lost earnings has been repaid to the plan - the plan is now whole. I am preparing 5500 (PYE 06/30/15) and 5330 and need some feedback from anyone who has ever dealt with such a situation. Instructions for Form 5500-SF, Line 10b include the tip shown below. Can anyone shed some light on what would allow us to NOT report the transaction and file the 5330 (thereby saving sponsor the excise tax). From 5500-SF instructions, line 10b: TIP: Applicants that satisfy the VFCP requirements and the conditions of PTE 2002-51 (see the instructions for line 10a) are eligible for immediate relief from payment of certain prohibited transaction excise taxes for certain corrected transactions and the requirement to file the Form 5330 with the IRS. For more information, see 71 Fed. Reg. 20261 (Apr. 19, 2006) and 71 Fed. Reg. 20135 (Apr. 19, 2006). When the conditions of PTE 2002-51 have been satisfied, the corrected transactions should be treated as exempt under Code section 4975© for the purposes of answering line 10b.

Here is the thing - we know this is a prohibited transaction, but are unsure as to how to address that with the IRS: Does this qualify for EPCRS? If yes, which program - Self Correction or VCP? Does anyone know of a good matrix available that might show which correction program would be appropriate for which types of violations?

In obtaining plan year end information, we discovered that the sponsor of the Profit Sharing plan had borrowed $50,000 from the plan: Corporation passed resolution approving plan to extend $100,000 line of credit to sponsor Sponsor borrowed $50,000 from LOC, with check payable to sponsor and deposited into payroll account to meet payroll obligations Borrower later borrowed additional $30,000, and has since repaid about $5,000-$10,000 of the total borrowings This was obviously prohibited transaction, and in no way can be re-characterized as a participant loan to the owner since there is clear evidence of intent (resolution from Board for LOC and deposit into payroll account). This was an honest mistake by owner, who didn't realize it was prohibited or that he should contact us first. Ideas???

We have a plan with excluded classes (a DB, but not sure that makes a difference). One participant was benefitting until mid 2014, at which points a job change moved her into an excluded class. How do we treat her for 2014: 1) excluded (not benefitting) based on her position at PYE 2) benefitting based on the fact that she was eligible at some point in the year, and if so: a) Do we base benefit on hours and comp for the ENTIRE year, or b) Hours and comp only for that period during which she was in an eligible class?