Zoey

Thanks Larry!

Thanks RatherBeGolfing, Larry and Kevin. I appreciate the time you have taken to comment, and I also appreciate your opinions and input. Because of all of you, I feel comfortable enough to present a safe harbor plan, effective 10/1.

Regarding the notice...hmm...interesting. Thanks Kevin. I would be interested in others thoughts on that, as I would think that it would come down to interpretation. I would be willing...if I can crank out the document and notice by the end of the week. It would still reasonably allow enough time for employees to enroll and establish deductions. Providing that all of the stars align (investment company can set it up by 10/1, payroll deductions can be set up to go, investment advisor can help the participants with their investment elections, etc). Regarding the VS document...wow, really (different for full-time vs part-time)? We use FTWilliam. The prototype has a blank next to, "Describe the conditions or limitations and indicate for what purposes (e.g., Elective Deferrals, Matching, etc.) the conditions or limitations apply", where you can write in restrictions next to the special participation date.

Larry...Yes, I am aware that a new plan has until 10/1 to establish a safe harbor plan, but isn't the 30 day notice requirement required to be distributed by 9/1 then? Jim...I agree...that was why I thought we were too late for the safe harbor. Thanks to both!

Dental office - 1 owner, 2 full time ee's and 3 part time ee's. It will be top-heavy right off the bat, I'm sure. If we let in the part-timer's and they don't contribute (as we suspect they won't), then no doubt there will be more than top-heavy issues. Chances are the ADP test will fail as well. I was trying to find a way around it, but I wasn't hopeful. Thanks.

A new company, established in July 2018 (calendar fiscal year) wants to set up a new 401k plan for 2018. Assuming they are too late for a Safe Harbor plan for 2018 (since the company was established with more than 3 months left in the year (to qualify for the exception to the 3 month rule) and now won't meet the notice requirement for a 10/1 effective date), we are going with a traditional 401k plan, with safe harbor provisions effective for 2019. The employer doesn't want his part-time employees in the plan. EVERYONE however, has the same July 2018 hire date, including the owner. Has anyone used language in the plan document, stating something to the effect that everyone employed on July 1 2018, shall be eligible, providing that they are 21 years old and would "normally work 1,000 hours during the plan year"? Do you think this will fly? (I've used the age only requirement condition before, but haven't used an hour requirement condition under the special participation date before.) Thanks in advance!

Thanks ETA...Good point.

I agree...VERY odd! Oh yes, I do document everything. Unfortunately I have a couple of plans with this provider (and same financial advisor), but thankfully that's it.

Correct, they will not issue a check to the trustee. It's crazy. I have tried talking to the financial advisor about switching them to a different provider, but so far it has fallen on deaf ears.

Thank you Bird! I didn't know how to explain it any better. I'm glad you "got it". I agree that the investment company is crap, and I have explained that to them. There are very few investment companies that won't do withholding, and even most will at least issue a check made payable to the DOT, even if they send it to the plan sponsor or TPA. We tried having the investment company issue 2 checks (one for the net and one for the withholding) and the participant ended up cashing them both. We are trying to figure something out, but when they won't issue a check to anyone else, what are we to do? It's not like the sponsor or TPA should send in the withholding, when they can't collect it from the plan (withdrawal). I would so like to convince them to go to a different platform, but they like that it's cheap and we know why.

Thanks Bird! Sorry, I forgot to thank you for your response. And thank you to everyone else too.

ETA...correct...The actual check amounts were $41,461 to the IRA and $25,000 in cash to the participant...for a total of $66,461. The 1099's that were issued were $28,619 rollover, $25,000 cash and $12,842 loan treated as a distribution. (The rollover 1099 being short by $12,842 from what he actually received.) His total vested account balance was $53,619 plus an outstanding loan balance of $12,842 to get to the total of $66,461. The checks totaled $66,461. They should have totaled $53,619...since the loan was payable upon termination and not paid back. So he received the loan twice so to speak...once when he took the loan (leaving an outstanding loan balance) and again when he received the rollover check. I hope this explains it better, but if not let me know. Thanks.

ESOP Guy, this isn't "our" procedure. It is the investment company's procedure. They will not do federal withholding. They will only issue the check to the participant or another plan or IRA. I agree that all would be good if he just wrote a check to the plan, but the trustee has tried and tried to get the money back to no avail. The terminated participant refuses to pay it back. The IRA company refuses to distribute it.

Sorry, I may have confused myself trying to generalize the example...lol. The exact figures are: 1 1099 - $12,842 Code 1L (treated as a distribution) 1 1099 - $25,000 Code 1 (no withholding) 1 1099 - $28,619 Code G Total = $66,461 But what was liquidated was the full $66,461 (not taking into account there was an outstanding loan balance). The extra $12,842 ended up getting rolled over to the IRA along with the $28,619. The 1099's were prepared based on what he was entitled to, but does not take into account the extra $12,842 that he actually received.

A participant terminated employment in 2016 and took his account balance. Since he rolled part of his account, took part in cash and had a defaulted loan, he received three 2016 1099's. However, the plan erroneously paid out all of his account PLUS his loan balance. For example: His account balance was $50,000 plus $10,000 loan balance, for a total of $60,000. The 1099's were issued for exactly what he was entitled to, but not what he actually received. One 1099 was for $25,000 in cash, one 1099 was for the defaulted loan ($10,000), and one 1099 was issued for the rollover for $15,000. BUT, what he actually received was; $25,000 in cash, $10,000 (defaulted loan) and $25,000 was rolled over. So the loan balance was paid to him (i.e., rolled over) in addition to his eligible balance. After contacting the participant and the IRA company several times explaining that it was an ineligible rollover, nothing has been done. The participant has not returned the money, the IRA company has not distributed the money (as far as we know), and we are at a point where we need to correct the 1099, restore the account, etc. Since the extra $10,000 was not eligible to be rolled over, I assume that the 1099 that was issued for the lump sum would need to be corrected to reflect $25,000 instead of $15,000 and will be taxable to the participant (even though it was rolled over), correct? The plan's assets are in a pooled account, so I assume that the amount (plus earnings), would just go back into the pooled account, correct? And lastly, which compliance program would you use or would you just self correct? Thank you so much in advance for your thoughts and opinions.

TPAJake, that is exactly the spot I am in. If I tell them a flat out no, and they find some loophole, it will come back to bite me. All I can do is tell them what I think (based on the regs as I interpret them) and put it back on the FA/RIA. It never ceases to amaze me, the questions that some ask. This employer thought there wouldn't be any problem at all with it.

Hahahaha MoJo...Maybe it is Joe's Car Emporium and Brokerage House. I too, have expressed that it was a bad idea. What happens to the family if/when the FA is fired as their FA? The drama alone is reason enough. But the first thing I thought, was that it was a PT. I like the idea of having them prove that it can be done, rather than me proving that it can't, because this employer is going to want something that states that they can or can't hire her son, and that would take it out of my hands. Thank you everyone for your responses! Y'all rock!

Picture it if you will... Husband owns 100% of the company. Wife works at the company and is a trustee of the plan as well (yes, owner by stock attribution). The wife has a son from a prior marriage (not adopted by the "new" husband). The wife would like to hire her son as the financial advisor for the husband's 401(k) plan (that has employees...not a solo), so that the son can receive the commissions/fees. The 401(k) plan allows for self-directed accounts. Everything I read is very gray. I read that it is unacceptable, but then goes on to say unless the fees are reasonable, etc. Assuming that the fees would be reasonable, is this allowed? Every fiber of my being says it's unethical from a fiduciary standpoint, and should be a prohibited transaction with a party of interest, but this client is going to want "proof" that it is not allowed. Opinions? Cites? Thanks so much!

Let me set the scene... Two separate companies (no common ownership). Both are brokers. Company A has two employees, other than himself. Company B is a sole broker who performs services only for Company A. However, due to how the "pay" is set up, he doesn't receive compensation from Company A. He receives his commissions directly from the investment company (broker/dealer agreement). However, the owner of Company A does have the authority to terminate him, tell him what do, and provides him an office within Company A, etc. So, my question is this... How would you classify this situation? Affiliated Service Group, a Common Law Employee, or set them up as a Multiple Employer Plan...as they do want to be covered under one plan? (My thoughts are at the very least, it would be an ASG, but I am questioning whether it could be a Common Law Employee situation.) Thank you in advance, for your responses.

Thank you for your response! I didn't think it was a controlled group either, but with all of the stock attribution, I was questioning myself on how much each one was "considered" to own.

I am starting to question myself on whether this is a controlled group due to stock attribution. I don't think it is and would appreciate some input from others... Two companies. The ownership for Company A is 100% Joe. The ownership for Company B is 25% direct ownership Joe, 25% direct ownership Jane (spouse of Joe), 50% direct ownership Tom (father of Jane). Since Jane and Tom are not employees of Company A (and have nothing to do with Company A), they would not be considered an owner of Company A (since there is no direct ownership, income, voting rights, etc.), correct? So then it comes down to just Joe's determination. Since Joe owns 100% of Company A and 25% of Company B, and taking into account that even with Jane's 25% direct ownership, that would mean that due to stock attribution, they own 50% of company B, correct? Tom is also employed by Company B. His direct ownership is 50%. So when it comes down to identical ownership, it is right at 50%, correct? But my understanding is that they have to have MORE THAN 50% direct ownership to be considered. Do you agree that this would not be a controlled group? Thank you in advance, for your responses.

Thanks Mike! I tried to find something on this issue, and couldn't. But before I tell the client that they could max their profit sharing contribution for the time that they were the owner for 2016, I wanted to be sure that the new owner wasn't going to be locked into also giving the maximum profit sharing contribution for the rest of the year (time that he owned the company). There is no turnover in this company, and everyone is salaried, but I'll run the tests just to be sure. Thanks again.

Sorry I'm late in responding...We had a death in the family the morning I posted the question. Hi BG5150, There is. But they are talking about amending it to change that before selling the company. Hi Mike, Let's say they would pass the non-discrimination test for the entire year. Would it be allowed for the new owner to just give the safe harbor for the rest of the year? Thanks!

I have a similar question. The company is selling mid-year. The buyer is going to continue the plan. However, the predecessor employer wants to max out the profit sharing contributions prior to the sale. (It is a new-comp formula and is discretionary.) How does this affect the successor employer's profit sharing contribution for 2016? Or does it? For instance, will he be locked into making the same (max) profit sharing contribution for his half of the year? All employees will remain, with the exception of the 2 owners. Thanks!

I agree with you 100%. But that's exactly what John Hancock is doing! I have gotten several emails from clients stating that John Hancock has called them, advising them to contact me (their TPA) about the notice and scaring them with the 8/31 deadline...as if it's MY responsibility to provide THEIR notice. So I'm getting emails from my JH clients asking if I will be "handling" their disclosure notices. I haven't the slightest idea what JH is charging my clients. I'm not in the investment business, I am in the TPA business, yet I am having to take on the task of figuring out how to disclose THEIR fees. What really irritates me is, I don't have any plans that I receive compensation from the plan, either directly or indirectly, so although I don't have to provide a disclosure of my fees (although I do through an engagement letter), I now have to do JH's job for them, as if they aren't getting paid enough to do their own flippin' disclosures!