My 2 cents

1. Under no circumstances can you do it on a wear-away basis. All benefits already accrued (including the right to possible subsidized early retirement benefits) must be protected AND accruals under the cash balance "pay credits" must be determined without regard to the existence of an accrued benefit under the prior formula. 2. Communication is critical. Want legal trouble? Try to disguise what the change will do to the rate at which future benefits will accrue. 3. Are you going to grandfather anyone with respect to the prior formula? If some people will continue on the old formula, you must worry about non-discrimination. Not numbering this, but there seems to be a mistaken idea out there that contribution levels under a cash balance plan are more stable than under a true defined contribution plan. They aren't. There is no direct link between the "pay credit" under the cash balance formula and even the Target Normal Cost for minimum funding purposes. And, of course, if the funds lose money, you have to amortize the loss (which is measured relative to the funding discount rates, not break-even) over 7 years. And pay PBGC premiums. Etc. All that, and most participants will be worse off under the cash balance approach than under the current formula.

I agree. It is simply unreasonable for the beneficiary to change depending on how long the it takes to process the form. Once the Participant has made his/her wishes clear by submitting the request, that shouldn't change just because the provider took three days to process rather than two. From the providers side, it would mean possible litigation for every distribution request they process since the party snubbed due to the extra day or two would claim they were injured due to the providers failure to timely process. Possible litigation would not necessarily translate into any liability. Can you imagine someone winning a lawsuit based on failure to process a claim on a timely basis when the claimant died after only three days, rendering the election invalid? Industry standards are surely not so fast as to render a three-day turnaround insufficient.

Judging from the original post, the benefits were "paid out" way over 90 days ago. The 501 was signed and filed, perhaps half a year ago. Isn't issuance of a check to a participant sufficient to meet the plan's obligation to distribute plan benefits? Has the PBGC ever given any indication that plan fiduciaries have a duty to make sure that lump sum checks are actually cashed? Absent something to that effect, the PBGC cannot assert that there have been any failures and cannot impose sanctions. The problem here is your incompetent "trustee" who won't do the right thing and stop payment on the original checks that are still outstanding and issue new ones. That is clearly an unacceptable position to be taking.

This didn't happen at that well-known financial company that has been in the news so much lately, did it?

Sounds like a "how many things are wrong with this picture" puzzle. 1. Trustee of the plan (and assuming that the money is held in trust may be assuming too much!) violated the law by not issuing a 1099 for the withdrawal. 2. Just checking - did the owner declare the $70,000 when he filed his personal 2015 taxes? If not, sounds like tax evasion (certainly a substantial underpayment). 3. He was paid notwithstanding the plan not allowing in-service distributions. Probably more. Sounds to me like plan disqualification as a minimum. If they are lucky, no jail time. Whether it's a prohibited transaction or not is a distant 3rd in importance. Owners need to clearly understand that "It's my money" is a metaphor, not the truth.

I am going to guess that this scenario is violating some kind of law. Don't brokerage companies have to verify the identity of the depositor to make sure it is neither a money laundering scheme nor a means to finance terrorism? By the way, can't read this scenario without laughing. Earl said: I have the document. Relevant section seems to me to be... Just wondering what document that is. The 401(k) document of the person's employer's plan, a 401(k) prototype document that any person can wander in off the street and adopt, something else? I thought the whole point here was that the depositor was not able to fulfill the role of being the plan sponsor since he is only someone else's employee. Why, given the facts as shown in the original post, are we not talking about issues that arose when the broker (assuming a minimum degree of competence) steered the person into an IRA?

This concerns the question as to whether a contribution must be documented on the Schedule SB in order to be deducted. Sure, Question 7 on the 2011 Gray Book says that (to move dates forward) if a contribution is made during the first few months of 2016 (prior to the tax filing deadline, with extensions, for the 2015 tax year) but not shown on the 2015 Schedule SB, then it cannot be deducted for 2015. However, this is not based on anything in 404 or a relevant old Revenue Ruling (the answer in the Gray Book conflates applicable "tax year" with applicable "plan year", as though a contribution not applicable to a given plan year cannot be applicable to a fiscal year coincident with the plan year). There was a presentation the following year at an ACOPA conference "respectfully disagreeing" with the comment in the Gray Book. Is there anything in any formal IRS guidance to get in the way of taking a 2015 deduction for a contribution made in 2016 prior to the tax filing deadline as extended that was not reported on the 2015 Form 5500 Schedule SB? If so, surely the 2015 Schedule SB can be amended to show the contribution even though already filed without it. Is that necessary? Suppose that the same thing happened with respect to the 2014 SB and the 2014 tax deduction. Should the 2014 5500 be amended? In that case, should the 2015 PBGC filing be amended, with a claim for a refund if the extra assets serve to reduce the 2015 premium? How far back would one go to realign contributions with plan years to solidify the related deductions if this also applied to 2013?

Even so, none of the outstanding checks would have gone stale. The plan has fulfilled its duty to pay when the checks are sent out, especially if the addresses are known to be correct. There should be no duty to follow up and make sure that the checks were cashed. The payor can never give the money back to the sponsor - if they won't just do the right thing and issue new checks, they would return the money to the plan trust. I personally see no reason for the sponsor or the plan to have to suffer any consequences due to gross negligence on the part of the participants who mishandled their benefit payments.

You may only get a month to prepare and file the 501. There is no option to wait for the checks to all clear.

Why not? What I am trying to understand is why can't the trustee just stop payment on the stale checks and issue new ones? Wanting to return the money to the plan sponsor makes no sense.

"We are confident that we can find all of these participants (4 of them are active employees)." It's 10 pm. Do you know where your employees are? It must be the case that the plan's termination is not jeopardized. Checks were sent out, a Form 501 was filed, the trust was closed. Try calling the PBGC to see if they have a recommendation. I would suggest calling the DOL or IRS, but I think you will probably have better luck finding someone at the PBGC (and they may have a phone number for someone to call at the DOL or IRS).

I guess I may be thinking about income tax returns rather than informational returns like the Form 5500. One cannot just change from accrual to cash for tax purposes, but the 5500 Schedule H instructions just require that the cash/accrual method must be handled "consistently". Perhaps IRS approval is not necessary.

The decision to make a change from using a cash basis to using an accrual basis for 5500 purposes (assuming that such a decision can be made without governmental acceptance) is, clearly, one that belongs to the sponsor. How could the service provider think the decision was theirs to make? If past practice was to report on a cash basis (recognizing that Schedule SB reporting is never on a cash basis), there would be no compelling reason to switch just so the 5500-SF (or Schedule H if a larger plan) would match the Schedule SB. Note that if there are receivable contributions, the market value on the Schedule SB will NEVER match the 5500-SF or Schedule H beginning balance, since the former would include the receivable contribution on a discounted basis but the latter would include it on an unadjusted basis. True, it used to be expected that they would match, but since PPA became effective, the SB must reflect for all purposes a discounted value for any receivable contributions.

Agreed. Do NOT leave the surviving children page blank! Fill in what you can and submit it. While you are at it, write in the names that belong on the siblings page so it doesn't look like you are trying to cut them out. If you don't have SSNs, don't worry about it. As noted above, that can be dealt with later. If it is determined that payments should go to someone, they will be asked for that information. If the lack of a surviving spouse makes the estate the default beneficiary (again, what does the PLAN say about this?), then it becomes a matter of dealing with the participant's estate under the applicable intestate laws.

There is an undeniable duty on the part of the sponsor to maintain adequate records. The sponsor, who is your client, really must be able to provide you whatever information is needed for you to perform your duties properly. Granted, it's an imperfect world, but that does not, by itself, excuse negligence on the part of the plan fiduciary. Sorry if I am on the grouchy side - it's been a tough week.

As always, the first and most important question is "What does the plan say?" I have seen default beneficiary definitions that include siblings, parents etc. In a typical one, the default order is (1) spouse, (2) natural and adopted children and children of deceased children per stirpes, (3) the participant's parents in equal shares, (4) brothers and sisters of the participant and the children of deceased siblings per stirpes, and, finally, (5) the estate. Unless the 401(k) plan specifies that if there is no named beneficiary then the proceeds go to the deceased participant's estate (or otherwise the default goes directly from spouse to estate), then there being children and siblings here, the money might not go to the estate. If the money does go to the estate and the participant died intestate, then you must fall back on the state's intestate succession laws (not a lawyer - is that term only suitable for crowning the successor to a deceased monarch?). My expectation is that "children" almost certainly outrank "siblings" whichever state's laws come into play.

1. My guess would be that it would have to pass 401(a)(4). How could the answer to "How many years of service does this person have credit for" be a BRF? 2. Note that if the plan has been frozen since before 9/1/05, do this and then you can kiss your exemption from IRC Section 436 goodbye. And if the plan's AFTAP is under 80%, you probably have to fully fund the cost impact in order for the amendment (there is an amendment, right?) to take effect.

Had to look it up. Never paid any attention to that show. While doing so, found a good example of a "mute point": Addressing the participants of a conference call while your phone is on mute.

Why would anyone set up a cash balance plan to be part of a floor offset arrangement? Just wondering.

In most instances, that would do as well!

Not if you keep talking about it. Bill Presson's comment is because the correct term for something not needing discussion is "moot point", not "mute point".

The merger involves a large plan. Is the identity of the plan in question changing or not (i.e., the other plan is merging into it)?

I may be doing the math wrong, but wouldn't it take at least a third of a million dollar payroll, counting only the non-keys, to get to a $10,000 top-heavy minimum contribution? $10,000/3% [3% = the top-heavy minimum contribution when there is no defined benefit plan] = $333,333.33. And that $10,000 is a tax-deductible expense. Which is not to say that the top-heavy rules are not idiotic and draconian. IF the non-discrimination rules were completely rational and effective (thinking of "new comparability", as in finding a way under the non-discrimination rules to have 85% or more of the contributions go to the keys), then there would be no real need for top-heavy rules. The changes in the integration rules back in the 1980s did away with the abuses that resulted in top-heavy rules being justifiable. I am thinking [as always, in terms of defined benefit plans] of plans with formulas like 30% of average earnings minus 60% of Social Security or 0% of average earnings up to covered compensation plus 1% of the excess (and that before compensation had to be limited!), where most of the rank and file would necessarily earn no pensions at all.

A plan becoming top heavy because of contributions made by key employees for their own benefit is not the result of an "error". The entire premise is just wrong. If they don't like having to put minor amounts away for the non-key employees, then the key employees should just save what they can on an after tax basis and pay taxes on the investment income. If they want to receive tax-favored treatment, they have to jump through the relevant hoops. From the standpoint of the general taxpaying population and the government, for owners and officers to receive a tax-favored way to save, they need to kick in enough for their other employees to help reduce the risk of those other employees becoming wards of the state after they are unable to continue working due to age or infirmity. No sympathy for people who act as though they are allergic to having to pay taxes or to share in a meaningful way with the people making their success possible.

You may wish to carefully consider what MoJo said in response to your other post on this subject (mainly dealing with retirement plan issues), which also addressed the potential issues concerning health plans.