Bill Presson

We've used Accellion and Sharefile both with success.

If I was preparing the 5500 on an accrual basis, I would report it. If I was preparing the 5500 on a cash basis (which we do for the vast majority of our returns), I would not report it.

Let's do the math. A participant earns exactly $10,000 evenly throughout the year. They take a hardship on January 1, so they are prohibited from deferring for the first 6 months of the year. The last six months, they defer 10% of $5,000 or $500. At the end of the year, they have earned $10,000 and deferred $500. You do the true up calculationa and they get a 100% match of $500. If this outlines what you are asking, I don't see a problem.

How did the money leave control of the original Bank Trustee? Wouldn't something have been signed at that time?

We do this all the time for our daily clients. They put the money in a money market account and we allocate the the participants after the close of the plan year. With MM earnings down, there isn't a lot to allocate, but we just allocate it as a gain across all sources, all funds. Pretty simple.

No. I love Relius, but glad I didn't get Web Client. We use the Relius 5500 software to export the IFile info and upload to EFAST. It's worked like a charm for two years.

I have never seen an audit report signed by any individual. They always sign the name of the firm.

Too many variables to outline here because they are all plan specific. Your new TPA will walk you through the process.

Correct.

Correct. 50% of contributions. This number does not include rollover amounts, which are not considered contributions for the incidental limit. Also, many agents will use the "aged money" rules to say that the regs allow you to use up to 100% of money that has been in the plan for more than 2 years. What they fail to tell people is that, the regs allow that because it is then just like any distribution from a qualified plan that meets the same criteria. So then the entire premium would be taxable just like a deemed distribution.

The PS-58 cost is not a distribution. It's considered imputed income to the participant and is reported on a 1099 annually.

Jim, at this point with the advances in software, I'm really surprised that these plans are still less expensive than a true daily plan.

No contribution has to be made (just be mindful of the incidental benefit rules), but forget for a moment that it's insurance. Just think of it as two mutual funds and you're moving money from fund A to fund B. For these purposes that's about all you're doing. Obviously report it correctly on the 5500.

This is an answer from rocknrols2 on an earlier thread on the same topic and I'm pretty sure it's still accurate. "If it a profit-sharing plan without a 401(k) feature, there is an exception to the consent requirement provided that (1) the terminating plan does not offer an annuity option and (2) the plan sponsor orr any other controlled group member does not maintain any other DC plan other than an ESOP. If the answer to both of these is no, then the plan may simply cash out the participant without regard to the amount of his/her account balance. If (2) is yes, the terminating plan may simply transfer the participant's account balance to the other DC plan without the partiicpant's consent. See Reg. Section 1.411(a)-11(e)(1). If (1) is yes, then you could purchase an annuity for the participant and distribute it to him/her. If the plan is a money purchase plan, there is no similar exception to the cash-out rule. In that case, the only option may be to purchase an annuity for the participant and distribute it to him or her. If the plan is a 401(k) plan, the rules are pretty much the same as in the case of a profit-sharing plan, but it is important to bear in mind the distribution restrictions on termination of a 401(k) plan. These are that there is no other DC plan is maintained by the plan sponsor or any other entity which is related to the plan sponsor within the meaning of Section 414(b), ©, (m) or (o) at any time during the period beginning 12 months before the date of the plan's termination and ending 12 months after the plan's termination. The following are not considered DC plans for purposes of the special 401(k) distribution restriction on plan termination: an ESOP, a SEP, a SIMPLE IRA, or a 403(b) or 457(b) or (f) plan. "

The plan's distribution rules still apply. So if the participant is eligible for an in-service, then they can take the money out. If they aren't eligible, then they can't. Nothing changes there.

+1 Excellent post! Very helpful and very specific.

Not the loan, but the proceeds from the loan. At that point it's just cash and an asset just like any other asset.

Not always true, especially with policies issued by mutual companies. Quite often the death benefit will continue to rise so that the net amount at risk remains at least as large as the original purchase.

Bill, forgive my ignorance in this area - I am not real familiar with life insurance, so would appreciate your insight. Do you have cites that would back up this option? How would this transaction be taxed - what value is used? It seems like the DOL uses one amount for fair market value, and the IRS uses something very different (like that has never happened before!). Hard to summarize the bizarre insurance part, but here is a very good article. http://documents.jdsupra.com/29f2aeae-4b95...36082865956.pdf

Why can you not file an amended return at this point and check the final box?

Another option is for the plan to borrow a percentage of the cash value and then have the participant buy the policy for the lower cash value amount. Assume for the minute that the cash value and the fair market value are exactly the same. If the cash value is 30,000, the plan could borrow $27,000 (for example) and then the participant buy the policy for #3,000. The $27,000 would stay in the plan with the rest of the participant's investments and be handled like any other cash. The partiicpant would then be responsible for the premium payment and the loan interest. If the policy is with a mutual insurance company, one option is to change the diviidend method to reduce premiums instead of additional paid up coverage. Often if the policy is pretty old (like this one sounds), the dividend will pay the premium completely and the participant can decide what to do on the loan interest. This is an important option for someone that can't qualify for new death benefits.

I agree that the premium comment needs clarification. As to why put it in a plan as a general asset: though I don't see it very often, I have seen it as a way to protect the employees retirement future if the owner of a small business dies.

Don't make this too hard. Forget the death benefit for the moment. Just think about the cash value (assuming there is a cash value) as the equivalent of a money market fund. The "premiums" are just deposits from one asset to another.

These are just pooled assets and are allocated pro rata just like any other assets. The premiums are just expenses of the trust. Now I'm assuming that the trust is paying the premiums and NOT the employer.

So dinner and a kiss first?