Bill Presson

Bill, coming from a banking background I always thought that whoever held the assets was a custodian. And to my way of thinking the mutual fund company clearly holds the assets. But apparently this is like so many other terms in this industry that has a specific meaning that may be different than the common usage of the word. I understand, but I would push American Funds a bit harder before giving up.

I posted this earlier this year in another thread. The highlighted words are only because that's what I searched on to find my post. I've been dealing with this for a long time. Back in 1993, I asked some very specific questions and got a General Information response from Jim Holland. Part of that letter dealt with Rollovers. Here it is: "You also asked whether the existence of rollover money from another qualified plan would have any effect on the transaction. Again, any question regarding the income tax effect of such a transaction is beyond the scope of a general information letter. However, we wish to draw your attention to certain considerations that affect the calculation of the level of incidental insurance coverage in such a situation. The requirement that a profit-sharing plan provide for the accumulation of funds for a "fixed number of years" is found in section 1.401-1(b)(1)(ii) of the regulations. In applying the provisions of this section of the regulations to rollover money, the instant plan is considered separate from the prior plan. (See, for example, private letter ruling 8134110, dated may 28, 1981.) Furthermore, under Rev. Rul. 57-213, the amount of premiums that may be used to provide an incidental level of insurance coverage is determined with regard to the "total contributions and forfeitures" allocated to the participant's account. Because rollover money is neither a "contribution" nor a "forefeiture", no portion of the rollover money is taken into consideration when determining the amount of premiums that may be used to provide an incidental level of insurance coverage." I know this isn't a ruling, but it is in writing and I've never seen anything more official to contradict it.

I'm assuming the assets are held in one of American Funds programs (direct or connect). If so, how is American Funds (or one of their subs) not a custodian that can certify the assets?

Make sure to warn everyone that this participant can't defer for the rest of this calendar year!!

What about some kind of brokerage window that would enable the participants to choose the funds they love?

But don't they now have a 80% board control test for controlled group purposes?

Monica, this really needs to be reviewed by an attorney. The IRS has started looking very closely at these arrangements. IRS Rollovers Memo

I wanted to do 10 or so clients this year to work out the kinks. However, the EFAST2 system is so completely different, the DOL has said nothing we would do would carry over to the new system. So, we wait.

Remember that the number of eligible participants on 3/1 is what determines whether an audit needs to be done or not. The 12/31/09 participant count is irrelevant.

12/31/08 since he doesn't meet the 1000 hours by 7/19/08.

I believe the notice is only required if you are filing under the VFCP program and are seeking relief from the excise tax. If you are self correcting and paying the excise tax, then the notice is not required.

Sorry, I completely overlooked that the firm paid the premium. Obviously, it should have been paid by the trust and they need to understand that going forward. It's not the first time that a business did this, although it has been a while since I've seen it. I would have to vote for allocating it as a ps contribution OR (maybe??) counting it toward the match amount?

I've always done better by thinking about it in a double entry bookkeeping system. Let's say you have $1,000 in a cash account. That's a debit balance. You decide to buy a life insurance policy as a key man policy for a $1,000 premium. So, you credit the cash account $1,000 to eliminate that balance. You debit the new asset "life insurance" for $1,000 to record the purchase. Let's say at the end of the year, the surrender value is $500. So, you would credit the "life insurance" asset by $500 to "write down" the asset and debit an expense account "life insurance loss" to record the loss for the year. Same thing each year as the policy is paid for.

The premiums would just be included in the trust accounting and aren't allocated to the participant accounts any more than the money used to purchase a stock are allocated to participant accounts. Money comes out of the trust and is replaced by a piece of paper representing a value. They are not a deductible contribution because the money is already in the trust.

When you encountered this situation, did you correct the EIN on the current year form? Did you indicate the change in EIN on the current year form? We have had to do this a few times and never got a letter. Yes and we got to do dueling letters. Not saying it doesn't work. Just not for us. We've not given up hope though!

Blinky, I'm not talking about filing the correct 5500 with the correct EIN when the change happens. That's not the "prospective fix" that was discussed above. They were talking about where the EIN actually changed in a prior year, but it only gets changed on the 5500 in the current year. For whatever reason, we get letters generated the couple of times we've tried it. We haven't had problems when filing a 5500 with a new EIN in the actual year that the change occurs. I don't know what triggers the letters. At least not in my case. That's why I signed Schleprock (at least in this situation. The rest of my life is lovely. Really).

I've had this happen a couple of times. In my opinion, you are already in a quagmire, but just haven't realized there's no way out. If you stumble on a way that actually works, PLEASE post it here. I've tried the "prospective" fix and I've tried "refiling" previous returns to correct the issue. Nothing works. Signed, Schleprock

Same here.

Having adjusted this sentence for John's Manic Monday.... this is the interpretation that I'd concur with, based predominantly on the grilling we took from the IRS during audit on some wdrwls that met a similar fact pattern. My take on it is that you limit the hardship to the current deferral balance. So to use the numbers in the OP, only the $13,782 could be withdrawn. This would be regardless of the cause for the shortfall (ie losses or mutual fund loads or plan fees or whatever). I agree with this.

We also ask for an abatement. If we don't get it, we file under DFVCP. Works 100% of the time.

If a 2005 return WAS filed for Pension Plan A, then no DFVC is needed. Just file an amended return. No penalty, no fee.

I've been dealing with this for a long time. Back in 1993, I asked some very specific questions and got General Information response from Jim Holland. Part of that letter dealt with Rollovers. Here it is: "You also asked whether the existence of rollover money from another qualified plan would have any effect on the transaction. Again, any question regarding the income tax effect of such a transaction is beyond the scope of a general information letter. However, we wish to draw your attention to certain considerations that affect the calculation of the level of incidental insurance coverage in such a situation. The requirement that a profit-sharing plan provide for the accumulation of funds for a "fixed number of years" is found in section 1.401-1(b)(1)(ii) of the regulations. In applying the provisions of this section of the regulations to rollover money, the instant plan is considered separate from the prior plan. (See, for example, private letter ruling 8134110, dated may 28, 1981.) Furthermore, under Rev. Rul. 57-213, the amount of premiums that may be used to provide an incidental level of insurance coverage is determined with regard to the "total contributions and forfeitures" allocated to the participant's account. Because rollover money is neither a "contribution" nor a "forefeiture", no portion of the rollover money is taken into consideration when determining the amount of premiums that may be used to provide an incidental level of insurance coverage." I know this isn't a ruling, but it is in writing and I've never seen anything more official to contradict it.

If the report shows shares, it's probably not a balance forward plan, it's probably daily. You would need to see complete transaction history for whatever participant you choose to test. The only way the gain/loss is correct would be for the number of shares purchase to be correct. Obviously, you need to check dividends, if applicable.

Correct.

We do the same. Although I'm sure ours are much lower quality than Ms. Phillips'.