ESOP Guy

I will admit I don't hold myself out as a ROBS expert but I understand the basic idea of them and 401(k)s in general. Your question doesn't make any sense to me. What do you mean when you say "get a ROBS 401(k) from an existing individual 401(k)"? Get a ROBS??? Are you talking about setting up a new 4k plan that will be the ROBS? If so, then what doing some kind of transfer/ rollover to the new plan from the old plan? Merging the plans? Are you just planning on having the existing 4k plan buy the stock? Like I said "get a ROBS" is terms I don't understand. I can't for the life of me figure out what the loan has to do with any of this but that might be due to the fact I can't figure out the flow of assets between the ROBS and the existing plan in your mind.

In those situations were the amount is so small we tend to leave in plan and just net it out of the next regular deposit.

I would agree with the conclusion I made bold.

This just reminds me why I used to cringe when I was taking over a plan and found out there life insurance in it. It seemed like it was always a pain and done wrong. A side issue depending on how this whole thing was resolved there could be basis on some of this money as these people were supposed to be getting 1099-Rs each yer for their PS-52 costs. So you don't want them to be taxed twice. I can't remember what happens if the 1099-Rs weren't issued as I was fortunately never a part of that mistake. You might want to look into all of this before you start actually taking actions as tax issues might be an important factor in people's decisions. Also, remember the purchase the policy option might be a good solution for those that want the insurance. They need to buy the policy for FMV which is cash surrender value. If I recall (and someone here will tell you if I recall incorrectly) the plan can take out a policy loan for 100% of the cash value of the policy. The FMV of the policy is now $0 so it is easy to purchase the insurance. This could come in handy if a person is now uninsurable but would like the protection of the policy.

My wife has told me we are divorce proof if I ever have an "other friend" as MoJo puts it because she knows where the gun is and I made the mistake of teaching her how to use it. It has kept me on the straight and narrow for 30 years now!

Still not sure "your" makes the match allocated per the plan document. Even if the plan document says it is deposited into "your" conditional account. The allocation provisions are going to tell you when a person has earned a right to the benefit. Let me be clear I am using what I think is logic here and plan law isn't always logical but to me a reasonable reading of the document says this isn't allocated. All plan documents have a provision that allows the PA to interpret the document in a reasonable way that is non-discriminatory. We use that plan language more in the ESOP world (I used to do both 4ks and ESOPs now pretty much just ESOPs) as there simply are more unique sets of facts that seem to come up. I don't think you are going to find a regulation one way or another. Maybe whoever thought this up wrote the plan to think of these things. But absent real clear provisions to the contrary I don't see an allocation. The person has not earned a right to the benefits until the allocation provisions have been met. I think that can be seen as a reasonable non-discriminatory take on the plan document as it is understood in this conversation.

I think I take issue with your term "contingent allocation" as it service no legit purpose and is causing your confusion. You are correct there is no such thing. Per the plan document either the amounts are allocated or they aren't. So to me the real question is merely depositing the funds into an account that bears someone's name an "allocation" or not? It isn't an allocation per the plan document. Maybe it is because I come out of a mostly balance forward world but I have seen plenty of times when an employer would deposit funds into a balance forward trust during the year and then those amounts would get allocated. While there is a person's name associated with where the funds are put are they allocated or merely deposited? If merely deposited then I don't see an issue. And I do think the funds are merely deposited as the plan terms have not said the funds are allocated. I think this is a silly thing to do for all the reasons this thread is giving but I think you can make the case the funds aren't allocated. So you can take them out of the account not because it is a forfeiture but because it was never allocated to the person.

Back when I worked for the IRS in the '80s we would have people ask for us for our official credentials (only CID had badges and guns). We were told they were looking at either a date or which director's signature was on it- I don't fully recall. That gave them an indication of how new or experienced the agent was and they incorporated that into their tactics.

Wow and I thought I had good stories from when I worked for the IRS!

Yes you could write a DC plan document that way. In fact a very large number are that way. The forfeitures simply reduce the cost to the employer. For example forfeitures are $13k and the Profit Sharing contribution (or match due) is $25k many plans would say the employer needs to only put in the remaining $12k. Obviously the $13k of forfeitures plus the $12k deposit equal $25k. But you could write the plan such that the employer puts in the full $25k and they employees get the $13k also. I am ignoring things like 415 for purposes of this discussion. And to now give you more answer then you wanted you can write a DC plan to give the plan administrator all kinds of discretion. It could give them the option to use the $13k above to pay fees or not, then reduce the employer's contribution for example. Lastly, the other thing forfeitures are used for in a DC plan that MIGHT like a DB plan is they are used to restore people who forfeiture in the past and if their balance needs to be restored upon rehire that almost always comes from current forfeiture. Such a restore increases the benefits due in a DB plan so it needs to be funded and as you say all funding is forfeitures or contributions- ignoring earnings of this conversation.

I agree with ETA. If the check was made out to the IRA (or other 401(k) plan) the first time then there is no 60 day clock to roll it over. Since you could not legally cash the check you never had the constructive receipt of funds like he says. We would always have sent you another check made out to the rollover institution less a $55 reissue fee that is charged by the bank not my company. I agree with ETA on the idea of going up the chain of command if needed.

I don't know if it says must or may but so far they have let me stay. Fortunately, I don't change jobs too often so the list of keeping tack of 4k plans is a very small.

Thought the same thing. Add to this one of the reasons I have kept some money with former employers is they pay the TPA fees and I get access to the cheaper institutional funds. But now the DOL is saying they are doing me a favor by making me go to an IRA I might pay an annual fee and be in the retails funds.

Emphasis above is mine. Here is a common fact set. Plan says you may force out a <$5k balance. The plan sends out notices and forms to all such people. Let's for sake of argument agree the forms and notices represent proper notice to meet any fiduciary obligations. The person doesn't return the form. For sake of argument let's say the plan admin has no reason to believe this person is lost either. I have plenty of plans (heck I have a little under $3k at a former employer's 4k plan over 5 years after I left) will take the attitude this person doesn't want to be paid. While the this case make plan admins want to pay this person out it seems a bit arrogant of the DOL to insist that this person doesn't understand what they want and force them out of the plan. If the DOL wins you might see more of that happening. In this case to me the fiduciary standard seems like "we asked and the person said 'no'". If that doesn't protect the fiduciary I am not sure the rules aren't flawed.

If I read this correctly the DOL seems to be really keying into the fact the plan said these people "will" be paid. So is the cynical defensive move to change the plan to "may" be paid?

Now that I have read the other two replies I guess I have seen plan documents that give you the option to make that compensation part of the prior year but I don't think I have seen anyone do it for the reason's Tom says.

You don't need to read the regulations read the plan document. I have not seen a document that doesn't define compensation in a way that doesn't relate to the tax code. So the compensation is clearly 2017 compensation. Then go read the part of the deferrals. I am will to bet it tells you that you are deferring part of your compensation. 2017 comp makes it 2017 deferral. The guy who taught me this business told me 99% of all your answers are in the plan document and you rarely need to read the regulations. I think this is one of those times. The document will lead you to do thing on a cash basis not accrual. Sorry but you are over thinking this if you want to make this 2016 deferrals. For one thing you could end up with a possible 415 and other problems that make it clear making these 2016 deferrals doesn't make sense. What if this is the person's first check and you are allowed to enter and defer immediately? You would have their income in 2017 since it is almost certainly tied to W-2 wages in some way but the deferrals are in 2016. So the person has Annual Additions in 2016 but no comp so it is a 415 failure.

Spend time thinking about the termination amendment. Way to often people give it little thought and then they come on this board saying the plan is terminating what do I do in this or that situation. The best answer often times was spend time drafting a better termination amendment. Ask things like when are people going to be fully vested? Should it include someone who quit a few months ago? Are we going to file for a D Letter on the terminations? If so, do we want to allow at least partial payments before we get the D Letter with a final later? If so, does the amendment need to reflect that fact? Is it really clear what compensation you are going to use for this 9/30 allocation? The owner might get comp after that date but the employees won't. Do you want to or can you even use that comp? My point to stop and think of the issues/problems/questions that might come up while doing the work and see if the amendment needs to account for those factors.

Their estate/beneficiary is paid out at this point, so should they be a D on the form with their SSN? That to me is an obvious "Yes". The point of this system is to send out letters to people to let them know they might be owed a benefit. The point of a "D" is to stop that letter when the benefit is paid. So if it has been paid do a "D" using the SSN that was used to set up the "A" for that benefit. If a person passes and there is a benefit due someone but you don't know who yet I guess I would report an "A" when needed. If you know the beneficiary's SSN you could use that SSN. I don't think you are going to find clear guidance on these questions so being reasonable seems defendable.

If this is a concern you move to something besides annual valuations. I have seen plans changed so that in-service distributions are partial payments until the next valuation is done. The change was done back when the market was dropping and it was a hospital. One doctor figured out that he could get his prior 12/31 balance in Nov via an in-service distributions and the market had dropped that year. Word spread like fire among the doctors in the hospital and there was a "run on the bank". The plan was changed to say if you request an in-service payment you got 70% of your prior valuation balance and after the next valuation was done you got the true up amount. They also moved to quarterly earnings allocations. I have never heard of putting it in an escrow. To me why not just leave it in the plan if you aren't going to give the person the money? You then allocate earnings next year end as fast as you can and pay the person. Or pay a 70% or so payment with a true up after the next earnings allocation? I am not seeing any advantage to an escrow.

If it was me I would not amend. I would put it on the correct line in the current year and then stop worrying about things like this. I simply have never seen an IRS or DOL audit that gets worked up over the wrong line as long as all the assets are there.

In all DC plans there is a provision that says if the person is lost and after a diligent search the balance can be forfeited with the promise it will be restored if the person is found. Do DB plans not have such provisions? In this case I understand who is going to restore but we have shut down DC plans under those provisions with the lawyer's blessing.

I have my doubts this can be done via self correction ever. I forget the exact wording but I thought to use self correction the error couldn't be recurring like this. If they don't want to make a QNEC the only way I can think of is hire an attorney and file a VCP. My experience is if you can show that for decades the plan was run one way that was legal but just not how the plan was written the IRS will allow a retro amendment. A good ERISA attorney that has experience with VCPs can give a better idea of chance of success. I know this is a fair amount of legal expense but it will be a lot less then $40-50k. I just don't see a fix that doesn't go the route of a VCP however.

I will let the people who are much better then me speak to the testing issues but I think you might be making the eligibility provisions too hard or harder then needed. Unless the dentist wants to give credit for prior service for some reason other then this provision why not simply write the eligibility provision this way: 1) Write the general eligibility provision a statutory provision like the dentist wants 2) Add a simple sentence that says: Notwithstanding any other provision regarding eligibility any employee employed on 9/15/2017 is eligible and enters the plan on 9/15/2017. That seems to cover everyone you want to cover and doesn't cause confusion if say for example if the people ought to get prior credit for prior years worked for vesting or anything else. Everyone that is working for the practice this Friday enters the plan this Friday. Like I said before if the dentist has another reason to want to give credit for prior service then I could am wrong but based on the little that is here that is how I would write an the eligibility provisions for such a plan.

It is early but are there any RMD implications here? I can see an inherited IRA and leaving it in the deceased's plan as more likely to get the RMDs correct then a rollover source in the spouses' 401(k) plan. I can easily see it being treated as a rollover source in the new plan not as an inherited source. In theory they all could get it right the question in my mind is as a practical matter will the new plan get it right.