ESOP Guy

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.

Or ask Grubhub what can happen when lawyers think you have done it wrong! https://techcrunch.com/2017/09/05/grubhub-versus-lawson-1099-trial/

I can't get past that sentence. Outside of of insurance agents is there a person who is a 1099 "employee" that is an actual employee? Exactly, what kind of 1099 are they getting and how are they employees if they are getting a 1099? As a general rule they are not employees but independent contractors. An employee gets a W-2 and an independent contractor gets a 1099. If this is the insurance agent fact pattern that is an important fact as they have special rules.

I agree your use of the term transferred here is vague. A spouse isn't required to take a distribution under the law for years assuming both were under 70.5. So if all Alliance did was re-name the account to keep clear the spouse is the owner of the account I am not sure I see the issue. I guess they could have left it in the deceased's name with a note they are dead and who the beneficiary is. The net effect is the same in those two cases. The plan might require an earlier payment but I doubt it. I can't remember seeing a plan that forced a spouse beneficiary out beside the RMDs.

Given that no one can point to clear guidance raises the question if a "right" answer is knowable or even exits. Note I only commented on the 5500 treatment. I think your answer on the tax treatment was spot on. By all accounts this person had Constructive Receipt of the check so it was taxable in year of issue. That is a very clear rule in tax law and easy to follow in many cases. On the other hand the people who wrote the instructions for the Form 5500 clearly never even bothered to think of such real life issues as asked about here. They don't even bother to read Benefitslink.com on a regular basis to see ways they could issue better guidance as I am willing to bet if someone did a search of this website one would find dozens of instances this exact question has come up. (My guess is some of them have me telling the person it is immaterial do what seems reasonable also.) That has been my view on many issues in this field. For all the rules it is amazing how many real life ideas never bother to get addressed. Still waiting for guidance on what "de minimus" means for purposes of 414(s) testing since I first learned the test in the early '90s. This website is a testament of what I am talking about. There are people who come here who have decades of experience and yet regularly they find situations that long debates happen over what is the right answer with no clear conclusion. I stand by my basic view too many people spend too much time worrying about the minutiae of the Form 5500 when it is clear neither the IRS nor the DOL care. I can't tell you how many audits I have helped a client with and never once have they asked the question, "how are checks issues but not cashed shown on the Form 5500?" If it is material I will give it some thought by asking the CPA if they have any thoughts but a $150 check sorry it has taken me longer to reply to you then I will every think about it.

I did put most of my comment in the form of a question.

Ok, not the rules but here is my take on the 5500. Do whatever you want it is immaterial to spend this much time thinking about it. What I would do is not include it in the ending assets as it was paid and move on. But if the CPA doing the audit (assuming it is even an audited plan) said put it in the ending assets I would give them what they want without any additional thought. Too small of an amount to care about. I have never seen an IRS or DOL audit of a 5500 that has ever looked at the assets of a plan hard enough to get into this issue.

At risk of asking about the obvious but is the mother really going to save more then $5-6K? If not wouldn't it be easier to open up an IRA with automatic monthly deposit? I guess if she is planning on putting lots more then that it still might be easier to open a SEP or Simple for just her.

At least with DC plans I don't think I have ever seen them ask for proof the SAR or SPD was sent other then to ask what is the procedure and a copy of them. Once again at least with DC plan there isn't a rule that says you have to mail it via certified mail or some such thing. So how can they demand such proof? Maybe there is a rule for some of the DB funding notices and such. But I have a benefit in a frozen DB plan and none of my notices are sent to me any way other then regular mail. My point I find they don't ask that many detailed questions for ESOPs and back when I did 4k plans regarding this topic.

Sorry towards the end I used "her" when I should have used "his" it is edited to fix that. If I am correct they are a Controlled Group then she can be part of the plan as she is effectively an employee of his company for plan purposes. So if she did his books before 2017 she should have been part of the testing for all those year regardless if she adopted the plan or not. But to me are they a Controlled Group is the most important question here. It determines if this is a single employer plan if she adopts or a multiple employer plan for example. For the record I am ignoring the question if she is a legit contractor vs employee that is someone else problem.

Double check the document. I would say most of the documents we have around here tell use what happens if the beneficiary dies before the participant dies. They are pretty clear that part of the beneficiary election is void and you go to a contingent beneficiary lacking that it is as if the person died without an election.