ESOP Guy

Although I do recall in the '80s the legal profession did try and go after the CPAs for practicing law without a license about their tax practices. Had the lawyers won that my guess Austin couldn't prepare prototypes. I also know a few lawyers that don't think a non-lawyer is qualified to complete the prototype check list.

I would use the word "terminated" in that situation still.

I would be careful with parts. For example someone who was made 100% vested on 8/31/2016 but would have been less then 100% except for the termination and then terminated on 9/2/2016 would still be 100% vested in my mind. I don't see how you take away a valid amendment that made people 100% vested by changing the termination date. There might be things like that if I thought harder about it.

Freeze is an unusual term for a 401(k) plan. What do you mean? How is this different from terminating the plan at 12/31/2016? Did they just forbid deferring into the plan but it will be around for years to come? I believe the answer to my questions can make a difference as to what the answer to your questions is.

Given the small amount of money this is how we would have done it back when I did balance forward PSPs. It would have been a "do to ER" on the plan's balance sheet and that would offset a future contribution to clear the payable.

I have had a 401(k) with a SDBA and it was during the 2008 and beyond time period. It did allow me to put some non-traditional assets in my 401(k) account that helped to manage the size of the loss and did set me up for some nice gains coming out of the time period. Not saying I got them all right- I didn't. But by the summer is was convinced that there was a lot more downside left. So I put a small amount of my assets in a ETF that gained when the market went down. I also bought a number of preferred stocks and funds that invested in preferred stocks in the winter of 2008. Those asset classes are never going to be made a regular investment choice in a 401(k) plan and they helped minimize losses in 2008 and set my account up for a nice return coming out of it. I suppose I could be said to be luck- so be it. I don't claim to be right all the time but it is nice to have access to some outside of the box asset classes at times. So to me there is some value to SDBA but I fully acknowledge they can allow people to hurt themselves pretty bad.

I know I have told the story before but I have been witness of this debate in real life. A dental hygienist in 2008 put 100% of her money into Ford in what turned out to be near the bottom for Ford that year. It turned out great for her but had she done it 12 months earlier in 2007 well.... The people I worked for convinced the dentist to set plan wide rules about not allowing too large of a concentration in a single stock, bond.... And part of the wealth management firm who was helping the dentist their contract included a provision to monitor this rule to not allow it to be violated.

I wasn't claiming it was real estate. I just said that to me many of the problems of real estate in a plan seem to be true here.

How do you value it every year? if someone is invested in it and needs an RMD and the rest of their balance isn't large enough what do you do? Is the value known well enough to even compute the RMD? What if they want a loan and the rest of their investment isn't large enough to fund what do you do? If they are invested in it and terminate and part of their benefit is in this how do they get paid their full benefit? Not only in terms of cash but value. It will look bad if while the NHCEs get paid out on this investment they value is x and when the HCE finally gets paid an appraisal says it is 2x or 10x especially if there wasn't a formal appraisal in the past. (Or even if all the NHCEs get paid from teh plan and then the plan sells the investment for 2x or 10x) Will this spin off a type of income that will trigger Unrelated Business Income Tax (UBIT)? Do a search on this board on real estate in plans and the problems. Just about everything I listed above has been the subject of real estate in a plan. It seem to me you will have same type of problems with this.

If I understand your question you are trying to saying that a SDBA is functionally the same as this investment in that everyone gets to choose. I am not sure a SDBA is the same as a discrete investment. Scuba, I think you are working too hard to rationalize to keep a client happy. I get the desire clients pay the bills, but if you have to work this hard it seems to tell you something about the idea.

Another great movie although I tend to use, You're killing me Petey!

As I read the thread you link to with the exception of the 2nd comment the general opinion on there seems to be it would be a problem/discriminatory. That seems to be the prevailing opinion here. Are you reading it differently? The 2nd comment quotes an informal opinion by the IRS that is over a decade given at a conference.

Another take on this issue: I don't think you can "backdoor" the restriction via an indirect condition that seem neutral in regards to all the people. Years ago I knew of a plan that wanted to offer a Self Directed Brokerage Account (SDBA) but really only to the owner. So the proposal was to offer the SDBA to everyone but announce that due to the cost of doing all the accounting for the SDBA there would be a flat $500 fee to any account that did an SDBA. Ever attorney and TPA I knew back then rejected the idea as discriminatory as the owner was the only one whose assets were large enough to reasonably expect could earn enough in the SDBA to cover the fee and not ruin the ROI on the account. He had millions in his account. The next highest account balance was around $25,000 so he would have had to earn 2% a year to break even after this fee. A $10k holder 5%. A guy with say $2M only had to earn a .025% return to break even after this fee. The point being in this case it was offered to 100% of the employees but a seemingly neutral (and reasonable sounding) condition made it effectively available to the one HCE. (I am ignoring for now if the fee was reasonable and so forth. The current question is discrimination and the consensus back then was the $500 fee would fail a facts and circumstances part of the test.) In fact since then the highest fee for a SDBA account I have seen is $50.

Just an observation: I am a CPA and every CPA firm I know that got into the TPA business is out of it now. They found it didn't work for them. They found they couldn't make the money they wanted or needed to justify it. You need specialist to do the work. It is easy to do an EO if you aren't a specialist. Obviously some people make it work as this forum is full of 401(k) TPA people but it was trendy about 10 or 15 years ago for a CPA firm to go into the TPA business and they all seem to have left it that I knew personally.

I have wondered about this before and if it has ever happened. I guess I know now. I don't think you will find clear guidance on this question. I would favor paying the people and issuing 1099-Rs. I am having a hard time imagining the IRS or DOL having an objection that got these people the money they were do and it being taxes the same way it would have been if they had not become lost. I freely admit I am making this up but any other action I can come up with seems overly complex. The only other choice that makes any sense is pay them and some how claim it is 1099-Misc or W-2 comp. W-2 comp seems like a the worse choice. to me.

If this plan doesn't want to get an audit for 2016 and not get questioned about it I don't see how you have any choice but decide if the ending count of 248 is correct or not. Which means do the count over yourself. If it isn't correct you need to amend the prior 5500. If it is correct I think you need to ask the more worrisome questions was the 84 correct? To be clear being frozen is not a reason to not get an audit.

I have always understood it as a G. Code G merely says it is rolled over not that it isn't taxable.

I have never seen a plan get in trouble for failing to pay an RMD to someone it can show they were diligent in trying find. I would add in most plan documents it tells you what to do with a balance of a person who is lost and you have made a diligent search for them. So following that part of the document also protects the plan. In many cases you can forfeit the balance which means there is no balance to pay an RMD from.

Back when I worked in an office and not at home if I got a fax to my office phone number it was easy to forward the call to the office fax machine before the sending machine timed out. I found most often the incoming fax was for me and they dialed my office phone number from my business card instead of my fax number. If I didn't do that I also found the fax machine kept calling me back again and again. It might have happened only a couple times in 14 years but I did get information not intended for me. So it is slim but I have seen it happen....

To be clear on my earlier comment I wasn't saying we don't have secure e-mail. My point was e-mail once you confirm the person's address is correct in your e-mail address book you know the unsecured or secured e-mail is going to the right person. With a fax there is a chance for human error every time you type a phone number. That alone as far as I am concerned makes a fax less secure then just about any type of e-mail.

You mean some lawmakers think that the possibility of dialing the wrong number on a fax is more secure then mail getting delivered to the wrong person? That has always been the reason I hate faxing anything with SSNs. I can get an e-mail address confirmed correct before I send it by calling the person and asking did they receive the e -mail and demanding they send an e -mail back. Now I know it is in my e-mail address book correct. Every time you dial a phone number you have the possibility to make a typo. This person can't go into the office or go out to the TPA's office every now and then? I think I would think about digging my heels in as this can be sensitive data and the IRS does pay mileage for its field auditors (or at least it did back in the '80s when I was a field auditor for them.). This person seems like they are demanding the taxpayers allow them to be comfortable and I am not sure the taxpayer owes them that duty.

To be clear even a terminated plan would have to keep filing Form 5500s until all the assets are paid from the plan. The last Form 5500 has to show there are no benefits due and no assets in the trust.

What you are suggesting is fraud and it is a crime. Please come up with a different solution. Will a 401(k) loan not work/available? Help from friends/relatives/church...?

Part of the equation is are you willing to pay for an attorney? The DOL costs you nothing but they are the government and move at that speed. They do have plenty of power and if there is something wrong they will most likely find it. They will then work on a correction. An attorney is obviously quicker but more expensive. it is hard to predict how a little saber rattling by an attorney will work. An attorney can help you get a solution also. You just don't know how much time and cost it will take.

I have heard people use it in training sessions back in my 401(k) days. Although I do see I also spelled it wrong.