ESOP Guy

That was noted above when someone talked about the UBIT.

Yes double check you are reading the document correctly. I have never seen a document that allows for a repayment and restoration of forfeitures after 5 1-year Break in Services.

I think one needs to think through the practical issues that can come up. What happens if the investment goes bad and value goes to zero? Will the PS plan have enough funds to pay back the other plan? if not, will that cause issues? I realize since it is a one person plan it isn't like employees are out money but I would at least ask the questions what if things don't work as planned.

To be clear the choice has to be written into the plan document which is why I said you have to look to the document to find out how any given plan works in this regard. And yes the plan will tell you when to do it also. But it does need to be annually.

If I understand your question correctly your answer can only be found in the document. The people setting up the plan can choose if they want match forfeitures to be reallocated or used to pay for current match (or expenses). There is no required when it is always a choice of the people setting up the plan.

It isn't the annoying that is the problem in my mind it is the fact you can't charge for this annoying extra work. I say it all the time at work. A client can be as demanding as they want if they are willing to pay for the service. It is the clients that want top notch service combined with rock bottom pricing.

I added the word "if" for a reason. I fully admit I can be over assuming. I just noted someone from Benefitslink came to his defense.

If the author is trying to say loans aren't double taxes his does a very poor job of it. Here is what he says right before the part quoted above: Example Loan origination: $10,000, no tax impact Loan payback: One $10,000 payroll-deducted after-tax payment. $13,333 in gross earnings needed to realize the $10,000 after-tax payment resulting in $3,333 in taxes attributable to the payment. Distribution of this $10,000 at retirement: $10,000 taxed at 25% resulting in $2,500 in taxes. The total taxes paid on the $10,000 used for the 401k plan loan and then distributed at retirement are $5,833 (58%), more than double the amount of $2,500 (25%) that would be paid on a $10,000 distribution at retirement. I think any reasonable read of the whole thing leaves you believing that your effective tax rate of a loan is 58% vs 25% if you had not taken the loan. If he thought those numbers were wrong he can have said they are wrong and why in the next paragraph. However, sorry if this guy is upset that he is getting so much attention after his web page got noted in your newsletter. I fully admit I sent him an e-mail calling out his math. My intention was not to get a guy mad at Benefitslink.

It doesn't say tax document is says document so why wouldn't it cover even an informational document? I had forgotten about that court case Peter mentions. That was a big case as the IRS was trying to mandate minimum education requirements and other things on anyone who prepared 1040s for pay and they basically lost. It was a big deal as the IRS' rules were nicknamed by its critics as the H&R Block full employment rules. They were seen as making it very hard for a small tax prep outfit from meeting them but someone like H&R Block that has the size to do in-house classes could. Based on Peter's discussion I am willing to be told I am wrong. I was gong off memory from my IRS days and we were trained in the '80s that Circular 230 was very broad. I know they would have taken the position even an informational return was a filing that counted. Maybe they were just teaching me their biased take. I stand by my take that following Circular 230 just isn't that hard to do and in many ways represents good practices.

CODA was the term I was thinking of and went blank on it!

Here is my example (as if there aren't enough) As I say above if there is double taxation then it should show up as the person have higher taxable income with a 4k loan vs another type of loan and that doesn't happen. Example 1: 1) I earn $10,000 and put all $10,000 into a 4k plan pre-tax. At this point my taxable income is zero. 2) I take a $10,000 loan from a bank. At this point my taxable income is zero. 3) I earn ANOTHER $10,000 and pay the bank back. (I know I have to pay the taxes so I need at some point the $3,333 as you point out. But we are looking at taxable income not how I will pay my taxes.) My taxable income is $10,000. 4) I take a taxable 4k distribution of the full $10,000. My taxable income is now $20,000. You will note I earned $20,000 in wages when you combine steps 1 and 3. Example 2: 1) I earn #10,000 and put all $10,000 into a 4k plan pre-tax. At this point my taxable income is zero. 2) I take a $10,000 loan from the 4k plan. At this point my taxable income is zero. 3) I earn ANOTHER $10,000 and pay back the 4k plan. (Same $3,333 issue but it doesn't change the fact if you are right taxable income ought to be higher now then in example 1). My taxable income is $10,000. 4) I take a taxable 4k distribution of the full $10,000. My taxable income is now $20,000. It is the same both ways. If you were correct my taxable income would have to be higher here. Sorry for odd formatting I copy and paste from my e-mail to the guy whose article started this whole conversation and it margins are different it appears.

If the HCE's get to decide if they want a NEC and if one of them says "no" what happens? If they are simply given that amount on their pay check then don't you have a back door 401(k) deferral instead of a NEC? (I might not be using the exact term here) Once you give a person a choice between having money put into a plan or paid to them that is NOT a non-ELECTIVE contribution. Once it is elective doesn't it have to be tested on the ADP test not as a new comp allocation? If an HCE who says "no" simply gets no extra cash in either the plan or outside of it then why would any of them say "no"? At which time I doubt you pass the test will you?

Oh no that poor guy got an e-mail from me also. The logic flaw is he is treating the fact the 2nd set of wages you earn as taxable is unique to 4k loans. It isn't it would have been taxable regardless if you took a bank loan or a 4k loan. Also, I think he makes it confusing to talking about effective tax rates. To me if you just chart out the various facts and look at taxable income if it is double taxed then taxable income should be twice as high with the 4k loan then without.

I have always understood this is rather broad. For example it says: Such presentations include, but are not limited to, preparing documents; filing documents; corresponding and communicating with the Internal Revenue Service; If a TPA prepares an 8955-SSA for a client you just prepared a document (they will most likely file it also). I don't know a TPA that doesn't prepare the 8955-SSA for their clients. They are governed by Circular 230. It has been a long time since I have been part of discussion if just doing a working paper the client uses to prepare an 8955-SSA counts but at that point I don't see the point of just not following the rules. I also quote: or other plan or arrangement having a potential for tax avoidance or evasion; and representing a client at conferences, hearings, and meetings. Isn't helping a client determine a maximum PS contributions giving "advice with respect..(a) transaction...(has) a potential for tax avoidance..." Circular 230 isn't that hard to comply with it is mostly common sense and if you are an attorney, CPA, enrolled actuary.... it seems like your professional ethics are going to cover it. So to more directly answer your questions I think you are missing something. As shown above I am hard pressed to see how a TPA isn't practicing before the IRS once they start filling out forms that are filed to the IRS. It has been a long time since I have had discussions of this topic with experts. I know plenty of TPA's that don't do the little Circular 230 messages at the bottom of their e-mails like maybe they should (I forget if they are required also) but when push comes to shove I don't see how they aren't covered by it.

As a former IRS agent I was told only two things could get you fired: 1) Blowing a statute of limitations 2) Unauthorized release of taxpayer information. Because of #2 we were taught you don't talk to anyone other then the taxpayer or a person with a valid Form 2848. You want to talk to the IRS about a client's issues without the taxpayer being there you better have a Form 2848. I have even called to get an EIN for a client and have had to fax them a Form 2848. (I was prepared and had it ready to be faxed when asked.)

The person needs to tighten up the terms in my opinion. Can you even do a transfer from one plan to another for a terminee? I have always understood a transfer to be a plan administrator/trustee initiated movement of money. Most common example is you terminate an MP plan for example and you transfer all the money to the related 4k plan. In this case you aren't asking the people if you want the money moved you are simply moving it. How can you move a person's money to an unrelated plan without their permission? Once you have their permission isn't a type of distributions? if so, then it is a direct rollover not a transfer? I could be wrong on this but I have never seen something could be called a transfer from plan A to plan B that isn't related to distributed a terminated employee's account balance in all the decades I have been working in this field. It raises all kinds of questions. In the transfer used in the example above you have to keep all protected benefits so you would still have to offer J&S on the MP money. Is that true if you do a transfer to an unrelated plan? Who would accept an unrelated plan's restrictions like that? So is this person talking about a direct rollover or a plan to plan transfer the words matter?

Isn't the point of them being an excluded class is you do NOT have to let them in the plan? If they work the 1,000 hours in a year they have to be factored in on tests but they still don't have to be allowed in the plan. The key is you have to find a classification that is something other then people who work 20/hours a week as that is not allowed. But if you can define them as all janitors, for example, you can exclude them even if they work over 1,000 hours in a plan year. That will merely hurt testing.

That is the date for your 1040 if you haven't done it already.

Another quirk of elapsed time is a person can miss getting another YOS by a matter of days which seems unfair-- i know life isn't fair and all. But I have seen examples of a person who literally left their job less then 1 week from going from 0% vested to 100% vested in a cliff vesting schedule and elapsed time. You can say they should have waited to leave but the average person doesn't think that way.

I think this is one of those issues the TPA shouldn't decide. This is one of those issue that all plan documents give the Plan Administrator the discretion to interpret the document in a reasonable and nondiscriminatory manner. Having said that the client is going to expect a recommendation from the TPA. Every place I have worked the answer was: If you aren't open on the last day of the year and the person worked on the last day the business was open and the person could have worked the plan should treat them as employed on the last day. No employee is going to write their termination letter saying I quite as of the Saturday or Sunday after I leave for good. I find the question given to the IRS poorly worded and thus the IRS answer is poorly worded.

You are still not getting it. Let's say there is a reduction in force that effects only NHCEs but isn't large enough to be a partial termination. Then you make actives 100% vested. There is a facts and circumstances part to the nondiscrimination rules that you need to be concerned about. This can look like you vested after removing a large number of NHCEs from employment and then targeted a group that includes the HCEs to become 100% vested. It strikes me as a rare set of facts but My 2 Cents raises a valid issue. If nothing else the optics could raise more questions then it is worth.

I am like everyone else here I have never seen a rule that says it has to be received before death. The question is the convenient timing of it being found raises concern.

The issue raised wasn't a cut back but discrimination. Although a large enough reduction in force would most likely result in a partial termination and 100% vesting of those people.

I have used PBI before. http://www.pbinfo.com/ I liked the service and price. I was talking to a Millennium Trust people earlier this week at the NCEO conference and they have a search service also. I have no experience with them but they will telling us they can even find people who have moved back to Mexico.

It has been a while since I had a 1st year plan re audit rules. But unless there is a cost of an audit at stake here what is the upside of not filing? The cost of a 5500 tends to be too small to risk getting called out for a late filing penalty. So Yes