ESOP Guy

That is a function of if the only participants are owners and the amount of assets in the plan. Its history doesn't matter so there is no need to terminate the old plan and start a new one. You might get some letters from the IRS asking where the next Form 5500 is if after years of filing them you stopped. Maybe someone who has gone through that can give you insight how big of a pain it was or wasn't to get the IRS to understand. I for one would file a Form 5500-EZ if I was in that position regardless to start a statute of limitation. That is just me.

It has been a long time and I might be getting excess contributions and excess deferrals mixed up. But there is a code P for the 1099-R that goes a years. Code P on the 2017 instructions says you use this code to report excess contributions taxable in 2016. An 8 is excess taxable in 2017. I have a vague memory that says if you had an off calendar year you could get the code P and it was because you had to take the excess contributions from the first dollars. I might have the wrong type of excess as I am out of the 4k business and I was never a 1099-R expert. I just always remembered you could have to send to people a 1099-R in Jan 2017 that told them they had a taxable distributions in 2016 and it was some kind of FIFO rule that caused it. Back at one of my old 4k TPA firms we had a whole letter explaining to people how to do their taxes when it kind of rare facts set came up. So happy to be told I am wrong or it doesn't apply.

I agree with kcbrim the correction needs to put both people back to where they would have been if the error wasn't made. The person who got the funds in error should not receive any kind of windfall from the error. The person who got shorted in funds should not be subject to any kind of shortage. Back when I did daily valued 4k plans I would have been expected to figure out how many units where purchased in the person who got the money any dividends paid (and units bought with those dividends) and get them out of his account. I would then have been expected to compute how many units the other person should have gotten and any dividends they should have received (and units they would have purchased) and that would go into their account. This was based on their investment election and hopefully they didn't change during this time frame as that just made it more complex. If that resulted in too little money in the plan the firm that made the mistake had to add money. If there was too much money it got less clear who got that. That was the one time the person who got the deposit in error might get a windfall. I understand the point this is small and what I described might be costly in terms of time. Someone else can decide if it is worth it but that was always the expectation back in the day.

I am assuming this is a balance forward plan. If it is an individual directed account plan I don't see how this is even a question. What I can tell you if for example X was getting 100% of the insurance proceeds and my account was taking a hit to pay taxes on those funds (and I figured out that was happening which might be hard) I would be an unhappy camper. This really strikes me as an individual account investment within an otherwise balance forward plan and the individual account holder takes 100% of the good and bad. They get the proceeds but pays the tax also. Any other treatment seems illogical and inconstant. I have never seen the benefits of an investment go to one person and the costs of that investment go to a group.

Even a 401(k) plan you would have had to sign a form in order for you as the spouse to not be the beneficiary. I would ask the Plan Administrator if they have a form with your signature on it saying you waived your rights to be the beneficiary. You might want to let them know you are the legal wife of the deceased. What I can tell you is that people tend to "fire and forget" beneficiary forms. By that I mean they fill them out once when they first get hired or when they enter the plan and never think about them again. So if your husband worked for this company and then you got married it is possible your husband never changed the form to include you. But if that happened the form is very likely null and void upon the marriage. So it is possible if this is a large company or they use an outside service they don't know he was married and they are merely going off the form. So let them know he was married. If the people you are dealing with aren't part of the HR department of your late husband's employer maybe call them and ask for help to let the people who run the plan know he was married at the time of death. Keep asking questions!!! Lastly, I am not trying to be mean but I have to ask this: Are you sure you didn't sign a waiver of your right to be a beneficiary?

Is it possible the purchase price was paid when the business was sold and this is some kind of bonus or incentive comp paid to the Dr. to incentivize him to help retain his former patients? I think you need to get more details. I can see where this isn't comp and where it is based on small differences in the details. I just think you (or us on this board) have enough details to know what it is. It sounds like you need to talk to someone who can give a better description. Maybe the client needs to get their attorney to make a ruling.

I believe if you search on the words "solo" and/or "after-tax" you will find threads about a solo 4k plan and this idea on this board. I know it has been discussed before. I at times get real luck on the searches and find exactly what I want and other times I know it is out there and seem to not find it.

I'm imagining that such a provision might be extremely desirable for some low-income employees. For example, someone who is married and makes $60K / year may have a spouse whose income alone provides living expenses. The person making $60K/year might want to stick every available dollar into an after-tax retirement pool. It's hard to see why any company would discourage that. Back when I did 4k plans I saw this now and then but it is in fact a pretty rare set of facts. But yes now and then you would find someone (typically a wife) whose spouse made great money and the kids were all grown up and the lady got a job because she was bored. So she was putting the 402(g) limit into the plan. It made the ADP test that much easier to pass. Such a person could benefit with this kind of provision. But for this rare fact set very few companies are going to add this complex feature.

It has been a almost 5 years since I was working 401(k)s and ESOPs. Since ESOPs can't be on a prototype it has been 5 years since I worked on prototypes. One thing I would check is if the prototype is linked to the provider in some legal way. I seem to recall seeing some from brokerage houses that had language that said if you leave that firm you would no longer rely on their letters and base document. That caused the firm I worked for to almost always move them to one of our document. I want to say we did offer a discount as this was part of our sales/conversion pitch.

Read the definition of early and normal retirement in the document it will answer this question. If it is like most plans I see the definition will be ANY termination after being a given age and/or service. Rarely does it define it any other way. So my guess (and it is a guess at this point) is you will find upon careful reading of the document that they did retire.

What does the promissory note say? Back when I worked in the 401(k) world our standard promissory note said they agreed to make payment via payroll deduction. I understand a contract can not make something illegal legal but it could be a breach of contract. I forget how that all interacts but something to look into.

I don't see a problem. Maybe one could make a case in terms of recordkeeping the plan should show the assets were split and the Alt Payee got her own account. At which time she did become a participant for many purposes (for example it has always been my the Alt Payee who keeps their balance in the plan is due all notices a participant is due). Then there was a benefit payment from her account. The 1099-R code is correct with a G. I don't see a problem with the rollover being done as it was.

Like so many rules in this field is there a need to work on fees and so forth? Ok, you can get me to agree to that idea. On the other hand all the other regulations on this topic have either done no good or hurt things in my opinion. I mean we have notice after notice about fees now being mandated. Who reads all that silly stuff as it tends to be too long. It is like prospectuses when buying a mutual fund. Great idea until you get a several hundred page book stuffed with language only a lawyer would care for and I think I know plenty of lawyers who would deny they care of it. Can anyone explain to me how anyone has benefited from the new Sch C disclosures and all the "how many angels can dance on the head of a pin" discussions of direct vs indirect fees/income? As far as I can tell all this had done is drive up people's cost to send out notices and prepare Form 5500s and has shed no light at all on fees. Either people knew about them already or they now have vague discussion of indirect fees in notices. Although when those rules first came out it was a boon for people who sell CE classes to TPAs as people tried to explain that mess to people. It really did seem to me these rules could have hurt the middle class by simply making the risk of giving advice to anyone without a large balance not worth it. You couldn't generate enough fees to cover the related risk. The government is terrible at making rules that balance cost/benefit.

Back when I worked 401(k) plans (2009 and earlier) I saw it but it was very, very rare. It tended to be companies that just treated their employees very well and valued their alumni relationships. In fact the one company that stands out in my mind is a company where their alumni often times left to become management in other companies and they often times tried and use that connect to win business. So they felt it was important to cater to alumni. But easily 99.99% of all 401(k)s didn't allow it where I worked. In fact the standard promissory note we offered our clients was written such that payroll deductions was the only allowed method of loan payments. No one wanted to bother with an employee sending in a check. That was the real issue. No one wanted to have to handle and track checks coming in and making sure they got deposited timely. What happens if the check bounces? What happens if your system says the check came in and the check isn't deposited?

Can you make a check payable to someone other then the participant and not violate the anti-alienation rules? I am thinking of a time I had a bank client and a teller embezzled funds. She agreed to reimburse the bank using her ESOP account's funds as part of her plea agreement. All the lawyers agreed the ESOP distribution check couldn't be written to the bank. It has to be written to the former teller. She then had to deposit the check into an account at the bank of her own free will. She then had to sign the bank account over to the bank of her own free will. The "stick" that was used to make sure she did this was the judged refused to sentence her until she had complied with this condition. Everyone agreed the reason you had to go through those steps was the anti-alienation rules. The stick in this case did not negate the idea she used her own free will to turn the funds over to the bank. You can't make payments from the plan to a creditor even with the participant's permission has always been my understanding. I am willing to be told I am wrong here but I have never seen a hardship distribution or loan made payable to a college for tuition for example. It was always sent to the participant and payable to the participant who had to take cash the check and then pay the college to pay tuition.

How does the Plan Administrator control what the person does with the money after it leaves the plan? I have always thought this is possible to see happen. The person gets the check and doesn't use it for the purpose they used to justify the hardship distribution. I just don't ever recall from my 401(k) days anyone being so brazen as to not spend the money as stated and then ask for more with the same reason. To me this falls under the Plan Administrators powers to reasonably interpret the plan document provisions in a nondiscriminatory manner. I think the Plan Administrator needs to decide how they want to handle this situation, document it and be consistent. It seems logical to deny the withdrawal otherwise what is to stop this person to just keep coming back for more and more money which seems to violate the spirit of the rules and provisions if nothing else. I have never seen a written rules that covers this fact pattern.

The person is working and the plan still exists so the terms of the plan rule. I think you have to make the in-service distribution.

I just got a POA the other day. The POA was very clear the son had the authority to ask for a distribution for the father. No one at our firm or the client seem to have an issue with it. We can at times have an issue if it is silent about qualified plans or seems very limited in scope as to raise doubt the POA was intended to allow the POA to have the needed authority. For what it is worth I deal only with DC plans. As such almost none of them need a spouse to agree with the distributions.

Do the math like GMK says. It is one of our standard census checks we do with all our client's census data. We ask them for gross compensation, 401(K), Roth 401(k), 125 and so forth and we ask them for W-2 taxable wages. Our system will take gross and subtract the pre-tax amounts and see if it equals what the client is reporting for W-2 taxable. If not we stop and talk it out with the client if so we move on to our other census checks/scrubs to see if we think we have good data. This will answer your question it would seem like. You will know you have a good understanding of gross and W-2 taxable. If the client can't get you gross wages or W-2 taxable I would stop and have a talk with them. There accounting/payroll system has to have both of those numbers some place. Their system has to have the various deductions since they can produce check on a regular basis.

Yes

Does the plan allow for loans? I know that is swapping one kind of debt for another but the terms and interest rates might make it worth while. I would add your plan might be a bad idea from a tax point of view. If you are under 59.5 if you get the money you have to pay income taxes (could be 20% to 25% easily) plus a 10% early distribution excise tax plus state taxes (could be 0% to 9%). So you could find taxes will take 40% or more of your distribution when you get done paying all the taxes. That is an expensive source of funds. You might want to get some financial advice first. I would add if you are in real bad shape and you think bankruptcy is in your future as a general rule money in retirement plans is exempt from being taken in bankruptcy. So the only way your creditors can get that money in case of bankruptcy is if you first take the money out on your own. They can't force you to do so as a general rule. So at risk of repeating myself you might want to get some financial advice before you take money out of retirement funds.

For vesting all the hours count always. That is the only reading of the DOL regulations about vesting and hours. I don't remember how that goes with the allocations.

This goes back to one of the basic ideas to me. Why is the payroll company telling the plan and sponsor what can and can't be done vs the plan document and the sponsor telling the payroll company what needs to be done? The sponsor and the plan are the customer for crying out loud! The plan document not the payroll company determine what can and can't be done in the plan. The sponsor is most likely paying the bills. Yes, I understand the payroll company has its ways but if the 401(k) deferral was legit the payroll company needs to find a way to make the W-2 match reality instead of people trying to get reality to match what the payroll company wants to see happen.

Good luck with the negotiations.

Yup every plan document I have ever seen has the answer to this question. It tells you who is the beneficiary. It tells you what happens if the named beneficiary dies before payment is made.