ESOP Guy

Has the 1099-R been issued?

Back to the original question. I can not cite anything for this answer but here is what I would do in most cases. I would compute the amount the people would receive as you state pro rata based on the final balance payments. If it is cost effective to issue forms and so forth do so and make the payments. I simply wouldn't file a new Form 5500. The 5500 rules just don't seem to contemplate this kind of fact set. I think the risk of the lack of a form 5500 coming back to bit the plan administrator is small enough to risk. Obviously, it is a risk and each has to decide what risk they are willing to take but I have helped clients do what I described above before as a TPA.

Just double checked the instructions http://www.dol.gov/ebsa/pdf/2014-5500inst.pdf Top of page 44 tells you things to include 3. Other liabilities such as acquisition indebtedness and any other amount owed by the plan

We always put it on the Sch H and I. I am curious what is leading you to believe it should be "no"?

In almost 25 years of working in the DC field I have seen this letter lead to one person finding a benefit they forgot about. It was a DB plan benefit for a company that he had worked for in his 30's.

While maybe in theory you can defend the idea the employer gets to choose every year as a practical matter I don't think you should do it. I have heard short discussions about how much flexability the rather loose ESOP rules give you regarding changes to distribution methods at various ESOP related conferences. The general consensus seems to be while you can change -- changing too often opens you up to too much risk of charges of discrimination and so forth. I would add in the now over 20 years I don't think I have ever seen the need to choose and change year to year. I guess you might have finally found that fact pattern but a well crafted distribution policy combined with a good repurchase study ought to allow you to find a method that should work for the plan sponsor. If you have want to give more details maybe you can get insights from this board on ways to meet the sponsor's goals. Lastly, you can go over 5 years on the installments if the balances are large enough. A rarely used part of the law but it is there.

While VCPs can be a little expensive I find that often times if you can show the intent was to allow Roth deferrals the VCP will allow the correction to be a retro amendment of the plan. You might want to talk to an ERISA attorney that has experience with VCPs. The client might be able to get what they want with IRS blessing.

You may know this but if the person is being paid in a tax treaty country and completes a W8-Ben the withholding rate would be well below 30% in many cases. I also believe the 30% rate only applies to non-US citizens being paid outside the US. If I recall correctly a US citizen outside the US would still be 20%. See page 24 https://www.irs.gov/pub/irs-pdf/p15a.pdf It guides you to more details.

Sorry I missed the ee vs er in your fact set.

I can't think of any way to get earnings on those funds. For one thing who would make up the lost earnings? Whose fault is it the funds weren't invested. It seem like the person who threw the check away is the responsible party and he is the one wanting the earnings made whole.

It doesn't sound like it would meet the definition of post severance comp in the regulations. Check the plan definition again. Most seem at some point talk about earned for service or not and so forth.

Something in the back of my mind (and I am willing to be told I am wrong) says that the law allows you to write a document that says non-5% owners are required to take an RMD before they terminate it is just no one actually writes a document like that.

I think you and your co-worker are mixing up terms and that is causing the difference needlessly. If the plan allows for in-service distributions then they can take an in-service distribution. It isn't an RMD. Even if the person were to say compute what my RMD would be if I had to take one and pay me that it is simply an in-service distribution and not an RMD. In short if the plan allows for an in-service distribution they can ask for a payment but it isn't an RMD by definition.

The thing i remember from A&W was being served in your car by a lady on roller skates. My family stole a complete set of A & W mugs from their tiny one to their largest one. They were made from real glass. I still have them on display for the police if they want to solve the cold case from the early '70s.

I believe I have to attach something, but I haven't actually done it before, so I'm not certain. I once heard of one of my former co-workers saying they attached a simple pdf saying, "audit report not complete as of filing date" (or something like that) and the computer allowed it to be filed as the computer merely looks for an attachment it can't tell if it is a complete or proper attachment.

I go back to my first comment and what Janice said. Tell the auditor they should complete the reconciliation showing why the Form 5500 and the auditor's report are different. They don't have to be the same. I just had a client file a form with one of those reconciliations in the auditor's report.

I would agree a complete ending of contributions will resulting in vesting for people.

You need to define freeze better. What do you mean by freeze?

A couple of observations: 1) I appreciate anyone who tried to be active and knowledgeable in their own financial situations. So I respect the idea you have been doing your own research. However, you might have reached the practical limits of it in this area. 2) There are a lot of very complex things that can happen here which require specialized knowledge. I would echo if you think a solo DB plan is a good idea you need to find an TPA with an actuary to run some projections for you. 3) One of the things that could trip you up is the amount you can put defer into a 401(k) plan is a personal limit. So if you work for a company that has a 401(k) plan and you defer there it could limit you deferral into the solo 401(k) plan. It won't limit a Employer Discretionary contribution into the solo 401(k) plan however, #3 above is a simple example of the type of thing a good TPA with an actuary could guide you through. in the set up process. I don't normally recommend some stranger spend their money on this board but in your case a little up front spending could result in a lot of value in terms of making good vs bad plans going forward.

You know auditors are allowed to put into the notes of their report a reconciliation of the differences between their FS and the Form 5500 Sch H. Why not suggest they prepare their work as they see fit and prepare the reconciliation note while the Sch H stay the same? it really isn't true the two have to be the same. There just has to be an explanation of why they are different in the auditor's report. By the way I normally give the auditors what they want as to me most changes aren't important. This would be one of the few I would push back on. It is for the reason BG5150 gives. If the IRS were to ever compare the deduction to the Form 5500 I think they should match. Just like the distributions and the 1099-Rs for any given year ought to match. Which this change will make not happen. That is another argument you can give to the auditor in my mind. Why wouldn't you want any given year's 1099-Rs and 5500 distributions to not be the same?

A little context here might help. One the plan is obligated to show that it tried to collect the money before the plan sponsor can just reimburse the plan. As for the timing while it is a little late it might not be as late as you think. A 2013 plan can drag filing their Form 5500 (the tax return a plan has to file) until Oct 15th 2014. That is when most likely the plan audit was done by an outside auditor. So the error very well might not have been discovered until about this time last year. Next everyone has to look into what do we have to do to fix this and the lawyers chime in. That is how you get to the summer of 2015 to get the first letter asking for the money back. Most likely they won't take legal action. It will cost more then they will collect. Like I said the plan is obligated to show they tried to collect. Lastly, if it is determined you in fact owe the money it seems like ethics would say you should pay it back. I agree you have a right to have them document you in fact owe the money. Also, there is the issue of taxes. There will be some costs to you if you pay it back but I doubt they are that large.

Did anyone enter the plan--ie meet the eligibility requirements? If so don't you have participants?

I am with recine46--- why do you think there aren't participants as opposes to there being participants but they merely don't have balances>

Do you have to let them enter the plan if they work over 1,000 hours? If they are regularly sch to not work a 1,000 hours and that is the class they are in why can't you keep excluding them? If you wrote an exclusion that said all interns aren't eligible no one would claim if they work 1,000 hours that have to be let into the plan. So why now? Mind you they have to be on the coverage test after they work 1,000 hours but it isn't clear to me they have to allowed to defer or given employer contributions. I am willing to be told I am wrong here but at this point I am not seeing it.

I know a few attorneys that object to a 0% MP plan. They always set up a 0.5% MP plan. They fear that Government will take the position this isn't a real plan as the purpose wasn't to provide benefits but as you say simply allow for money that you couldn't take a loan from to now take a loan. They also questioned if 0% is really a benefit level. I never have heard of a 0% MP plan blowing up but I know lawyers that don't like them. I am not sure why it matters if you don't have substantial and recurring contributions. I thought the only effect was you had to vest people. If 100% of the money is rollover money isn't already vested? It has been a long time since I had a substantial and recurring contribution problem so I could be forgetting something.