ESOP Guy

In fact to just to leave an audit trail I would strong think about having the wife complete distribution forms. So the paperwork is in place to show she really had a choice to take the money and keep it, put in IRA or roll over to another qualified plan. My guess I wouldn't do a 1099-R but I think you could make a case one should be done. After all what is happening legally is she is taking her benefit as a beneficiary from the plan and then rolling it into the plan. I also wouldn't write a check to the plan only to have the check cashed by the plan either. Like I said I would most likely do the forms showing a paper trail the money was distributed and rolled. Mostly as a paper trail for an auditor.

The other interesting question on this topic is crossing the audit threshold. I am doing this from memory but here is my recollection. If a plan was a small plan in 2015 with 119 employees. Say two people meet the eligibility requirements on 7/26/2016 but the plan has only one entry date of 1/1 these two enters the plan on 1/1/2016. Assume no one left so there is no decrease in the counts. It would seem like for the Form 5500 you ought to have 121 people as of 1/1/2016 listed. Sal's book has a discussion in it how these two might not count for purposes of needing an audit for 2016. So you have 121 on the 5500 and no auditors report. That tends to get you an error message. I had this come up once a few years ago. It is why I no longer like 1/1 retro entry dates any more. That was a pain.

To play devils advocate: If the plan doesn't pay the distributions per the terms of the plan that is failing to follow the plan document which is a disqualifying defect of the plan. I would maybe ask the plan's ERISA attorney what they think or maybe pay everyone one cent. I am spit balling on the one cent thing. But if the stock is worth nothing and everyone is comfortable with that idea I am having a hard time coming up with a reason to not make the "payment" per the terms of the plan document. I think this issue is beyond a free discussion board even one made up of industry people.

You can ask but the amount is clearly determinable and it isn't your job to 2nd guess the agreement. I would ask the Plan Administrator is that is their understanding. If you want to be kind you could suggest they ask the participant if this was intended but there clearly is no requirement to give earnings from 12/31/2014 to time of split..

I stand by my advice. Feel free to ask as many questions you need to get comfortable to determine if you owe the money or not. If you conclude you owe the money work to return it and if not explain to the plan sponsor why not. You now know the basic issue. Your account had both cash and stock in the plan. They believe the earnings on the cash was flawed. If you want to know more details of that flaw ask. There is a chance you won't fully understand the issue but you might understand it. The one oddity in my mind is the timing. ASSUMING (if you are willing to tell us if this assumpstion is true or not might help a little) the plan year end is a 12/31 plan year end the letter seems a LITTLE slow in being sent. The annual audit for a 12/31/2013 plan year end would have been done by 10/15/2014 if they filed their plan tax form timely. So why send the letter now? A little slow but not unreasonabley slow. I would still recommend you start by calling your former employer and asking them if you can talk to the person who can help you understand what happened and maybe help you get enough documentation to help you feel comformtable with the issue. But no they will not ever share with you work papers and so forth that allow you to recompute the error size. They should be willing to help you understand how the error happened and how it got past everyone's checking process. However, understand part of the process is the plan was required to be auditted by a CPA firm and they typically check earnings allocations. So the audit is the last check that is supposed to help find these errors

I rarely disagree by name but I disagree with Jpod on this one. Josh I agree you have every right to protect your interests. As such you should ask all the quesitons you need to determine you really were overpaid or not. But if you owe the plan money you should pay it. This is simply good ethics. I have been on both sides of this. I have made mistakes that have caused participants to be overpaid and underpaid. If I find a person is underpaid I work to get them paid. The reality is I could many times let ignorance be bliss tell no one I made a mistake and no one would know there was a mistake and an underpayment happened. I don't let it happen. I have made mistakes where a person was overpaid and was relieved when they agreed to repay the money that was a mistake. And yes you shouldn't have to pay taxes if the IRA returns the money to the plan via a trustee to trustee transfer.

I would also say you have to make that last MP contribution which would be subject to all the MP rules. You can't make an MP contribution into a PS contribution by merging the plans and then putting the contribution into the PS plan. That is my take. No I can't cite a specific rule other then that strikes me as the only reasonable way to read an MP document.

I agree 100%.

For question #1 the answers going to be in your document. It is a rare day that I have seen a document that allows a non-owner who is active to even take an RMD much less decide on a year by year basis. This is one of those cases where knowing the law isn't enough. The law allows options so you have to know what the document says. For question #2 I believe the answer is "yes" the 20% withholding applies to the amount over the RMD because what is happening there is there are really two payments even if only one check is being cut There is an RMD and an in-service distribution. The RMD gets 10% withholding and the in-service gets 20% withholding. You can find threads on this next subject so I acknowledge there are people on this board who disagree with me on this but this is how I read the rules. (Understand how the document is written makes a big difference here). But in my mind the only way a person who is active and taking RMDs can take more then the RMD amount is if the plan document allows for it. So the plan document needs to either have in-service distribution provisions or you MIGHT be able to make a case if the RMD section says the RMD is the minimum amount a person can take. That MIGHT imply they can take more but I for one am uncomfortable with that reading.

A name that only a mother and a marketer could actually like!

I don't do small plans like this any more but I didn't think you could make any kind of qualified plan contribution based on real estate investment income you don't pay SE tax on. It sound like this person wouldn't be paying SE tax on the RE income. I am more then happy to be told I am remembering it wrong or my thinking is out dated but that is my recollection.

See other thread with this question.

I have done allocations before on YOS vesting/Total YOS vesting before. You have to pass the rate group test when you do something like that. What you describe is the same thing. That 401(a)(4) rules will have to be worked. out. I would agree with Lou is that a form of 10 year elig. Lastly, coverage isn't that hard of a test to pass. In theory you could give the bottom group all $1 and you would have 100% coverage for coverage test purposes. All coverage testing asks is does everyone benefit. It doesn't look at how much everyone benefits which is why there is nondiscrimination testing.

I did miss QDRO's pun the first time I read it.

In my opinion the question was answered by reply #4. The rest is just gravy.

I thought the same thing and assumed he used the wrong term. As far as I know there is no such thing as a five wheeler. The correct term is 5th wheel. For those who are interested in a little history the term comes from the horse drawn wagon days http://en.wikipedia.org/wiki/Fifth_wheel_coupling.

How is this a PT? I don't see that line of thought at all.

I like shERPA's logic. I think he is right. But clearly the IRS doesn't agree with that logic Kevin C's post. The IRS' problem I think is they don't see the loan as 100% secured. That is why they keep coming up with the silly idea that you can't borrow more then 50% because the remaining amount is needed to secure the rest. That is nonsense. The loan is self securing. If the borrower defaults the plan writes a 1099-R for the default amount and no one loses anything. A taxable event happens but no one has lost anything. That would be true if you allowed loans for 100% of the person's balance. But the person got their full benefit. Everyone else in the plan would get their full benefit. It doesn't matter if the plan is a daily valued plan or a balance forward plan. The account of the person taking the loan would fully secure a loan of any amount that is no more then 100% of the person's balance as of the day of the loan being made. By the way my credit union would loan you for 60 months at CD rate plus 2% a loan that is secured by a 60 month CD you have with them. The CD rate plus 2% comes up to 3.45% barely over prime. I think you ought to be able to run a loan program with that rate but I think the IRS would not take kindly to it.

That is my thinking when I wrote my first comment and if the HCEs happen to be in exclusively in one of the groups that will make for a testing mess.

Strictly speaking I think you have two different types of contributions. You have a match for group one and a profit sharing contribution for group two. So for testing you have to test them like you have two different types of contributions. So you have to show both types of contributions are non-discriminatory and pass coverage. It seems like some types of testing like the Average Benefits test you bring all types of contributions into the test. But I think this is a mess for testing because you have two types of contributions. There might be some combination of ACP testing and other tests that can be done to show this is legal but I doubt it is simple.

I am assuming their plan year is such that you didn't have the 120 on the first day of the plan year. At risk of pointing out the obvious but the date you look at is the 1st day of the plan year not the end of the plan year to determine if you need an audit.

Parties can put the IRA rollover into the divorce decree which can be enforced under state law. My guess (and it is a guess) is they didn't want to do that for fear that ERISA would preempt any such state ruling or law. I provision like that seems to be a type of alienation of the benefits as you can't take the form you want.

Off the top of my head the following issues come to mind: 1) Is it really prudent to invest 84% of the plan's assets into a single investment. After all you say it is a pooled plan so you are investing not just the Dr's money but the rank and file's money. A trustee has a fiduciary obligation to invest in a prudent manner. This doesn't seem to come close to that idea. If you say it is just the Dr's money you have a discrimination issue of why he gets to direct his investment and the others don't 2) What happens if the investment goes negative cash flow and the plan doesn't have the cash to cover its share of the needed investment? Now he has to put in a contribution. 3) There can be small plan audit issues 4) You would need to review this for PT issues. 5) You would need to review if there are any UBIT issues 6) Don't know how old the Dr is but what happens when he needs an RMD is he going to be allowed to take all the remaining cash out? 7) Are they really going to value it every year? If not, how do you pay one of the rank and file members their correct benefit? 8) Will there be enough cash if people start asking for participant loans if allowed? You can do searches on this board and read horror stories from people who do this kind of investment and run out of cash or can't sell the investment fast enough to meet various plan requirements. I will go on record as saying if they were my client I would advise them to not do this.

The 5500 the plan files is irrelevant to this question. The trustee is obligated to have a reasonably value the assets as of every allocation period. So the trustee has to be able to show the value they are using is a good value and obtained via a reasonable method. If a distribution is needed to be made obviously a good value is important. Likewise when it come time to pay an RMD a good value is important. I agree it isn't clear if he is buying real estate of shares into a company that owns real estate. It matters a lot. If it is shares what kind of shares are they? If they are shares in a C corp it MIGHT be ok to do this. But if it is an S Corp then only an ESOP can own those shares. If it is an LLC or partnership that has pass through income then it raises questions about Unrelated Business Income tax. There might not be any but I can't say that for sure. I think you are looking at an issue that can get bad and complex fast.

Are you sure they are legit? I have never heard of either the DOL nor IRS using e-mail to inform people of missing forms. That sounds more like a scam that is trying to get information. The only odd part would be the information is on the DOL website so why use a scam to get it? I don't get that many IRS or DOL notices but like I said I have never heard of e-mail being the method.