ESOP Guy

I would say there is no point to having those choice 99.99% of the time in a PSP for the reasons you outlined.

Yeah if it weren't for those darn clients one could get so much work done. If only we didn't need them to pay the bills.

The owner has to make the plan whole by putting money back into the plan-- end of story. Given the size of the error I am not sure this can be self corrected or if it needs a VCP. But at risk of restating the obvious get the money back into the plan ASAP. This is the type of facts the DOL lives to drop the hammer on someone in my opinion. The reality is if one of the participants goes the DOL the owner doesn't have a good defense.

Thge first thing that comes to mind is if this person is <59.5 point out the cost of the 10% early withdrawal tax. The second thing that came to my mind is why does the employer care if this perosn does this? It isn't like a loan refi that creates all kinds of paperwork.

Except that statement, correct? I think it still works just a little more complex. The prior year method is you take the prior NHCE average and use it to measure the current HCE average. How do you know you have the right prior number? You ran the ADP test in the prior year. In that prior year you had to know the HCE average for that year's test. So in that year I compared ADP test to the covearage test. Yes, such person isn't on the next year's 410(b). But even in the prior year method you still run the test the same way as the current year method. You merely split the averages to different years. So I will grant you have a minor point but I think I stand by my idea that to get good averages for any given year that is a valid check. When you use those averages is another question. And yes it seems like every rule has an exception- except this rule. (And Spock always lies for Star Trek geeks)

It has been a few years but I beleive that one of the ways I used to check myself when I did 401(k) testing was this: In order to be on an ADP test you had be able to defer or actually defer. For the 401(k) source anyone who could defer or did defer benefited under the plan for 410(b) testing. So anyone on the ADP test was someone who benefited under the 401(k) source for 410(b). So if the 410(b) test is the ratio of: Benefited/total testable population Then the numberator of the 410(b) test should = the number of people on the ADP test. As I started to review other's work I was always shocked at how big of a gap that I would find at times and upon additonal review it seems like I always found an error in the other person's work. Maybe I just explained the obvious to people who read this board but like I said this was one of those things I used to find my mistakes and other's mistakes when I reviewed other people's work. And if someone wants to tell my I am all wrong I could live with that reality also.

I don't see how you can exclude Keys from the T.H. test just because they are excluded from contributions.

Have you thought about having the other emplolyees helping you purchase the firm? Maybe they are willing to help put money down? Have you thought about using an ESOP to structure the purcahse? There could be benefits to both the seller and buyer. I wouild add most purchases I see are asset purchases. If you purchase the stock you are buying all future liabilities of the old firm. In that regard the need to engae an attorney is important.

Not trying to point out the obvious but just in case.... If the plan had been a small plan in previous years don't forget the 80/120 rule. If they are right at 100 they might not still need an audit. Edit: I guess I didn't read the orginal question very well. He does say it has been a large plan for filing for years.

Thanks

At risk of pointing out the obvious but if you force someone out and it is NOT to an IRA and the amount is greater then $200 you have to withhold taxes also.

I am reviewing a KSOP Form 5500. The 401(k) portion of the plan is invested at John Hancock via their platform. The person who prepared the form used J.H. tool to download the Sch D information into F.T. William our 5500 software. It appears all the funds they are invested in are Pooled Separated Accounts (PSA) and need to be reported on a Sch D. When they do that we get the same EIN for all the funds. Here is the odd part the plan number is 000 for all of them. 1) I really am thinking the 3 digit plan number can't be 000 2) I would expect the 3 digit plan number to be different for each fund Those of you who use J.H. for their clients is the EIN with a plan number 000 sound right? If not, do you have any idea what we could be doing wrong to get this resutl? Thanks.

That is what I would do. Report just the people who still need to be reported on the current year's form. Having said that I don't think one can find any specific guidence saying that is acceptable in the government's mind so I guess there is always a risk they could say that is wrong. I just have never seen an 8955-SSA or SSA subject to an audit.

I would point out the Alt Payee would only pay taxes on the QDRO if she doesn't put the money in an IRA. Also, if she takes the money and pays the taxes if I recall correctly (doing this from memory so feel free to correct me) and the Alt Payee is <59.5 there is no 10% tax. It is simple income tax. I would add everything is negotioable. The participant is willing they can adjust the amount fo the QDRO to make the net payment the amount they want. I don't see that as being fair but if both parties agree then who am I to say differently. Lastly, if you think loans cause people to be taxed twice use the search function and read the many threads on it. I simply disagree that they cause people to be taxed twice but I no longer wish to spend energy discussing why any more. The issue should have been put to rest decades ago.

My understanding is if the plan were disqualified that would taint the recieving plan. In fact I have know a good number of ERISA attornies that recommend against mergers just for this reason. I also used to work for a large consulting company that had a good size due diligence practice. For larger employers where merging is the norm they would hire us to review the plan to see if it might have a problem.

You are unclear in your question. Did the plan exist when he first worked for the company? If so, did he have a vested balance when he left?

While this is NOT a correction-- the correction rules allows one to ignore corrections of distributions that are below a dollar amount. Doing this from memory but $75 is what I am thinking the limit is. I would see if the plan's attorney is comfortable using that limit here even if not a correction. Any large amount and I think you have to find the people and pay them.

12AX7 is right- it is the refinancing rules that greatly cut down on that tactic. Back when I worked on 401(k)s more which was before those rules I had clients who had employees refi their loans every year. As far as I could tell the people were going to never pay the loan off until it became a distribution. But those refi rules ended that abuse.

I realize the owner wants control of his money but here is another idea: Let the investment committee decide the investments in the employee plan and write an investment policy for the owner's plan that says it will invest its assets in the same investments at the same ratio. In effect the committee is deciding the investments both plans. Not sure if it is a good or bad idea kind of just throwing out an ideas to help maybe spur other thoughts.

I use a service called PBI for a number of years. It isn't so much that they have access to information that you don't have as much as they can perform a complete search for so much less then you can and document it well. If you go with their full service package it is typically in the $20/person for low volume of searches. The cost goes down per person as the number of lost people goes up. It starts to get pretty cheap if you are looking for hundreds of people. But what you get from them is one of two things: 1) An address they have sent a confirmation letter to and gotten a response to that letter so you have good reason to believe it is a good address 2) A close out letter explaining the steps used to find the person and that search failed. The steps taken meet the DOL's requirement for a complete search. They put out rules regarding that a few years back. The one exception is the DOL put the rules out back when the IRS still did a forwarding program. One assumes the DOL won't hold you to needing a program that doesn't exist. What I like about this is you now have documentation that you did a good search so whatever you do to the balance of the lost person you have solid evidence of the a good search and they are lost. If I did a search like that for a client I would spend more then $20/person. Solid paper trail of the search for the client's records. I have never had a client's ERISA attorney come back to me and say the search wasn't good enough to justify treating the person as lost after a PBI search process. Just to be clear I don't work for PBI and I an not on commission. I just like their process.

I would be practical about it. if she is losing her job anyway just go so you don't have a hassle in getting the money out and so forth. Why lose one's job early maybe give them grounds to fight unemployment benefits so forth? Some times it really is best to "pick your battles" as they say. And this just doesn't sound like a battle worth fighting.

It is the IRA's responsiblity to compute the IRAs RMD. As an aside I would take the position if this is a brand new IRA-- meaning no balance until the rollover-- the IRA does not have an RMD until 2014. After all a 2013 RMD is based on the IRA's balance as of 12/31/2012 which was zero. But I am not the worlds greatest IRA expert it is just how I have always understood it.

Or is there a payable on the 5500 for the distributions? If so, you could make the case the correction is payment of the payable. To answer the orginal question. I have found the IRS accepts reasonable fixes via VCP. If you can show that everything was done and taxes paid except for the payment of the distribution payables they MIGHT accept that.

To me that just points to a flaw in the regs. After all how does the plan know the person won't retire? So on what grounds are you refusing to let them put the money directly into an IRA if they never quit? To me the best answer is to use what you know when the payment is made and not base how you prepare the payment based on future what ifs. If the person retires it seems like there are two possible corrections: Get the money out of the IRA (or maybe count it as some form of contribution to the IRA) or make an RMD payment at that time. I can see objections to either but I don't see how one does the what if thing.

I am doing this off the top of my head but I am not aware of any requirement for one to calculate the RMD for an in service distribution or if some how the person got to be over 70.5 and just reached 10 YOP and got a diversification payment for example. RMDs are linked to being over 70.5 AND terminated not merely paid.