ESOP Guy

ADP tested plan that fails a lot? Why not just tell them to contribute exactly the catch up amount, regardless of % of comp, and they will never have an ADP refund-- I am assuming failure is very common? But that way a low paid HCE because of ownership can still get the full catch up in. Obviously this only applies to HCEs who are old enough.

What part of the ROBs is costing him so much annualy? My guess it is the stock apprasial. If it isn't that there might be a way to lower the costs. If it is a ROBs and he is a single employee a case can be made he doens't need an annual stock apprasial. But he should talk to his lawyer before he heads down that road. One needs to understand the risks of no annaul apprasial.

No I can say that about a large number of sections of a 5500.

Can't speak to the DB plan. I have exactly once seen a MPP plan where the person wanted an annuity and wanted it as the benefit from the plan. The MPP plan bought an annuity from an insurance company with the balance in her account and that became her benefit. The annuity was still owned by the MPP trust but that allowed the plan to pay for the rest of her life and know it would have enough money. Any other plan that promises a life annuity one risks runnig out of money in the person's account before they die and then where do the funds come from? I must admit given less thought but what happens if the plan has promise a life annuity and just used the balance to fund it what happend if that person dies before the money is gone? It was a life annuity benefit so the beneficiaries aren't due the money.

Struictly speaking I think this can be done but it is full of possible problems: 1) The plan fiduciary has a duty to know the value of the assets so it would seem like someone is going to have the added expense of getting regular apprasials 2) There could be prohibited transaction issues 3) I assume this is a C corp. If it is a S corp the flow through income is subject to Unrealted Business Income Tax. 4) Technically if someone else in the plan wanted to roll in this kind of asset the plan would have to allow it. 5) I think one is going to draw the wrong kind of attention from the IRS that only the owner/trustee has done this. Not sure if it is worth the problems. This sound a LITTLE like a ROBs you might want to check out the IRS' opinion of doing those... it isn't a very high opinion.

My thought is the practical one. It doens't cost much to hold the vote and if you hold it you know you have met the requirements. Since the outcome is determined holding the vote is the cheapest way to know you have followed the rules. After all the rules only state when you have to do it, it never forbids you to do it more often.

The down side of this plan of action is if the prior dentist did something that disqualifed the 401(k) plan the new guy would be on the hook as the current sponsor if it is discovered at a later date. That is one of the reasons people don't take over someone else's plan many times. Most of the lawyers I know would advise let the old dentist close his plan and the new dentist start a new plan. Something to think about.

If you are willing to be tied to a particular brokerage /investment house you can get the doucments from them. As part of the deal you will have to run the investments through them. If your bank has a business trust department even they will have the needed documents- once again they are going to want the investment business to make their money. That is the cheap route and to some degree you get what you pay for. I would advise you to talk to some local Third Party Administrators (your accountant should know some-- find them on the web). They will cost more but they will be able to help you steer clear of the pit falls and for a solo plan it shouldn't be too costly.

I would advise you to find and speak to a look 401(k) Third Party Administrator (TPA) in your area. While it won't be free they should be able to help you set yourselves up with what you want for a fair price. The answer is "yes" to both questions. There is a chance you would need to up date your plan documents to convert. More likely you will need help with some of the annual work. There is not very much when it is just two spouses vs even adding one employee. But mistakes in this area can be costly and a little up front money is cheap insurance to stay out of trouble. Hope that helps.

Just to be clear if it is debt financed property that triggers a possible tax liability that works much like Unrealted Business Income Tax (UBTI). Since the whole point of a 401(k) is to defer taxes this is a problem. The other problem would seem to be a margin call. If the person doesn't want to sell they would have to add money. What if the additonal money turns out to exceed one of the contribution limits? Edit: I guess to answer your questin directly: I am unware of a rule that says it isn't allowed. I can think of a number of rules that says it is a bad idea.

I have seen this before where a 401(k) plan allowed people to choose to be in a fund that was a hedge fund and you could not sell before X number of years after the investment had happened. This was the person's choice to get in, they were made to sign a document that said they were told and understand they could not sell even for a distribution until the X number of years was up. That plan's attorney was fine but as you can see they went to great lenghts to protect themselves.

The other thing you want to look at is currently the rules regarding fiduciary liability and insurance products seems strict. It has been a about 2 years since I last helped a plan add an annuity option but I recall the plan fiduciaries not only had to make sure the option was a good investment but they had to take some care to make sure the insurance company that was offering it was solild. One has reason to believe that if a participant took that company's produce it would be around to pay the for the person's whole life.

If you have access to the Sungard's "The Pension Library ERISA Newsletter" which is a for pay service their Number 2006-2 covers USSERA and answers just about any question you could have with examples. As a general rule the answer is "yes" they are due a PS contribution. That person would have a year of service for vesting and benefit accrual in basically all instances.

Way back in the day when I worked some rather small 401(k) plans I seem to recall the brokers working out distributions in kind for the clients. They did this to keep people who did alot of business with them happy. I can't say for sure it was an ACAT but what happened was 100 shares of IBM left the plan (for example) and we had to prepare a 1099-R based on the value of those shares as of close of the markets on that day. It was a clear distribution from a plan that the person (a doctor) who was just an employee to the 401(k) plan for his own practice. Like I said the brokers made it work because there was alot of stock in both the sending plan and going to the recieving plan and that doctor didn't want to have to pay commisssion to sell/buy his stocks.

The facts here are unclear. So I am going to ask a few questions to get a little clarity. What was the relationship of the sending plan to the recieving plan? Was the transfer from one 401(k) plan that your client sponsored to another 401(k) plan they sponsored? What triggered the moved? Was it he just wanted to use a different investment house? As far as I know there is nothing special about the move being done via ACAT that makes a difference although.

To me this is mostly a document question. The document should be able to answer all of your questions. As for the law one doesn't have to recognize servce before 18 for vesting but the plan has to state that. Once again a company can exlude someone from entering the plan before age 21-- once again the plan has to say that. My understanding has always been if someone is hired when 18 (working full-time) and the plan says one enters when age 21 and 1 year of service they would enter the first entry date after turning 21. This is because they meet the definition as stated in the plan. They have a year of service and are now 21. I don't think you need a cite you just need the document and read the provisions in the plainest meaning of the words.

Caryn22359: Might want to seek the help of a company that specializes in helping you run your plans. It might be possible to terminated the Money Purchase Plan and transfer all the assets (including the insurance) into a PS plan. Since a profit sharing plan can also be a 401(k) plan they could help you add the 401(k) provision to that plan. This would minimize the number of plans, Form 5500s and so forth. What I just described however has alot of techinical stuff associated with it that needs to be done right and I am skipping alot to keep it short. I could be wrong but it sounds like if you spent some time with a firm that specializes in helping companies run qualified plans they could help you meet your objectives better then you currently are do so. It risk of getting some of the investment guys who read this stuff riled up if you have been getting your advise mostly from a brokerage house or investment advisor it might be worth the money to get the specialized advice.

If it were me I would move on. I have never seen anyone who has gotten in trouble for failing to withhold. I suppose there could be a first time. But my impression is the IRS figures if they get the 1099-R they are going to get their money in withholdings or on April 15th.

Cost can be an issue if you have the really small plans (ie <10 lives). Although as you say they can be the biggest messes. For most it was built in to their annual fee. We tried to get them to send authorize the firms to send the statements directly to us. This allow people to work on the accounting as things were slow. Back when i worked the really small clients Nov and Dec seemed like really slow months. I was typically looking for work so I did the first 10 months of the accounting for my 12/31 plans. It was easier per say doing it ourselves (and I don't mean this in a bad way) everyone I worked for thought this was the only way we could turn out the right product. I have never owned my own firm but have been in management positions were I had some responsibilty for billing/realization numbers and I get trying to control labor time. I just think if you aren't finding a way to know the reconcilations are right more times then not you are setting the client up for problems. What we are talking about is part of the reason I went to work for a comapny that wouild let me work on 500+ life plans. I used to do the quarterly balance forward 401(k) plan for a not for profit hospital that had over 5000 employees. There accounting was simplier then a one man doctors office plans I have worked on in my time.

No I am not reassured. Although my thinking is a little more then that. I have been around long enough to have seen that for many people once you put a number on paper it becomes reality to them. I have sent MP Plan distribution forms with estimated annuity payments and when the person asked the client to go price an annuity and it comes in even different by $20/mo they blow up and start to demand why it isn't as large as what was on the form. (They never ask when the actual number is larger of course.) Even if they don't sue the issue is still very time consuming. Now imagine if the number of annuity estimates go from rare to common. Even if no one gets sued I can imagine lots of conversations on why estimates made just back in 2007 aren't coming true now in 2013. They have the projection in writing you know! Then if enough noise is made like I said there will have to be rules about these projections to protect people from making their life plans off of them.

This is why I don't plug unrealized. All I do is balance forward- mostly because I now do just ESOPs but even when I did 4k and PS plans they were balance forward. I once very early in my career I got stuck on a reconcilation and my boss couldn't find it either. So we "just plugged it". We sent the reports out. Within 24 hours we had a mad client asking why we understated his contribution by almost $24k. I have for a little over 20 years since then reconciled the cash for every account. I have a larger sense of materality then "to the penny". If a client puts his foot down and says they are doing the accounting it is well documented they are taking the responsibility for the numbers. The reality is the client should be able to send you copies (or have the borker/bank) send you copies of all statements. For other investments like limited partnerships where they might send the partners cash it is still going to hit the banks accounts. Likewise, if they are buying real estate or limited partnerships the money is going to start from a bank account. So it would seem like you should always be able to reconcile cash. I like Bird have found money transfered out of accounts to unrelated accounts for my clients over the years. In fact I once found a transfer for one of my clients that had money transfered to another client of mine. They used the same bank and had the same banker. He knew I was the TPA for both clients. The banker just got confused which client of mine was which when he made the transfer. Since I got the bank statements at the same time I reconciled them the same day. When I got done with the first one I had an odd transfer. So I put it aside and did the next account and it had an odd transfer for the same amount just sign opposite.

I keep thinking after they make us do these projections they are then going to write rules to help "protect" people who planned their life around these projections and now they aren't coming true.

I too think the "control issue" is the bigger issue. As Bird points out how did this reduction in assets not get noted while preparing the Form 5500? How did this reduction in assets not get noted for a T.H. test? In short I would have thought a reconcilation of the plan assets would have to happen at least once per year. Just to be clear not trying to be mean or harsh but I think the 1099-R issue which appears to be minor isn't where I would point my focus on at this time.

I am far from an expert on auto enroll plans but don't they allow you to opt out of auto enroll and then choose anything? Or put another way you would opt out and then pick a 1% rate. As described this seems to say you HAVE to go from 0 to 3% and you can NEVER do 1% or 2%. That seems to be a big difference if I have it correct.

Start by talking with the company that helped you set up the 401(k) plan. They should have a package of forms for your use. You will want to make sure your plan allows this also. Just because it is legal it has to be allowed in your plan document. Once again talking to the people that helped you set up the plan and the documents would be a good place to start. I obviously don't know why you want to do this but I would get some advice before doing this. There might be issues you are not thinking of that might be important. For example, as a rule money in a 401(k) plan is more secure from your creditors then money in an IRA in case of bankruptcy.