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Thank you all for your responses and for sharing your experiences.

A DB plan is undergoing an IRS audit for which the sponsor has assigned her longtime CPA to be the POA. We administer the plan and are working closely with the POA and have provided all of the items initially requested by the auditor. The auditor has since requested additional copies of prior year paperwork and although there's still ample time to provide this additional info, a DOL rep has contacted the POA to inform her that they will be requesting in writing copies of various plan items. The DOL rep also said that they will be calling to interview the sponsor, the TPA, and anyone else involved with the plan, and said that a conference call will not be acceptable - every conversation has to be a 1 on 1. I suppose anyone who is contacted should ask that any info requests be made in writing rather than answering questions on the phone. Has anyone ever had this type of experience? Since it's been quite a while since our last DOL audit, we're wondering whether this is how the DOL now conducts inquiries or whether they're overstepping their bounds. It's hard not to think this is overkill since the IRS hasn't yet finished its audit and the DOL is taking such a broad approach - is there anything that can be done to limit their scope, or at least establish a POA situation where they contact only one person? If the IRS has found a problem would they involve the DOL before sending out correspondence announcing their conclusion? All help is greatly appreciated.

Thank you all for the helpful perspectives. Regarding the late penalties for the 1099-R, all I could find in the IRS instructions was mention of a flat $100 fee per form if it's filed after the August 1st following the filing deadline for it. I, too, originally thought there would be daily penalties, but I guess that's not the case.

A participant defaulted on a loan and though it was a deemed distribution, a 1099-R was not filed to report it. He went on to repay the entire outstanding balance afterwards which I understand should be considered an after-tax amount within the plan. Are the repayments still considered to be after-tax amounts if the defaulted loan was not reported as a taxable event when it became a deemed distribution? If the repayments are to be treated as after-tax amounts, I presume that when it's time to distribute them that earnings on those amounts are taxable.

The financial institution who is the recordkeeper for a 401k plan with self-directed accounts replaced its money market fund with another MM fund. The amount involved was more than 5% of the plan's BOY assets but I am wondering whether this must be reported on line 4j, as it was an involuntary transaction on the employer's part. Also, if it must be reported, the required attachment for line 4j asks for the purchase and sale prices as well as the cost and the current value of the asset on the transaction date - are they not the same thing? Or is the purpose to find out whether the purchase or sale price differed from FMV? N/a in this case since share prices of both cash funds were always $1, but just curious about the redundancy.

Tom, I agree with your interpretation. Thank you for responding - that was very helpful.

A plan went through a partial plan termination where several participants had their partially-vested amounts become 100% vested. Some of these individuals have recently been rehired and the question is how to show their vesting - continue with their actual partially vested percentages using the plan's 2/20 vesting schedule, or must you maintain their vesting at 100% due to the partial termination? The doc has the standard rule of parity language regarding exclusion of certain vesting YOS for rehires but does not address this situation. Thanks in advance for all help.

We are a TPA firm who has subscribed to RIA's Pension & Benefits Week for many years. Several years ago we compared it to CCH's offering and felt that RIA was a little better as far as weekly newsletters go. Are there any similar publications that anyone can recommend?

We are the new TPA for an 80-life plan that requires cross testing. As the switch is happening in the middle of an admin cycle, we are to prepare the tax return and val showing contributions that were calculated by the old TPA and have already been deposited and allocated into self-directed accounts (we have the breakdown by participant). The problem is, the old TPA will not provide a copy of their cross testing analysis, saying that the client never receives this and it's not part of the admin work that is being paid for. The client also said that the testing has never been provided in past years and always just gets the tax return and the account valuation, and that there is nothing in writing that defines what the TPA must produce in such a situation. I described this situation to a fellow TPA who also said that her firm doesn't provide the cross testing analysis. This is a first for us, so we're curious as to whether this is the norm. Would most firms use the numbers generated by the old TPA and just caveat that they're not responsible for their validity if an audit occurs (since it would be difficult to key into the exact numbers by doing the calcs from scratch)?

I had my doubts when I first heard about this as I was under the impression that when a participant is due their first RMD and they delay it until the 4/1 of the following year that they must take a 2nd RMD in that same year by 12/31. It seems that most others who monitor this kind of stuff also believe this to be the case. However, it was recently pointed out that to me that 1.401(a)(9)-6©(1) says "Annuity payments must commence on or before the employee's required beginning date (within the meaning of A-2 of § 1.401(a)(9)-2). The first payment, which must be made on or before the employee's required beginning date, must be the payment which is required for one payment interval. The second payment need not be made until the end of the next payment interval even if that payment interval ends in the next calendar year." So it appears that if a participant must take their 1st RMD no later than 4/1/15 (i.e., the RBD), the second one wouldn't have to be taken until 12/31/16. I'm wondering what others' take on this is since so many of my colleagues haven't been using this approach.

Happy holidays y'all. This is the first time we've had a client make late quarterly payments and were wondering if an IRS audit would likely be forthcoming once they see line 20b on the SB being answered 'no' indicating such, along with the required attachment? I would guess it would be an easy target for the IRS - what is everyone's experience with this?

A top heavy PS plan uses several rate groups determined by levels of comp. The plan defines comp as only that paid while a participant, and since there are dual entry dates, some new participants must use 6-month comp for testing. If the 3% TH allocation based on a full year's comp for one such participant equals 5.5% of his 6-month comp, would everyone else in that individual's rate group have to then also receive 5.5% of their comp instead of the 5% gateway allocation? The document doesn't seem to address this possibility.

It very well may be. However, since the government's model SAR format is relatively easy to put together, why not just use it and be certain of its acceptability instead of taking a chance with the spreadsheet?

The IRS returned the 5558 and indicated that it was rejected because it was filed after the due date of the return. The TPA who filed the 5558 claims that it was postmarked no later than July 31st (PY is 12/31), but cannot provide proof of their claim. The client also recalls the TPA mentioning months ago that the return wasn't due until 8/31, so it seems pretty obvious that the TPA filed the 5558 late. It seems inevitable that the client will receive correspondence from the IRS after they file the return stating they must pay penalties, etc. because the return wasn't filed by 7/31 now that the 5558 is invalid. Is there a good chance that the IRS will waive the penalties, etc. if the client writes to the IRS when he receives the "penalty" letter and explains that he was reliant on the TPA who filed the 5558 late? Should he wait until the IRS contacts him, or send such an explanation now with his return? What recourse does the client have? The TPA did not have the client sign a service agreement - hopefully that will not give the TPA an "out" if the penalties can't be waived. All help is greatly appreciated.

My feeling is a first year filing is still not required even though the 5558 has been filed. That being said, however, the fact that the IRS now has a record of this plan in their system, via the 5558, they may expect a return since they have no idea whether or not the plan held less than $250K. If the IRS does not receive the filing they may generate correspondence asking about it, and even though the return wasn't legally required, you would have to explain the circumstances to them. It may be simpler in the long run to just file the return to avoid dealing with the IRS, not to mention possibly having to explain all of this to a confused client who will receive the IRS letter (and may bring up the classic argument "A tax form wasn't required? What am I paying your for?"

Thank you both for your responses. The doc does not elaborate on the topic - it basically just reprints the treas reg. Reading through the 'adequate security' provision, however, I'm having difficulty understanding its merits if eventually the beneficiary would have to repay the restricted amount back to the plan with interest. Is the sole advantage that it's a loan that can have flexible terms such as balloon or interest-only payments and whose maturity can be set to be a very long time from now? I suppose the beneficiary could take the 'safe' route and opt for the SLA, but that could be a hard sell when they know the plan can pay out a lump sum - once the final numbers have been determined we can present the risk/reward scenario, Would the SLA be based on the participant's or the non-spouse beneficiary's lifetime? The participant was in his 90's, so the periodic payment amounts could be vastly different. I'm not familiar with what's involved in requesting a PLR - does anyone know the approximate amount of user fees or time frame that would be needed to obtain one?

A plan has 3 participants who are all family members and HCEs. There have never been and will never be any other employees. The plan is underfunded for 417e purposes and one of the HCEs is due a distribution. The Treasury Regulations say that in most cases an HCE's distribution must be limited to an amount that would leave behind enough assets in the plan to at least equal 110% of the plan's remaining current liabilities. Treas. Reg. 1.401(a)(4)-5(b) states that the 110% restriction does not apply “if the Commissioner determines that such provisions are not necessary to prevent the prohibited discrimination that may occur in the event of an early termination of the plan” – do you think it would be reasonable to believe that “the Commissioner” would consider an unrestricted distribution to be nondiscriminatory since all of the participants are HCEs?

HCE dies while still employed. She has been receiving RMDs equal to 12 times her AB every year. She has a non-spouse beneficiary. Although the document addresses how long the beneficiary can keep the benefit in the plan if the participant dies before her required beginning date, it is silent on what the time frame is if the death occurs after the RBD. This may be advantageous as it can allow the plan administrator maximum flexibility on determining the time frame, and if this is the case, perhaps it would be reasonable to allow 5 years from the date of death. I wasn't able to find much in the law addressing the maximum time permitted in such a situation and wanted to be sure that we wouldn't be running afoul of any regs - would our assumption be reasonable or does anyone know if the benefit can remain in the plan longer than 5 years? We have also gotten widely varying opinions from actuaries regarding how the lump sum benefit should be calculated. Perhaps the most unsettling one we've been told is that since the plan's normal form is a life annuity, the benefit is deemed to have been annuitized when the RMDs began and now that the participant has died the beneficiary is not entitled to anything, as the "life annuity" benefit has ended. This would be quite disastrous because the participant has a very large benefit. Aside from defining the normal form, the document is silent on whether RMDs count as payment of a life annuity option. I would think that the participant would have to affirmatively elect to receive their benefit as a life annuity for the benefit to be considered totally paid upon death, in contrast to the RMDs being a payment over which she has no control. I am curious to see what members on this board think about this. Lastly, assuming the beneficiary is still entitled to a distribution, I imagine that the lump sum would be the PV of the vested AB unreduced for the RMDs - is this correct? This is the first time I've had to do such a calc and am a little nervous about it, especially given the large benefit involved. All help is greatly appreciated.

Is she a non-resident? You say she resides in the U.S. but there's a legal definition of residency (I'm not sure if it's dictated by the federal government or it's state-to-state) - one has to actually live in the U.S./state for a certain number of weeks or months every year to be considered a legal resident. Also, I'm guessing that it's not possible to have dual citizenship with China and that she is not a U.S. citizen - if that's not accurate that could also factor into the determination.

If it can be presumed that all 15 participants attained their NRA before they were due any RMDs, I wouldn't think there would be any actuarial adjustments needed, as the RMDs would've been 12 times their monthly benefit. It would seem reasonable to have the plan pay these amounts increased to date with the interest rate specified in the document's definition of actuarial equivalence without any consideration for mortality. I don't believe the IRS' decision on whether or not to waive the excise tax would affect the participants.

An employer wants to amend their existing profit sharing plan into a safe harbor 401(k) plan mid year - is this permissible? With the recent law changes that now allow 401(k) plans to remove their safe harbor provisions mid year and the fact that the first year of a 401(k) plan is not required to be 12 months long, it seems implied that such an amendment would be OK but I first wanted to see if anything was being overlooked. Also, is it accurate to say that neither the 415© or 401(a)(17) limits need to be prorated in this situation for the portion of the year the 401(k) provisions are in place, as both the plan year and limitation year will not be changing?

I would imagine that an SAR (possibly 2, if the merger happened mid-plan year or if the plan year is different after the merger) is required. In other words, a participant should receive SAR info at least every 12 months and there shouldn't be any gaps in the data from the time they received their last SAR, even if more than one plan administrator has to provide it.

A 401k plan for a 1-man company holds a life insurance policy for the owner/sole participant. We have been showing the value of the policy in the plan's assets as the accumulated amount of premiums that have been paid (all paid by the plan) rather than the policy's actual cash value, as the total premiums have always been less. The owner has now informed us that there will no longer be any premiums due, so it would appear that we would just show it having the same value every year from now on - is this the best way to account for the policy? Thanks for any help offered.

Looking through 1.401(a)(4)-8(b)(1) I found the method for calculating the gateway amount, but I could not locate any passage that describes the requirement for the gateway to be given to every NHCE who is being allocated any employer contribution, even if they wouldn't normally be eligible for a profit sharing allocation due to a 1,000 hour requirement (e.g., when participants must be given a minimum top heavy allocation). Does anyone know where in the regs this can be found?

Thank you both for your responses. The attachments, Tom, are greatly appreciated. I hope to one day soon be able to provide answers on these matters rather than just ask questions about them.