ETA Consulting LLC

Plan documents (at least the one I use) have language to require PT Employees to actually work a full year of service in order to enter the plan while allowing everyone else to enter in a shorter period. The document also has the language necessary to define PT employees in terms of the number of ours worked per week. For instance, You can write a plan with a one month entry while requirement PT employees to work a full year. PT employees can be defined as anyone working less than 25 hours per week. I believe the client got bad advice; as it is obvious that this was not explored. As a result, thousands are going to be paid for an independent auditor for something that could've easily been prevented. The unfortunate thing is that I've seen much worse; clients getting hung out to dry by not receiving the accurate and complete information necessary to make an informed decision. Good Luck!

I follow your math, but not the logic. I'm not sure where the mixup is, so I'll ask a question. Once the SE Tax is Calculated for the owner, wouldn't we both agree that it is not recalculated after the Employer Contribution is made? Hence, if Schedule C less 1/2 SE Tax is 20K, then an Employer Contribution of $3,373.05 would now generate an Earned Income Figure of $16626.95; which would be his maximum deferral. I think this is consistent with Lou's point. I'm not sure, but you seemed to go back to Gross Schedule C of $21,520.37 after having arrived at the Net Schedule C Starting point of $20K. I followed your math: Start at 21520.37 (x.9235) = 19874.06 19874.06 x .153 = 3040.73 3040.73 / 2 = 1520.37 21520.37 - 1520.37 = 20,000 After the employer contribution of 3373.05 is made, then Earned Income should be 16,626.95; and this should be the maximum deferral. What am I missing?

Even in that scenario, you'd keep an outstanding log of all balances that were forfeited due to a lost participant. You wouldn't want to go back and research every record for every year in order to ascertain whether a participant's balance was previously forfeited (which is generally done when a payment is required to be made and the participant is not available); that would amount to reinventing the wheel in many instances. But, should you ever have to forfeit a balance for a missing participant, you'd maintain a forfeited balance log in order to refer to it and immediately ascertain if there is a benefit entitlement. Then, again, it does remain up to each Plan Administrator to determine how they can effectively and efficiently operate their plan. Good Luck!

I'm typically able to formulate everything into an understanding of process; the actual cause and effect relationships being pieced together to determine the series of events that led to the current case. We can sit here and create an unlimited number of hypothetical situations (i.e. a plan has been transferred to 7 different recordkeeping platforms during the past 25 or (even 55) years. Whatever the process may be, I think it's pretty consistent that any current entitlement you have from a plan would be reflected on a current statement. The fact that you had a balance eons ago says nothing about your current entitlement. So, issues will arise. When they do, each PA would have to determine how much time and energy they are going to expend in resolving them; obviously different Plan Administrators will employ different methods and expend different levels of energy. For me, I find a solid understanding of process would enable me to piece together the series of event that create the situation in order to provide the most effective and efficient resolution. To each his own. Good Luck!

Okay, then imagine how convenient it would be for me to mail a plan administrator a statement from 25 years ago with a $100K balance and say "Prove that you distributed these funds to me." Let's also imagine that 25 people do it to a single Plan Administrator.

True. I was being a little facetious (only a little) :-) It's typically a lot of work going to pull the distribution record. My approach would be to not expend this level of energy (given the fact that the SSA letter does not represent a current entitlement) unless it actually goes to court. At that point, you present every defense you have. Just imagine how convenient it would be for me to walk into a bank and show them a statement with a $100K balance from 25 years ago and say "Prove that you distributed these funds to me."

I think I follow his question; and it appears to be two fold. You have two distinct calculations at play here: 1) You may make your targeted QMAC at the 5% or 100% level..... That is a given; irrespective of anything else. 2) When determining 2X the representative rate, you must then determine your "matching contribution rate", which would take into account ALL matching contributions. But, you're not even considering this until you've fully allocated under item "1". So, you can always do number "1". In the event you complete number "1" and wish to allocate further, you would then calculate the allocation under "2" should it provide a higher limit that the ones already provided under "1". Basically, "matching contribution rate" does not come into play until AFTER you've fully allocated your targeted QMAC under item "1". I think it's worth mentioning that it would help you have a good relationship with your plan document when doing it. A well written document should make these distinctions. Good Luck!

And I remain open to the possibility that he's not entitled to a benefit. You can sue someone for looking at you hard. You may not win, but you can sue. So, surviving a motion in court would still present the burden of proof on the former participant, as plaintiff, that they're still entitled to those funds. If I were the employer, I'd wait for that case; then show up with the distribution record showing that they were paid out. I would then explain the process that triggered the letter from the SSA and how it bears not relationship to the current entitlement. When you look at how the process works, all you can conclude from the letter is that the participant once had an accrued benefit in the plan, terminated, and failed to take a distribution of that accrued benefit after a one year break in service. In the end, the participant would be saddled with court costs. Money just doesn't disappear in a qualified plan. Good Luck!

Typically, when TPAs prepare the SSA forms for Terminated Participants with Deferred Amounts, they fail to go back and send that same participant when that balance (or accrued benefit) as been distributed. So, eons later, the SSA would report to that former participant (who terminated and took a distribution from that plan a long time ago) that there was once a balance reported from that plan as belonging to them. This is nothing more than a broken process. Many former participants get these from plans that are actually still in existence. Many times (especially in the DC area) the response is simple; you once had a balance left in the plan but it has since been distributed. This nonetheless puts the former participant in the position to demand proof. When I used to get these types of requests on the recordkeeping side, I would turn and demand that they show proof of an entitlement from the plan (and we can debate 'until the cows come home' as to whether that SSA notice would be proof of anything other than a balance having once existed in the plan. Good Luck!

I stopped trying to learn DB about 6 years ago, but I enjoyed 'listening' to this conversation :-)

No. A withdrawal from a simple investment within the IRA is not relevant to how the I distribution is taxed. The annuity exception to the early withdrawal penalty would be if the IRA was actually annuitized (or, if distributions are received in Substantially Equal Period Payments calculated over the participant's life expectancy). Long story short, it's not as simple as taking a distribution from the annuity contract. Good Luck!

I agree with Belgarath. I would actually find it odd that the plan is drafted in a manner to actually tie your hands to a specific time frame. Generally, these types of provisions are written to provide for the maximum flexibility. Let's suppose you terminate on July 1st... Such provision would now tie your hands into processing the involuntary cashout between October 1st and December 31st. However, if you terminate a day earlier (e.g. June 30th), the written provision would 'require' you to process it within the next 3 months. Again, I agree with Begarath that "technically"..... From what I've seen in the documents that I work with, this provision provides for a little more flexibility (even fairly silent) on the timing. On another note, I tend to use it like a weapon when trying to prevent a small plan from reaching 121 participants. I even recommend clients to adopt an auto rollover for balances $5K or less when trying to keep the plan in small plan filer status. At the end of the day, it's a good idea to stay atop of this provision. Good Luck!

I agree with Bri as well. I think the entire rule change eliminated the need to account for anything else other that the balance at the time. If you have a balance of $5,000 and terminate employment as of February first and are entitled to a Safe Harbor Nonelective contribution of $100 at year end, does that right to a contribution now mean your accrued benefit is $5,100? This is a rhetorical question but point out the potentially endless number of scenarios you can enter when you attempt to use anything other than the balance as of the date. It would then require and different procedure other than a simple analysis of the balance on the date of distribution. I think the elimination of the rule in place years ago opened the door for you to simply administer the provision in the most simplistic method without having to perform the additional analysis of determining what the balance 'used to be' or 'will be'. The language in the plans that I've seen seems to be pretty consistent with this. I've yet to see language that suggest adjustments to the balance on the date. Good Luck!

When I first started in the industry over 20 years ago (when the forceout was $3,500), I remember studying the rule (at the time) where if the balance exceeded the limit at any time, then you were precluded from forceout. At time time (possibly around EGTRRA) it changed to say 'once your balance is below the limit, then you may forceout). With that understanding, I'm with MoJo that you may forceout since the balance is below $5,000 and then forceout again after the contribution is made. Instead of looking at it as a duplication of effort, I look at it as continuing with the already established notification and distribution procedures; and if the timing is right a participant could end up getting two separate notices at forceouts which may be months (or even a year) apart. Good Luck!

There are lots of companies who have sales people setting up plans and drafting the adoption agreements with provisions they can possibly understand. This level of incompetence is not limited to payroll companies, but they are probably the worst offenders. Good Luck!

Sure. The naming convention of the source does not matter. All Qualified Employer Contributions are subject to the same vesting requirements and withdrawal restrictions; so they can be housed together on the recordkeeping platform. Just ensure you continue to maintain documentation on the contribution. Good Luck!

There is no exemption from RMDs for non-governmental 457(b) plans. Good Luck!

It's not their policy to do that. If the IRS comes across something that they know the DOL will zing you on, they're no protocols in place to contact them. This is merely something explained to me from a colleague that previously worked for the DOL (and I was surprised when they said it). Good Luck!

The IRS deals with the tax code issues while the DOL deals with "ERISA" issues; so it's not within the IRS's purview to determine ERISA status. Good Luck!

I never saw it as a requirement to be in the document in order to apply. It's a controlled group rule (basically saying that even though your numbers equate to you being a controlled group (due to an acquisition or something), you're treated as not being a controlled group for a certain period of time (which basically gives you time to perform the analysis and determine how you're going to operation going forward). Good Luck!

What does the plan document say? Assuming it is a pre-approved plan, the language should be pretty clear. Good Luck!

It may be a good idea to lead with the actual things you'd like to discuss. You may not be limited to receiving help from only individuals who sat for the exam recently. Just a thought. Good Luck!

Of course it does. Good Luck!

There's only one way to answer this question; you must read the plan's document. Good Luck!

The issue here is that the payment from the plan should happen regardless of anything that the employer has previously done; as the plan's trust is a separate legal entity from the employer. So, the idea that he employer wrote a check does nothing from a plan perspective; where the participant's right to that distribution must still be enforce (without any consideration of what previously transpired between the employer and that participant). Once the participant gets the proceeds, then she is free to do what she pleases. She may choose to reimburse the employer or keep the funds; but that would be her choice to make. This goes to the very foundation of qualified plans and serves as a lesson; NEVER confuse plan assets with company assets. A participant's plan balance should be paid from the plan; not the company. Good Luck!