shERPA

Perhaps. Obviously we're talking about an HCE, so yeah, if s/he earns $130K gross, has a spouse earning $50K, normal personal deduction/exemptions, 401(k) deferrals, etc. probably land them in the 25% federal bracket. Here in Taxifornia they would be in the 9.3% bracket and with AMT they don't necessarily get the benefit of the federal deduction for state taxes. So call their current rate 33% combined. Assume 15% fed and 9.3% state post retirement, standard deduction, so 24% combined. Delta in income is $4,700 per year - $13,838 v. $9,117. Still pretty significant. I will often bring this calculation with me when meeting with a prospect, it's more complicated of course because the owners are paying some costs for ee contributions and plan expenses, but the numbers are more dramatic too, especially when pitching a CB/(k) combo. Clients, CPAs and advisors tend to look at the one-year tax benefit vs the cost, but this significantly understates the value of tax-deferred saving.

I've done some work in comparing pre-tax and post-tax savings on retirement income. The math is straightforward, the devil is in the assumptions, but the effect is dramatic. Assume a 50 yr old HCE can defer only $14K instead of $24K due to the ADP limit. Assume 6% net of expense investment return, 50%/35% combined pre/post-retirement tax rates. Ignore attributable match, the ACA 3.8% investment tax, any cap gains tax rate or timing preferences. Assume equal investment expenses either in or out of the plan. $10K for 15 yrs grows to $232,760 at 65. This may be withdrawn @ $18,208 for 25 years, pay income tax each year on the withdrawal and you're left with $11,835 cash flow. If the $10K is refunded or not deferred each year, $5K is available to invest and the earnings are taxed each year. This will grow to $92,995 at 65. Withdraw $5,890 per year for 25 years. No further tax to pay as it is after-tax savings, so $5,890 of cash flow. The ADP limit costs this participant $5,945 per year in retirement cash flow from age 65-90. Even if you make the pre/post tax rates the same, say 50%, the pre-tax savings produces over $3,200 net after-tax cash flow.

IRS seems to say so, although they say "should" instead of "must": https://www.irs.gov/Retirement-Plans/How-to-Obtain-or-Re-Establish-an-EIN-for-a-Retirement-Plan-Trust How to Obtain or Re-Establish an EIN for a Retirement Plan Trust Retirement Plan Trustees should apply for an EIN for the plan’s trust in order to properly: report Form 945 deposits and other income tax withholding information, and provide Form W-9 to requesters of tax identification number certifications. Trustees should not use the EIN of the Plan Sponsor for these purposes. See the EIN application page for further information.

Back when I owned a TPA firm, we used several tests. Over the years we got better at understanding the results ourselves, but we always went over them with our consultant. He was an expert in these and made sure that our use of them was legal, and helped interpret, especially when he also interviewed the person (generally by phone). We felt the benefit to us was worth it, especially for the more key positions in the firm. There are some key traits that strongly correlate with good administrators, and there are a couple that are contraindications for this work.

Splat.

Apparently the final memo drops the specific 180 day delay and leaves it to DOL to determine if a delay is appropriate? If this is true it is sort of the worst of all worlds, introducing more uncertainty only 60 days out.

+1 ESOP Guy. The presumed solution every time has been more notices and more rules. Frankly most people aren't that interested in reading all that stuff, let alone understanding it. I attended employee meetings with a few clients where a big package of 404a5 stuff was distributed. Most of it was found in the trash can by the door after the meeting. I've sat in 401(k) plan sales meetings where a veritable tome of contract and disclosure documents is presented to the client, they flip to the back page and sign. Why? They trust the people they are dealing with. Is this trust misplaced? Certainly in some cases it is, in many cases it is not. Should financial advisers work in the best interests of their clients? Absolutely. Should rules purporting to ensure they do so be so complex and costly that advisers cannot afford to service clients with modest accounts? No. Complicated rules drive cost into the system at every level, these costs are ultimately borne by the participants, reducing their ultimate retirement benefits. And it's particularly ironic to have DOL and politicians ranting and raving about excessive costs and then "solve" the problem by raising costs of running a plan. Both hard costs and risk. I don't know the "right" answer, but I keep thinking there has to be a better, simpler principles-based approach. Will this delay and review really change the approach? Not holding my breath. As ESOP Guy says: " The government is terrible at making rules that balance cost/benefit."

What does the plan document say? It governs the plan, not the payroll company's system. If the document allows it and the Plan Administrator is the employer, then it is up to them to tell the payroll company what to do. If the payroll company persists, ask them to contact their legal department to point out that by exercising discretionary authority over plan document interpretation and plan operations, they are making themselves an ERISA fiduciary to the plan. This may not get you anywhere, but it could be fun entertainment, at least if you're a pension geek like me.

...... see more updated threads on a page. Followed other tips since the update to get back a reasonable view of new content, then bookmarked it, but it sure spreads out on the page compared to the old view.

Should this be 1.401(a)(4)-5? Yes, thanks for the catch, phone rang when I was typing this, can't multi-task like I used to.

Yes, I've seen the 3/9 double up presented. Cover owner(s) in both plans. Cover 1/2 of NHCEs in each plan. Exclude "disposable" HCEs from one or the other plan as necessary to allow each plan to pass the ratio test.

1.401(a)-5 spells out the discrimination issue. Have the numbers been run to see the impact? The plan might still make sense.

I strongly recommend you attend the NIPA BMC conference in January in Scottsdale AZ. It focuses on the business side of running our firms. I'll reiterate MoJo's advice - nothing happens unless you can get clients. Presumably partnering with the CPA firm will be part of your marketing strategy, but selling is key. And it is a relationship business. You need to nurture relationships with advisors, CPAs, attorneys and recordkeepers. People like to do business with people they know. Don't underestimate the time and effort involved in this. Those who are good at it make it look easy, but it's not. Good luck.

I have a prospect wanting to establish a 401(k)/PS plan now for 2016. They have a SIMPLE IRA and have made contributions YTD. The link above and the IRS' "fix it" guide say to stop SIMPLE contributions for the fix, but this doesn't really fix the problem for 2016. This year's SIMPLE contributions still have to come out of the IRAs, right? And there is still the problem of no way to code these "refunds" that doesn't trigger IRS thinking they are premature distributions from the SIMPLE, right? What about 402(g)? If an employee has already contributed $10K to a SIMPLE this year, can they still do $18K to a 401(k), given that the $10K has to come back? Or does the $10K still count toward the limit?

1.411(a)-11(e)(1) is the authority to which ESOP Guy and RatherBeGolfing refer.

Good comments here and I think they present an accurate assessment of the market. Yes, HCE is not a complicated determination, but people who do not practice in the compliance area don't always understand the distinction between the dictionary definition of a term vs. the code or ERISA definition. People see the phrase "highly compensated", and assume it doesn't apply to the owners' spouse and/or kids making $25K per year because $25K is not a high wage. Likewise many companies have key employees, but they are not always "Key Employees" as defined in 416, and vice versa.

ADP produces a comprehensive set of testing reports - but every plan I've ever looked at has the same issue - HCEs not properly identified. Sponsor sees the plan "Passes" and doesn't read any of the caveats. The last one I looked at had 17 employees over $200K but none were identified as HCEs in the test. Guess what, it PASSED!

Section 4975(e)(2)(F) specifically includes family members in the definition of disqualified persons, and subparagraph (6) specifically names the spouse, so the statement "there is no attribution" doesn't make sense. What attribution rules are you referring to and how do they override 4975(e)(2)(F)? ROBS rely on a PTE for purchasing "employer securities", which need to be stock or certain debt instruments, I don't think an LLC membership qualifies. Also, it doesn't sound like husband's company is the "employer" so the employer securities exemption doesn't apply anyway. Might want to get a second (or third opinion). I wouldn't go there nor would I advise my clients to do this.

In a PBGC-covered DB plan, the funds have to go to PBGC under their missing participant program. They don't permit IRA rollovers. Been there, done that. http://www.pbgc.gov/prac/terminations/missing-participants.html

Last time I took over a fully insured DB plan around 2007 or so, the client actually had an email from the "TPA" telling them that they did not need a plan document, just the policies and that this saved them a lot of money. This "TPA" was an ASPPA member (but not credentialed as I recall). I only mention this to suggest that a plan document may not, in fact, exist. You can't really address anything about benefits, nondiscrimination, etc. without a plan document. Unless the plan document says the crediting rate is the policy rate, I don't think you can assume this. Arguably without a document the plan doesn't even exist. Probably zero chance of getting documents from IRS even in the unlikely event it was submitted. Remember their "we are in the process of perfecting our records" letters? In my experience you are giving much more credit to the insurers than is due. Some insurers did offer fully insured DB plans with bundled services where the insurance co would determine the benefits and the policy amounts needed to guarantee the benefits. If this is a CB/PS combo from the mid 2000s it is almost certainly a roll-your-own deal put together by the insurance agent and the policies sold would have the normal disclaimer that the insurer is merely issuing a policy and their only responsibility is to follow the terms of the contract, and that they make no representations regarding the use of the policy in any plan or its tax treatment. Time for the client to lawyer up I'm afraid. This may not be salvageable.

Yes, what GMK said, assuming Employer 1's plan not exempt from COBRA. There is a small employer exception, I think the threshold is fewer than 20 employees.

The QRP is a done deal. Not really sure why the merger couldn't be done. Absent the QRP suspense account, the practicalities don't seem that tough. However absent the QRP suspense account, I don't see that there is much reason to do it, simply terminate the DC and set up a DB. The only sticky wicket I see is the 1.414(l)-1(d) requirement that "account balances" equal plan assets. How does this work with the QRP suspense account? It is an account balance, specifically created pursuant to the requirements of 4980 and the 414 regs don't say "participant account balances". So if we consider the suspense account then that requirement of 414 is met. Unless the purpose of that requirement is specifically to preclude something like this, but I don't think that's the case since these 1979 regs pre-date the QRP concept.

An employer had a substantially overfunded DB plan that was terminated, with the excess transferred to a new DC QRP. Unfortunately it appears that the excess assets will not be used up over 7 years due to anticipated low ongoing compensation and application of the 415 limits. However due to historical high-3 compensation averages, it does appear there is room under 415 to use up most or all of the excess assets over the next few years in a DB plan. So we are looking at recommending the employer establish a new DB plan and merge the DC plan into it, along with the QRP suspense account, and then provide maximum DB 415 accruals for a few years to use up the excess. Does this work? IRC 414(l)-1(l) clearly allows the merger of DB and DC plans, but doesn't provide a lot of detail, certainly nothing that addresses the treatment of the QRP suspense account. There are some small DC account balances in the QRP due to the first year allocation of the suspense account. Seems to me we could probably treat these as 414(k) accounts in the DB plan. All participants are already 100% vested in everything so no issues there. Yes, this should have been looked at before the first DB plan was terminated, but that's a different issue. Thanks.

Short answer, no. The whole point of Roth accounts is the tax-free nature of growth on the account. Even if everything works out as you hope, you will pay taxes on the 10% interest paid to you from the family member, reducing your net to somewhere between 5% to 7% depending on your marginal tax rate. This just about equals what you will pay in interest to your Roth account (this interest is not tax deductible). So you are now at a wash. And if your Roth account might have earned 7% or more during this time, you are now in negative territory in terms of your own net worth, because it is only earning 5.5%. And this is the best possible case. Throw in risk factors and it makes no sense at all.

An IRA owner holds a significant partnership interest in his account that is generating nearly $100K in UBTI annually. He is going to starting filing the 990-T (he will have it prepared, the IRA trustee files it), however he is concerned that if he starts filing now, IRS may ask about prior years. Does anyone have any experience with IRS and 990-Ts and whether or not filing a 2016 return will generate an inquiry for 2015 and prior years. As an aside, the UBTI was much much less in prior years, but likely over the $1K threshold. A refinancing increased the leverage in the partnership.