shERPA

The plan should follow the guidance of DOL FAB 2004-02 as updated and replaced by FAB 2014-01, and of course the plan document provisions. There are firms that will assist in fulfilling the search requirements and set up a missing participant IRA (the DOL's preferred option). Not looking forward to the PBGC taking this on, as it will no doubt be more difficult to deal with a bureaucracy than it is to deal with a private firm seeking to satisfy its customers. But because PBGC will be the 800 pound gorilla if/when it does take this on, it will probably displace private sector providers.

Insurance Agent/Registered rep has his own corporation with 6 employees. All 6 of the employees are on the payroll of the insurance company, but they work exclusively for and report to the insurance agent. Furthermore the agent pays the full cost of the employees out of his production with the insurance company, and if his production is insufficient to cover the expense he has to write a check back to the insurance company. These employees participate in the insurance company's 401(k) and pension plans. So, the agent wants to set up a DB plan and wants to know if he has to cover the employees. To me, looking at it from the agent's side, the insurance company is acting like a PEO and the employees should be classified as common-law employees of the agent. The agent, who does a lot of 401(k) work and is familiar with this stuff, agrees that the arrangement is most like an employee leasing arrangement. He also freely states that any employee asked would say they work for him, not the insurance co. From the insurance company side, it appears the insurance company is treating the employees as its employees. It is covering them in their plans, and the agent's corporation is NOT an adopting sponsor of the insurance company's plans. Anyone run across this before? The insurance company is clearly not a PEO, but I don't see that this changes the relationship between the agent and "his" employees. FYI but not necessarily relevant, for some life insurance production the agent is a "statutory employee" of the insurance company and participates in its 401(k) plan as well. Thanks.

To @buckaroo's point, I'd recommend amending the plan to make each employee a separate contribution group. Then it is easy to avoid these situations. Re the testing, I agree with Tom. And just to try to restate what I was saying, if the ABPT fails, then the component plan HCE rate groups have to pass at 70% instead of the midpoint. Restructuring will usually take care of the child's rate group when tested on a contributions basis, but their EBAR can kill the ABPT. I've frequently recommended to clients that they give the 20-something kids working in the business a $5K bonus for an IRA contribution instead of a plan contribution. Then we don't get rogue EBARs crashing the test, and we have HCEs who are receiving zero benefits to actually improve the results.

There is 410(b) testing. You are good there per your ratio above - 80/86>70%. There is (a)(4) testing where each HCE's EBAR is tested as a rate group. Each rate group's "coverage" must be at least the midpoint between the safe/unsafe harbor percents in the 410(b) regs - if the plan's ABP >=70%. Otherwise if the plan's ABP<70% then each HCE rate group must pass the 70% threshold. For purposes of the plan's ABP, I don't think the component plans are separate, it is the entire plan ABP.

My ego's probably in the same rubbish bin. I think you have it right, each component plan has to pass 70%. What about the average benefits test and the midpoint for doing the (a)(4) test on component plan 2? Or can you get the EBARs to pass at 70% as well? That's what usually gives me fits when the owner's 20 something child enters the plan.

Agreed, not a legitimate termination of employment. Never any intent of the parties involved to terminate the employment relationship.

Thanks. I tend to agree with Kevin that the definition is clear. Furthermore IMO the "safe" thing to do is file the VCP ASAP. Worst case is the IRS says it was not eligible for VCP so it's back to Audit CAP (which is where they'd be if they don't file the VCP - assuming the tax audit would lead to a plan audit). Also as a practitioner if we have an opportunity to get it into VCP and I don't advise them to take advantage of this opportunity it could be an omission on my part.

Plan sponsor is a sole proprietor with a DB plan that has not been restated for EGTRRA. The sponsor's 2012 1040 is being audited by the IRS. No exam of the plan - so far. Is this sponsor eligible for VCP? Section 4.02 of RP 2013-12 says: ----------------------------------------------------------------------------------------------- .02 Effect of examination. If the plan or Plan Sponsor is Under Examination, VCP is not available and SCP is only available as follows: while the plan or Plan Sponsor is Under Examination, insignificant Operational Failures can be corrected under SCP; and, if correction of significant operational failures has been completed or substantially completed (as described in section 9.04) before the plan or Plan Sponsor is Under Examination, correction of those failures can be completed under SCP. ----------------------------------------------------------------------------------------------- "Under Examination" is capitalized, so looking to the definition of this phrase in Section 5.09, (posted below) it seems to me that a 1040 audit does not create any of the situations that fit the definition of "Under Examination". The sponsor is not under an EO audit, just a tax audit, so VCP should be available. What say the BL brain trust? Thanks. --------------------------------------------------------------------------------------------------- .09 Under Examination. (1) The term "Under Examination" means: (a) a plan that is under an Employee Plans examination (that is, an examination of a Form 5500 series or other Employee Plans examination); (b) a Plan Sponsor that is under an Exempt Organizations examination (that is, an examination of a Form 990 series or other Exempt Organizations examination); or © a plan that is under investigation by the Criminal Investigation Division of the Service. (2) A plan that is under an Employee Plans examination includes any plan for which the Plan Sponsor, or a representative, has received verbal or written notification from Employee Plans of an impending Employee Plans examination, or of an impending referral for an Employee Plans examination, and also includes any plan that has been under an Employee Plans examination and is in Appeals or in litigation for issues raised 26 in an Employee Plans examination. A plan is considered to be Under Examination if it is aggregated for purposes of satisfying the nondiscrimination requirements of § 401(a)(4), the minimum participation requirements of § 401(a)(26), the minimum coverage requirements of § 410(b), or the requirements of § 403(b)(12)(A)(i), with any plan that is Under Examination. In addition, a plan is considered to be Under Examination with respect to a failure of a qualification requirement (other than those described in the preceding sentence) if the plan is aggregated with another plan for purposes of satisfying that qualification requirement (for example, § 401(a)(30), 415, or 416) and that other plan is Under Examination. For example, assume Plan A has a § 415 failure, Plan A is aggregated with Plan B only for purposes of § 415, and Plan B is Under Examination. In this case, Plan A is considered to be Under Examination with respect to the § 415 failure. However, if Plan A has a failure relating to the spousal consent rules under § 417 or the vesting rules of § 411, Plan A is not considered to be Under Examination with respect to the § 417 or 411 failure. For purposes of this revenue procedure, the term aggregation does not include consideration of benefits provided by various plans for purposes of the average benefits test set forth in § 410(b)(2). (3) An Employee Plans examination also includes a case in which a Plan Sponsor has submitted any Form 5300, 5307, or 5310 and the Employee Plans agent notifies the Plan Sponsor, or a representative, of possible failures, whether or not the Plan Sponsor is officially notified of an "examination." This would include a case where, for example, a Plan Sponsor has applied for a determination letter on plan termination, and an Employee Plans agent notifies the Plan Sponsor that there are partial termination concerns. In addition, if, during the review process, the agent requests additional information that indicates the existence of a failure not previously identified by the Plan Sponsor, the plan is considered to be under an Employee Plans examination. If, in such a case, the determination letter request under review is subsequently withdrawn, the plan is nevertheless considered to be under an Employee Plans examination for purposes of eligibility under SCP and VCP with respect to those issues raised by the agent reviewing the determination letter application. The fact that a Plan Sponsor voluntarily submits a determination letter application does not constitute a voluntary identification of a failure to the Service. In order to be eligible for VCP, the Plan Sponsor (or the authorized representative) must identify each failure, in writing, to the reviewing agent before the agent recognizes the existence of the failure or addresses the failure in communications with the Plan Sponsor (or the authorized representative). (4) A Plan Sponsor that is under an Exempt Organizations examination includes any Plan Sponsor that has received (or whose representative has received) verbal or written notification from Exempt Organizations of an impending Exempt Organizations examination or of an impending referral for an Exempt Organizations examination and also includes any Plan Sponsor that has been under an Exempt Organizations examination and is now in Appeals or in litigation for issues raised in an Exempt Organizations examination.

If the Plan Administrator elects to use the transition rule for 2014, yes. 410(b) and 401(a)(4) are linked. Non-discrimination testing is applied to the "plan" that passes 410(b). Note that the use of the transition is permissive, not mandatory. Also note that the 410(b) regs apply a higher standard than the code for the transition rule to be available. The code conditions it on no significant changes in coverage, the regs say no significant change in the plan or in plan coverage.

If the 410(b)(6)© transition rule is available for coverage, it can apply thru 12/31/14. You do non-discrimination testing on the basis of the 410(b) group, so you would test together thru 12/31/14 when using the transition rule.

Code Section 72(t) cross references to Section 121 re the principal residence for purposes of a first time homebuyer exception to the premature distribution penalty from IRAs. That's probably as close to a cite as there is. 121 refers to "property" and "residence", but no where does it refer to "real property". I know for purposes of the mortgage interest deduction for a 2nd home, RVs and boats can qualify if they have facilities for sleeping, food preparation and toilet facilities. So without any specific research I'd say a 5th wheel rig probably could qualify as a primary residence if in fact that is where the participant will live most of the time.

IRS was making noise about having to be prime plus two a while back - anyone remember that? But IMO a plan loan is most comparable to a loan fully secured by a savings account, as there is no risk of loss to the plan or the other participants. Bankate.com suggests that these loans are typically at 3% over the rate paid on the collateral account. I checked my own credit union which offers a loan at 2.5% over the rate paid on the account. Looking at their savings rates, they range from 0.15% on a 30 day certificate to to 2.18% on a 60 month jumbo CD over $100K. Taking a mid-range rate of 1.64% on a $50K 48 month CD plus 2.5 = 4.14% which is 0.89 over prime. Even taking the highest CD rate of 2.18 plus 2.5% is 1.43% over prime. I like prime +1 in our loan programs.

Why not just tell Fidelity to do a rollover from the "IRA" back to the plan. Fidelity will issue a 1099-R for this, and the plan does not file a 5498, so this will eventually result in an IRS letter. I got one myself when I rolled from my IRA to my plan a few years ago. But a simple response that it was a rollover from the IRA to a qualified plan took care of it. Yes, it is not really a rollover, as it was never really a distribution. But it fixes the error and it is explainable, especially if the documentation for the original IDA request is clear that no distribution was ever requested. Life's too short to fight Fidelity.

Might work John, needs to be balanced by additional admin fees (usually less than the audit) and possible additional asset fees if the two plans separately fall below a breakpoint that they might if it were a single plan/contract.

Combine 'em. Plan should include SE income and wages in the comp definition. It's often done because the partners don't make their required quarterly estimated tax deposits. They would owe a penalty on their personal tax returns for failing to deposit on a quarterly basis. Since income taxes withheld via W-2 wages are deemed to be paid in evenly throughout the year (even if they are done just once a year in December only), accountants will often give the partners a W-2 sufficient to cover their income tax withholding. Not really legit under IRS guidance on how to pay and report income to partners, but the IRS seems to accept it in practice and don't challenge it.

Really depends on the wording of the plan document. From the plan perspective, Davis Bacon contributions are just another employer contribution source. If the plan language is very specific as to the determination of DB compensation and/or contributions, then probably can't do it. But could possibly contribute the same as a PS contribution if the plan allows and is consistent with the document's allocation language.

Lots of accountants do this so the partners can pay their income taxes via wage withholding (which is deemed to be paid ratably thru the year) rather than doing quarterly estimated payments. IRS seems OK with it even though written guidance says otherwise. Makes our jobs harder, but what else is new? As Bird said, to get plan compensation you probably need to combine the K-1 losses with the W-2 wages, assuming the wages were expensed in the partnership (likely). Hopefully this will mostly solve the problem. Since you mention the CPA, I assume your doing the plan administration, not the tax work. I recommend focusing on the plan operations and qualification issues first. If there are corrections needed, figure out what they are and present them. Let the CPA worry about whether or not tax returns need to be amended.

Look to the plan document, they typically have language that says something about the employer preparing a schedule of the allocations. Demonstrate to the agent how the sponsor (and your firm) followed the terms of the document.

Seems like it should be available. Per the code, B "became a member" of a CG. And per the regs, clearly there was a stock acquisition, B repurchased W's shares, this resulted in a change in the "employer". Are you thinking this wasn't a full sale or acquisition of the company, just a reshuffling of the stock ledger, and this prevents the use of the transition rule? From the code: © Special rules for certain dispositions or acquisitions (i) In general If a person becomes, or ceases to be, a member of a group described in subsection (b), ©, (m), or (o) of section 414, then the requirements of this subsection shall be treated as having been met during the transition period with respect to any plan covering employees of such person or any other member of such group From the regs: (f) Certain acquisitions or dispositions. Section 410(b)(6)© (relating to certain acquisitions or dispositions) provides a special rule whereby a plan may be treated as satisfying section 410(b) for a limited period of time after an acquisition or disposition if it satisfies section 410(b) (without regard to the special rule) immediately before the acquisition or disposition and there is no significant change in the plan or in the coverage of the plan other than the acquisition or disposition. For purposes of section 410(b)(6)© and this paragraph (f), the terms “acquisition” and “disposition” refer to an asset or stock acquisition, merger, or other similar transaction involving a change in employer of the employees of a trade or business.

Question has come up where an employer is terminating its participation in a MEP. The employer will probably choose a SEP or SIMPLE IRA going forward. The MEP is a 401(k) plan. Once the employer terminates its sponsorship, employees will be given distribution forms. Can the MEP force out distributions to participants with more than $5,000 in the plan? If this was a single employer plan and the employer terminates it, 1.411(a)-11(e) permits a cash out without participant consent if there is no successor DC plan. With the MEP, the employer is terminating and not establishing a successor plan, so in that sense the cash out without consent should work the same way. However the plan is not going away so does 1.411(a)-11(e) apply? On the flip side, even if the MEP can force the cash outs, must it force them? Or can it allow participants of the former adopting employer to maintain their accounts in the plan indefinitely?

Well, according to the IRS, an SSN is required for being legally hired for work. http://www.irs.gov/Businesses/Small-Businesses-&-Self-Employed/Hiring-Employees#2 And AFAIK, ERISA stands for the EMPLOYEE Retirement Income Security Act. So, one can't even be an employee without an SSN, so no SSN, no "E" in ERISA. The reality is lots of people are working and participating in plans using bad SSNs for a variety of reasons. But why doesn't this come up the first time an employer reports wages using a bad SSN? This should kick out long before many employees are ever eligible for a plan. And whether or not an SSN is bad is largely beyond the control of payors like Fidelity. But the payors get penalized.

Typically, either the SSN does not match the name record the feds have for it, or the number itself is invalid.

Good for Fidelity. The IRS imposes SUBSTANTIAL penalties on payors who file many 1099-Rs with bad SSNs. This costs the payors tens of thousands of dollars every year to resolve with the IRS, often legal representation is needed. This is a huge issue for payors and getting worse all the time. There are a number of ways SSA and IRS could address this to head off the problem long before a distribution is made from a plan. but I'm familiar with a payor that has to pay legal counsel continuously and always has 3 years worth of open cases of sanctions for bad SSNs, where the payor, like Fidelity in this case, is basically hired to do the reporting but does not have a direct relationship with the payee. I think Fidelity's position is reasonable, they are obligated to comply with reporting requirements and can't do this without valid SSNs. I hope this position, taken by someone as significant as Fidelity, might actually draw some attention to this problem and get IRS and SSA to figure out a better system.

Plan participation is not a protected benefit and this is an HCE. The employer could amend the plan to exclude this HCE from the plan by name going forward. Just a thought.....

Plan provides immediate eligibility for CODA and 12 month/21 statutory eligibility for SH match. Employee met the 12 months and entered the plan on 10/1 (calendar year plan). Plan does SH match per pay period. SH regs say that the SH much be made for all comp during the period in which an employee is eligible defer, which was all year. So does the employer have to go back and deposit the SH match for the first 9 months of the year prior to the employee being eligible for the SH match? Does your answer change if the plan does a true up of the match at year end?