shERPA

Thanks all. Good question on the 242(b) election. However the plan was not effective until 1998, so no joy there. The flip side is the account balance and the RMDs shouldn't be that much - especially in the early years. I have not received the account balance info yet so don't know for sure.

Going to submit a VCP for 401(k) plan where the company owner, age 84, has never taken RMDs. Plan has 80 participants but just the one owner needing RMDs. Any recent experiences calculating the correction with IRS? I did one of these a couple of years ago and IRS kept going back and forth on how to calculate the correction. I don't remember now what they finally accepted at that time, just hoping they have a more settled methodology today. Seems to me we'd calculate the RMD for each year required, bring it forward with earnings to the present. In calculating the RMD for each subsequent year we'd back out the cumulative RMD payable from the account balance. Thanks.

There is no such business by that name coming up on the NJ Secretary of State business entity search website.

Thanks much. Now I've learned of another wrinkle. A wants to make a big loan to B and B wants to make a big loan to A (from each other's plans). They want to jointly buy a building. Even if A and B are not disqualified persons, I'm concerned this would be a PT under 4975©(1)(D) or (E). If A loans from his plan to B for the purpose of enabling B to partner with A to buy a building that will benefit A personally, then it seems like it fits one or both of these definitions.

Partnership of professional corps. Two PCs, one partnership, a classic affiliated service group. 3 separate, identical PS plans, one for each entity. Can partner A's plan make a loan to the individual shareholder of partner B? B does not sponsor A's plan, is not a fiduciary, etc. However A, B and the partnership are a single employer per 414(m). 4975(e)(2)© and (H) define a disqualified person to include a 10% shareholder of an employer whose employees are covered by the plan. Under a 414 definition of "employer" the proposed loan would be a PT as individual B is a shareholder of Corp B, which is part of the aggregated employer. However 414(m)(4) lists the specific code sections to which it applies and this list does not include 4975. Still feels a little too close for comfort.

I agree after-tax voluntary contributions may be made by the participant writing a check to the plan, absent any plan provision to the contrary. Does a participant get any sort of extended time period after the end of the year to make after-tax voluntary contributions? An employer contribution may be accrued at year end and deposited by the employer's tax return due date. An individual may make prior year IRA contributions until the following April 15. But there is specific authority in the code for this. I haven't found any authority for an extended period of time for voluntary contributions.

Was the ERPA involved in making any of this happen? If not, I don't see where the ERPA has a profession obligation to do anything about it. We become aware of non-compliance all the time when talking with CPAs, advisors and prospective clients about plans. If we're engaged, we have a duty to properly advise the client of the requirements and the consequences of non-compliance. Does the owner want to correct this or not? Is the owner asking the ERPA's advice on how to fix it? From the way the post is worded it sounds like the owner is not looking to fix it, the ERPA is just aware of it.

Economic theory suggests that high prices and large profit margins will induce new suppliers to enter the market, and as supply increases prices will decline. Clearly the OP has money to invest, otherwise he would not be looking to establish a defined benefit plan. In light of such high fees for low-cost work, he should be looking to purchase or start an actuarial and administration firm. I'm sure he could find a few willing sellers among the members of this board. I would think a business that can charge $1,500 for a service performed "with a few mouse clicks in less than a minute" should be worth something like 10 to 15 times annual revenue, right?

Yes IMO.

Looks like the result of bureaucratic infighting. Note that at the top left of the form, it is Treasury only, not a joint return with EBSA like the 5500. DOL dropped Sch T and other compliance info. IRS says OK we'll just require our own filing!

Biener says the selected 401(k) provider is "very low cost". These are usually the ones who have no processes in place to deal with QJSA and other pension plan distribution options/restrictions, so this needs to be investigated before effecting any sort of merger or employer-initiated transfer from MP to 401(k).

I would imagine that in the final resolutions by the board of directors, certain persons were authorized by the board to take all actions necessary to wind up the affairs of the corporation. I'd look to the final meeting minutes, and then have the person or persons so authorized by the board sign the plan documents. If it is not a real life situation yet, before it becomes one advise the sponsor to have the board specifically appoint someone to act on its behalf to wind up the plan and put this in the minutes.

We stopped doing that level of accounting many years ago, as clients don't want to pay for it. We do account for every deposit and withdrawal from the account, break out the YTD interest, dividends and fees as reported on the statements, the rest of the change in value is investment earnings/loss.

Under 404, the general rule is that PS contributions are deductible when made. Under 404(a)(6) if the contribution is made by the extended due date of the return for the sponsor's taxable year and is "on account of such taxable year" it is deductible for that taxable year. Note this is driven by the employer's year, not the plan year (as is the 25% deductible limit based on fiscal year comp, not plan year). You says that the S-Corp cannot take a 2013 deduction for the 3/31/14 PYE. When did the S-Corp adopt the PS plan? Seems to me if the S-Corp adopted the PS plan no later than 12/31/13, it can take a deduction for a 2013 timely made contribution even if it is allocated for the 3/31/14 PYE.

DBs and combo plans may want to use 65 sometimes. If the owner's going out at 65 anyway, using 65 means less cost for TH minimum benefits which are determined as of NRA. And with combos, testing age often works better at 65. If we want the max 415 DB for the owner at 62 the DB will be at 62 but we may use 65 on the DC so the combo can be tested at 65, and we're fulfilling TH in the DC so that's not an issue. The minimum 0.5% benefit for 401(a)(26) is a tad more valuable at 62 than 65 but that (and passing with higher EBARs and MVARs) is the price of getting the owner the full 415 at 62.

A safe harbor for valuation of the policy is the PERC amount per Rev Proc. 2005-25. An appraisal can be another way to determine FMV, but it would not be an IRS safe harbor. Per that Rev Proc. the interpolated terminal reserve "is appropriate only where the reserve reflects the value of all of the relevant features of the policy", whatever that means.

Generally the ILIT is used to keep the policy proceeds out of the estate. There are other strategies involving charitable deductions and insurance that may be available depending on a number of factors, none of which I am qualified to discuss.

Resurrecting this topic - we have a multiple employer plan where some employees transferred from employer A to employer B. Their plan participation continued uninterrupted, no distributions, rollovers or transfers, they are simply on B's payroll now instead of A's. Does their entire account balance transfer to B for top heavy purposes like an related, employer-initiated transfer? Or does their balance need to be bifurcated and allocated to each employer's top heavy test (and then drop off A's test)? Treating as an employer-initiated transfer seems to make the most sense but I can't find any guidance on this one way or the other.

We had a takeover plan that had 2/1 and 8/1 entry dates. When we restated it we submitted it for a DL, and IRS came back requiring an amendment to add the first day of the plan year as an entry date. They cited 410(a)(4) and 1.410(a)-7©(3)(I)(A).

Agree with ESOP guy, that sounds about right. However I think DOL back in the '90s indicated a pretty strong preference for treating loans as a segregated investment to the specific participant borrowing. I remember we changed our balance forward plans to this method at that time and have done it this way ever since. I can't give you the cite as I don't recall it now. I don't know what percentage of the plan's total assets is in loans, but from an investment management perspective this represents a fixed income investment. In these days of fiduciary this and fiduciary that, the investment mix and management should consider this and allocate the remaining assets accordingly if they are really convinced they want to keep it the way it is. There isn't really a risk of loss to the plan because the loans are fully secured by account balances, but there is a potential opportunity cost to the plan on investment returns if the plan is overweighted in fixed income including the loans. Personally, I'd recommend changing the loans to be segregated investments of the borrowers.

Multiple employer plan. AC adopts and co-sponsors OC's plan, service with both entities counts for eligibility and vesting. Each contributes based on their share of the payroll.

Thank you Tom. That's directly on point and very helpful.

Plan sponsor is part of a controlled group, the SH 401(k) currently covers just one entity, the other 3 entities do not have a plan at all. The current plan passes the 410(b) ratio test. Can the existing 401(k) be amended to extend the coverage to the other entities mid year? I know some interpret IRS guidance on this to permit no amendments except that which they have specifically authorized, while others interpret this to mean SH provisions and perhaps other provisions in the SH notice cannot be changed. If they don't want to amend the existing plan, can the other related entities adopt a separate SH plan for 2014? Or are they precluded because the "Employer" (as defined in 414(b) and ©) already sponsors a SH plan? If they cannot adopt a new, separate SH plan for 2014, can the entities without a plan adopt a non-SH 401(k) or does the mere presence of the SH in the related entity somehow interfere with this as well? The plan year requirement in the (k) regs allow a new SH plan less than 12 months unless it is a successor plan under 1.401(k)-2©(2)(iii). This section defines Successor Plans to be plans where 50% or more of the eligible employees were covered by a CODA of the employer in the prior year. In this case none of the newly eligible ees has previously been covered by a CODA maintained by this employer, so any new plan would not be a successor plan.

Yes there is a cite for an extension not being valid if it was filed after the return was filed. No, I don't know it offhand and am not going to research it right now. There may be one other hope for the CPA. Had the taxpayer already reviewed the return and authorized the CPA to file it electronically on their behalf? I think the taxpayer must sign a "Declaration of Taxpayer" form. If the taxpayer had not done so, then the CPA's inadvertent filing of the return may be equivalent to filing an unsigned return - not a valid filing. If this is the case then an extension filed afterwards is arguably still a valid extension as no valid filing of the return occurred. Personally I'd rather not have to be the one to prove this to the IRS should they question the extension, the timing of the contribution or the deduction, but if there is nothing else left, it may be something to hang their hat on.

CPA is right, there was a case a while back where IRS disallowed a deduction because the extension was invalid - extension was filed after the return was timely filed. Tough situation.