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I was recently asked by an attorney to calculate probability of a person aged 57 dying before another person age 70. Pulling out my old (very old) copy of Life Contingencies by Jordon, I found the formula for the "q" that I needed.It looks like this: 1 (infinity sign) q 57:70 I don't have any software to calculate this value directly. I can develop it from scratch using an Excel spreadsheet, but, that would take me hours. Any suggestions? Thanks for any suggestions, Rick

I have a sole proprietor client who is age 60 and wants to start a 401(k) Plan with the initial contribution being designated as a Roth contribution. His thinking is that he wants to make an investment that he feels will increase in value substantially within the next year or two. He would than like to terminate the plan and receive this money tax free. Assuming he closes down his sole proprietorship and is at least age 60, would this meet the "separation from service" exemption for Roth distributions so that he wouldn't have to wait 5 years before he could take the money without taxes and/or penalties.? ************************************************************************************************************************* I think that I found out my answer. There is really no way around the 5 year waiting period short of maybe taking substantially equal periodic payments. So if my client wants to do this, he needs to be prepared to take out periodic payments for a while.

I have a client that currently has a 401(k) with the only contributions being salary deferrals and an employer match. The employer match is 100% of their deferrals to a maximum of $2,000. The owners want to get more for themselves by maxing out on their salary deferrals. Without a safe harbor contribution, they would not pass the ADP test. I suggested a Safe Harbor match (100% up to 3% plus 50% of the next 2%). The revised figures with the four owners maxing out their salary deferrals came out great. The owners would receive approximately 75% of the increase to the contribution. Unfortunately, about 20 staff out of about 100 had a decrease in their employer contribution from the current match to the S/H match. One of the owners just does not want to see this happen. Since the accumulated decreases were relatively minor, I suggested making the shortfalls up to these individuals outside the plan. He balked at that idea. Here's my question. Can the plan have an additional matching contribution that would equal the difference, if any, of what each participant had before versus their potentially new lower amount due to the S/H match? ***************************************************************************************************************************** Here's an idea, what if every participant was put into a separate class? Since the "correction" contributions would only be going to non-highly participants, there would be no discrimination issue. Seems like this approach is alot simpler than the additional matching approach detailed above.

I'm sorry, I should have been more precise. A "simple" 401(k) as in plain vanilla. The only contributions made to this plan have been employee salary deferrals and employer matches.

I have an 8/31 client with a simple 401(k) plan. Currently, the only contributions being made are employee salary deferrals and employer matches. They have decided to switch their Plan Year to calendar year. At this point, they would also like to consider adding a Safe Harbor match to the Plan in place of the current match for the Plan Year beginning January 1, 2014. I don't think that it is too late to prepare a S/H notice to be distributed to the employees informing them of this for 2014. Any problem with adding the S/H matching contribution?

Can a company that is Sub-S have a medical reimbursement plan?

It appears that I link I provided doesn't work, so here's a copy of the article: Late Deposit of Salary Deferrals - Fixing Common Plan Mistakes Employers with 401(k) plans are responsible for depositing their employees salary deferrals to the plans trust on the earliest date that the deferrals can reasonably be segregated from the employers general assets. The earliest date is based on individual facts and circumstances. If your plan has fewer than 100 participants, your deposit is considered timely if its made within 7 business days after you withhold the salary deferrals even if you were able to deposit them earlier. If you don't deposit the salary deferrals within 7 business days after you receive or withhold them, then your individual facts and circumstances will determine whether your deposit was considered timely. For larger plans (100 participants or more), the determination of whether the deposit was timely is based on the individual employers facts and circumstances. Regardless of your individual facts and circumstances, you must deposit the salary deferrals no later than 15 business days in the month following the month in which the amounts would otherwise have been payable to your employees in cash. If your facts and circumstances show that you could have made the deposit on an earlier date, then you must have deposited your salary deferrals by that earlier date for them to be considered timely. The problem Failing to timely deposit withheld salary deferrals to the plan is a plan error. Consequences of not segregating and depositing salary deferrals timely Failing to timely deposit salary deferrals: is a fiduciary violation and could subject your plan to the Department of Labors civil penalties. could violate your plans terms and jeopardize your plans tax-exempt status Failing to segregate salary deferrals from your general assets and timely forwarding them to the plans trust allows you prohibited use of plan assets. This can result in you engaging in a prohibited transaction for which you can be assessed excise tax. The fix - correction programs available to correct this mistake DOLs Voluntary Fiduciary Correction Program You can correct the fiduciary violation for failing to timely deposit salary deferrals using the DOLs Voluntary Fiduciary Correction Program. VFCP isn't available if your plan is under a DOL investigation or an IRS examination. DOLs prohibited tax class exemption in conjunction with VFCP You may also be eligible to take advantage of the prohibited tax class exemption in conjunction with VFCP if you: deposited the salary deferrals to the plans trust within 180 days from the date the amounts would otherwise have been payable to the employees in cash; satisfied all VFCP requirements; received a no-action letter for your VFCP application; and notified all interested persons in writing within 60 days of submitting your VFCP application. There is an exception to this notice requirement if: your excise tax liability would have been $100 or less; you contributed the amount of your excise tax liability to the plan; and you allocated this amount to participants and beneficiaries according to the plans terms for allocating plan earnings. If the transaction qualifies for the prohibited transactions class exemption, then you won't be liable for excise tax under IRC Section 4975. IRS Employee Plans Compliance Resolution System If your plans tax-exempt status is in jeopardy, then you can use the IRS Employee Plans Compliance Resolution System. If your plan is not under IRS examination and meets the other eligibility requirements, you can use either the self-correction or voluntary correction programs. If your plan is under examination, you can still self-correct if the failure is insignificant, or you can resolve the issue in a closing agreement through Audit CAP. DOL and IRS correction programs are not interchangeable The goal of the DOL's VFCP is to ensure that the employer isn't subject to DOLs civil penalties. The goal of the IRSs correction programs, including VCP, is to ensure that the plan doesn't lose tax benefits arising from its qualified status. It is critical that you know what your objectives are before deciding which program you want to use. Also, you may use both the DOL and IRS programs if you have a dual objective of avoiding the imposition of DOLs civil penalties and the IRSs revocation of your plans qualified status. The fix - correcting the mistake Salary deferrals never deposited - If you failed to deposit salary deferrals to the plan, then you must make corrective contributions in the amount of the salary deferrals you should have timely deposited adjusted for earnings. The adjustment for earnings is measured from the earliest date you could have segregated the salary deferrals from your general assets to the date you actually make the corrective contributions. Late deposit - If you deposited the salary deferrals, but not timely, then to correct this mistake, you must contribute the earnings on the late deposited salary deferrals. Earnings are what the late deposited deferrals would have earned measured from the earliest date you could have segregated them from your general assets to the date you actually deposited them to the plan. Differences in the earning adjustment under DOL and IRS programs The general premise of both the DOL VFCP and IRS correction programs is to restore the plan to the position it would have been had you timely deposited the salary deferrals. However, the earnings calculation in both programs could be different. DOLs VFCP - earnings are determined using the greater of: lost earnings (earnings that the plan would have earned if you had timely deposited the salary deferrals), or restoration of profits (the profit you earned that is directly attributable to your investment of the salary deferrals that werent timely deposited). You can use DOLs online calculator when using VFCP to calculate earnings. IRS correction program - earnings are generally determined based on what the plan would have earned had you timely deposited the salary deferrals. The IRS correction programs do, however, allow you to use reasonable estimates (including the DOLs online calculator) to calculate the earnings on the late deposited salary deferrals if either: its possible to make a precise calculation but: the probable difference between the approximate and the precise restoration of participants benefits is insignificant, and the administrative cost of determining precise restoration would significantly exceed the probable difference, or its not possible to make a precise calculation (for example, where its impossible to obtain plan data). Making sure it doesnt happen again Establish a procedure for depositing elective deferrals with or after each payroll date, or according to the terms in your plan document. If you have instances when your deferral deposits are later than the normal timely deposit (because of vacations or other disruptions, for example), keep a record of why those deposits were late. Coordinate with your payroll provider and others who provide service to your plan to determine the earliest date you can reasonably make deferral deposits. The date and related deposit procedures should match your plan document provisions, if any, dealing with this issue. If you have a change in the person in charge of making these deposits, make certain the new person understands when he or she must make these deposits. Keep in mind that despite all of your good efforts, mistakes happen. In that case, the IRS can help you correct the problem so that you retain the benefits of your qualified plan. Page Last Reviewed or Updated: 12-Dec-2012

Looking at the following article from the IRS website: http://www.irs.gov/Retirement-Plans/Late-Deposit-of-Salary-Deferrals-Fixing-Common-Plan-Mistakes, it appears that making submissions under both the VFCP and EPCRS appear to be advisable.

After doing some research, it appears that my client has three issues: 1. There has been a fiduciary breach which can be corrected through the DOL's VFCP program. I haven't be able to determine what, if any, is the cost to send a submission to the VFCP. If anyone knows, I would appreciate the information. 2. Since the plan's provisions weren't followed, there is a qualification issue. This can be corrected through the IRS's VCP program. The cost for submission is $750. 3. Since the client held unto money that should have been deposited into the plan trust, there has been a prohibited transaction. This, I believe, can be dealt with under a VFCP PT class exemption. Comments?

Client has a calendar year 401(k) plan. Owner writes a check for $3,500 on 12/31/12 representing his final salary deferral for 2012. This is the amount that will bring his total deferrals up to $22,500 for the year. Unfortunately, the check was intentionally held up and wasn't sent to the brokerage firm until 1/29/13. Questions: 1. Do we agree that a PT has occurred? 2. Do we also agree that going back and changing his 2012 W-2 and his 2012 tax return would cause a legal problem? 3. Would doing a DOL VFCP submission take care of "everything?" 4. Would an additional submission of some kind to the IRS be required? Thanks for the help.

Given a SIMPLE IRA with a 3% matching contribution. Here's the situation: 1. Plan has owner and 2 employees 2. In 2012 owner deposited <3% for himself when he should have received 3%. The correction for the owner would be an additional $202. 3. In 2012 owner deposited >3% for employee who should have received 3%. The correction for the employee should be -$283. 1. Given that these corrections are somewhat de minimus, could we just adjust the 2013 contributions to wash out these differences? 2. Is it necessary to correct these errors through one of the IRS correction programs to avoid qualificiations problems in the future? Thanks for the help

He purchased an insurance agency (figures) with 3-4 employees. This, as far as I know, is his only active business

Thanks, this is exactly what I need.

I was recently approached by a CPA who as a client that just recently was talked into and started a ROBS arrangement. He wanted to purchase an insurance agency for about $250,000 and didn't have the ready assets. He did have that amount in a 401(k) from a prior employer. Using this "ROBS" approach, he rolled his 401(k) balance over into a newly created 401(k) plan and had the plan purchase $250,000 of stock in his newly created company with the proceeds going to him to buy of business. As a consideration, the CPA told me that this client is extremely conservative when it comes to his money. I am not that familiar with these arrangements, but, based upon my research, these arrangements are not "per se" illegal. They are, in my estimation, mindfields of potential prohibited transaction violations. Here are my questions: 1. Has anyone has any experience with these arrangements and, if yes, what were your reactions and conclusions? 2. The prospective client started this 401(k) containing these provisions just a couple of months ago. What would be the best way of getting him out of this arrangement? Is there anything that can be done before the end of the year to mitigate potential problems? I don't think that he has another $250,000 lying around to reverse this transaction. 3. Assuming this this arrangement is already fraught with PT and potential PT violations, what would be the best and the worse this client could do with regard to this plan? Thanks

The monies did not go into the money market account. I did review the monthly investment results for the end of April, May and June and the plan showed losses. Therefore, there will not be any income adjustment required. I am still concerned about the money leaving the plan in the first place. Suddenly, there is a slight risk, due to a fiduciary breach, that didn't exist before. I suggested to the client that to remedy the situation, a possible course of action would be a VCP submission. Have the IRS come back and say that everything we did was appropriate and reasonable and that there will be no problems if ever the plan faces an audit. I also explained to the client the the chances of anything happening were very slight. He has opted for the VCP submission. He feels that the brokerage firm should pay any expenses regarding the resolution of this problem. I couldn't agree more.

I went to the DOL site and looked up the covered transactions under the VFCP program: The VFCP provides descriptions of 19 categories of transactions and their methods of correction. Corrective remedies are prescribed for the following fiduciary violations involving employee benefit plans: Delinquent Participant Contributions and Participant Loan Repayments to Pension Plans Delinquent Participant Contributions to Insured Welfare Plans Delinquent Participant Contributions to Welfare Plan Trusts Fair Market Interest Rate Loans to Parties in Interest Below Market Interest Rate Loans to Parties in Interest Below Market Interest Rate Loans to Non-Parties in Interest Below Market Interest Rate Loans Due to Delay in Perfecting Security Interest Participant Loans Failing to Comply with Plan Provisions for Amount, Duration, or Level Amortization Defaulted Participant Loans Purchase of Assets by Plans from Parties in Interest Sale of Assets by Plans to Parties in Interest Sale and Leaseback of Property to Sponsoring Employers Purchase of Assets from Non-Parties in Interest at More Than Fair Market Value Sale of Assets to Non-Parties in Interest at Less Than Fair Market Value Holding of an Illiquid Asset Previously Purchased by Plan Benefit Payments Based on Improper Valuation of Plan Assets Payment of Duplicate, Excessive, or Unnecessary Compensation Improper Payment of Expenses by Plan Payment of Dual Compensation to Plan Fiduciaries I don't see where my situation specifically falls under any of the categories expect possibly "Improper Payment of Expenses by Plan". Do you think that category would be the one to file under?

I acquired an individually directed 401(k) plan that transferred its assets from one brokerage firm to another. The date of transfer was around the beginning of April, 2012. Given that the client wants to terminate this plan, I requested all available monthly statements from the new firm so that i could balance them. I noticed that about a week after receiving the assets (20 mutual funds) about 5 were sold. Upon the sale of each investment, 28% was withheld and sent to the IRS. This is a small group with 1 lawyer, 1 secretary and 1 prior participant. The attorney had over $65,000 removed from his account on April 14th due to this error. It appears to me that the brokerage firm did not code the account as a qualified retirement plan. Whatever the reason was, monies left the trust that shouldn't have. I contacted the broker who was handling the account on Wednesday, 7/24 at about 3:00 for an explanation. He indicated that he would get right back to me. Not hearing from him, I contacted him again today, Thursday at about 9:30. He sounded almost surprised to hear back from me and indicated that he had given the problem to his "assistant" to look into and would, again, get back to me shortly with an answer. About 2 hours later, he calls back and says that he has good news. All of the monies were deposited back into the account. When I asked when this happened, he tells me the $65,000 was deposited back into the account just yesterday (coincidence?). All of this aside, I now have some questions: 1. This plan should not only be reimbursed for the monies incorrectly removed from it, but, for the lost earnings as well. Assuming a reasonable calculation of these earnings is performed, where should these lost earnings come from? I have been told that the local brokerage can't just write a check for the lost earnings as they are covered by FINRA and it could cause a problem. I also don't think that the Employer should be on the hook for these amounts either. Any suggestions? 2. Since these monies were removed contrary to the provisions of both the plan and trust documents, could we have a qualification issue here? I was going to terminate this plan informally, but, now I am thinking about a formal termination with the IRS being apprised of the problem and our solution and hope for their blessing by them approving the termination. Maybe I am going a little overboard, but, I don't like my clients plans being put at risk to any degree without them knowing about it. It will obviously come down to the clients' decision on how to proceed. Suggestions on how I should proceed and what I should recommend to the client? Thanks, Rick

According to the IRS website, ee/er contributions can be removed from the SIMPLE with 1099-R's being produced. In as much as the amount of money involved is small, I don't see this as a big deal. I just want to make sure that if the contributions are returned, the SIMPLE plan will not be put at any risk. I know that the 401(k) won't be affected. I read in Sal Tripodi's EOS that there is a risk that the SIMPLE plan could become "invalidated." He didn't go into any detail as to what that exactly means, but, it made me nervous enough to post the question.

I was just referred into a client that has had a SIMPLE IRA plan for years. They told the broker who "helped them" establish a new Safe Harbor 401(k) Plan effective 1/1/12 that there weren't any plan contributions to the SIMPLE during 2012. It now appears that one employee deferred about $500 and had an accompaying employer match. I know that the SIMPLE needs to be the exclusive plan, but since the new 401(k) has already been established, that is now a moot point. Question: Can the employee deferrals with income be returned to the employee and the employer matching contribution with income be returned to the employer? If the ee/er contributions can be returned, will there be any problem operating the 401(k) Plan normally for the 2012 Plan Year? Thanks for the help, Rick

I have a client with a 401(k) plan that is switching it's investment custodian. They just received the following message from the custodian they are switching from: We received the signed discontinuance letter and I noticed that there was a request to issue an invoice for any outstanding charges. Unfortunately, it is not possible to create an invoice for upfront payment of outstanding fees because under current tax law, the payment of the discontinuance charge may be considered a plan contribution, rather than a payment of plan expenses. If this happens, there are several issues that may need to be addressed, such as: - whether the terms of the company's plan document allows such contributions - whether the payment has to be allocated into participant accounts in accordance with the plan's allocation formula - whether the allocation violates the Code Section 415 limitation on contributions - whether any non-discrimination requirements may be violated - whether the company will be able to deduct this as a plan contribution - even if this is considered to be a reimbursement of plan expenses, John Hancock is not able to reflect this payment in the Schedule A report. To avoid any of these potential issues, it would be advisable to adhere to the terms of the contract and deduct the outstanding charges at time of discontinuance. Has anyone had to deal with this situation before? I would have thought that the discontinuance charges would be considered simply plan expenses that could be paid for and deducted by the Plan Sponsor. Thanks for the help.

I have a client that has maintained a 401(k) plan with me for some time. From about 2007, part of the plan's assets, which were all commingled, were invested with a certain investment firm. When my client started the account, he indicated on a preference questionnaire that he wanted the monies to be invested conservatively. It appears that the investment firm ignored his wishes and invested the plan's assets fairly aggressively. Over the last couple of years, my client has been requestng different types of paperwork from me such as, historical brokerage statements, reconciliation worksheets for those assets held by the investment firm, etc. After doing alot of research, my client decided to sue this investment firm. I received a call today from his attorney asking me about the entry on the 5500 forms filed over the years that indicates that there has been no fraud or dishonesty. He wants to know when this box would actually be checked. The opposing side is suggesting that if this box was never checked, then the Plan Sponsor felt there was never any Fraud or Dishonesty, so why is he crying foul now? Here are my questions: 1. My contention is that you don't check the box indicating fraud and dishonesty because of a "gut feeling" that your plan's assets are not doing as well as you had anticipated and you want to blame it on the investment firm. Correct? 2. Not having received any indication from the plan sponsor other than having me gather historical information and his suspicion that the investment firm might not have followed his instructions, I checked "no" for every 5500 I prepared. Do you agree the correct approach was taken? 3. What would need to occur for that Fraud and Dishonesty box to be checked? Does there have to be something definitive from the courts? A judgement against the injuring party? Is the IRS clear as to what constitutes Fraud and Dishonesty so that the box would be checked with a "yes"? If you know, please direct me to where the IRS says this. Thanks for the help, Rick

I have a client that has maintained a 401(k) plan with me for some time. From about 2007, part of the plan's assets, which were all commingled, were invested with a certain investment firm. When my client started the account, he indicated on a preference questionnaire that he wanted the monies to be invested conservatively. It appears that the investment firm ignored his wishes and invested the plan's assets fairly aggressively. Over the last couple of years, my client has been requestng different types of paperwork from me such as, historical brokerage statements, reconciliation worksheets for those assets held by the investment firm, etc. After doing alot of research, my client decided to sue this investment firm. I received a call today from his attorney asking me about the entry on the 5500 forms filed over the years that indicates that there has been no fraud or dishonesty. He wants to know when this box would actually be checked. The opposing side is suggesting that if this box was never checked, then the Plan Sponsor felt there was never any Fraud or Dishonesty, so why is he crying foul now? Here are my questions: 1. My contention is that you don't check the box indicating fraud and dishonesty because of a "gut feeling" that your plan's assets are not doing as well as you had anticipated and you want to blame it on the investment firm. Correct? 2. Not having received any indication from the plan sponsor other than having me gather historical information and his suspicion that the investment firm might not have followed his instructions, I checked "no" for every 5500 I prepared. Do you agree the correct approach was taken? 3. What would need to occur for that Fraud and Dishonesty box to be checked? Does there have to be something definitive from the courts? A judgement against the injuring party? Is the IRS clear as to what constitutes Fraud and Dishonesty so that the box would be checked with a "yes"? If you know, please direct me to where the IRS says this. Thanks for the help, Rick

As for the Salary Deferrals for the Owner, it should be on the 1040 with all other Owner Contributions to the plan; Never on the Schedule C. I am not aware of any exception for the DB plan either. Hence, when an amount is funded, there should be a determination of what portion of the amount is attributable to that individual owner. He would take that deduction on the 1040 with all other "OWNER" contributions. A deferral should never be posted on the Schedule C for the Owner, but on the 1040 with any other contribution for the owner. Keep in mind that this is an issue when the entity is not taxed as a corporation. Good Luck! Again, thanks for the information. Final clarification - it was my impression that since a DB plan is not an individual account plan, the total contribution shouldn't be "artifically split" between owners and non-owners. Therefore, the total DB contribution should always be shown on the 1040 with no portion being shown on the Schedule C. Am I right on this? Thanks again, Rick

I appreciate the quick and informative response that you have provided to me. Can I also assume the any deductions to a defined benefit plan will always be taken on the 1040? The "CPA" I mentioned took the non-owner DB portion (Cash Balance Plan) and showed it on the Schedule C. Also, do the owner and non-owner 401(k) salary deferrals appear on a separate line anywhere? The CPA, for some reason I can't fathom, included the owner's $22,000 salary deferral on the Schedule C. Thanks again, in advance, for any help you can provide. Rick

I just want to be sure where the following plan deductions would be taken on a corporation's tax return. I have a Limited Liability Corporation being taxed as a sole proprietorship. This corporation has a 401(k) plan as well as a Cash balance Defined Benefit plan. Please indicate where the following deductions would be taken; either on line 28 on the front of the 1040 or on line 19 of the Schedule C: With regard to the 401(k) Plan: Owners Salary Deferral Owners Safe Harbor Match Owners Discretionary Contribution Non-Owners Salary Deferrals Non-Owners Safe Harbor Match Non-Owners Discretionary Contribution With regard to the Defined Benefit Plan: Defined Benefit Plan Contribution (and I would assume this answer wouldn't change whether the Plan is a Cash Balance Plan or not). This case I am working has included and excluded different categories of contributions on the Schedule C each year since 2006. I just want to make sure the the proper deeductions have been taken in the proper places. When I spoke to the CPA, she didn't have a clue (some CPA!). Thanks