rblum50

I just picked up a calendar year 401(k) plan to do the annual administration for 2010. Upon reviewing the assets for the 2009 Plan Year, I noticed that a $4,500 salary deferral made by one of the employees never made it into the plan. The company uses a leasing company that failed to transmit the money to the trust. In fact, it is still outstanding as of today. If it would be allowed, I would just like to complete a Form 5330 for the late deposit penalty and get this late deposit including estimated earnings back into the plan as soon as possible. This approach would be alot easier than to assume the salary deferral was never made. That would entail revising the employee's 2009 individual tax return, corporate tax return, individual tax return of the owner (Sub-S Corp), 5500-SF for 2009, 2009 Annual Report and on and on. I think that my first solution would meet the requirements under the self-correction program per RP 2008-50. I would appreciate any comments.

I recall reading somewhere that depending upon what kind of document you are using, there is a maximum number of allocation classes allowed based upon the number of participants in the plan. For instance, with only 4 plan participants with a prototype document, you might not be able to put each individual into their own allocation group. Can anyone give me a cite as to where to go to get better informed on this? Thanks

The $50,000 distribution came from the plan and was deemed to be part of the marital settlement. It was ordered in the original divorce papers which referenced a QDRO. The problem is that the QDRO wasn't actually done. The attorney for the payor (as a said a nasty "b") has now drafted what she considers a "retroactive QDRO" for review. It appears that she just simply added a sentence indicating that the order will be "retroactive" and used boilerplate language for the remainder of the order. That is why,when reviewing her work, it appears as though the monies "will" be paid out subject to this QDRO rather than responding the the fact that the monies have already being paid out and rolled into an IRA by the alternate payee. Before I critique her work as a non-lawyer, I just wanted to assure myself that the points I am making can be considered as valid. In you opinion, what are the tax consequences of the rolled money? If this retroactive QDRO is approved, are there still adverse tax consequences on this rollover? Thanks for the help

I have a 401(k) plan where the Plan Administrator got divorced and paid $50,000 to her spouse as part of a divorce settlement. There were all sorts of divorce documentation, but, no QDRO. I brought this up to the client who referred me to her attorney (a rather nasty individual). I mentioned that it was necessary to have a QDRO for the plan to avoid potential problems in the future. A tentative Retroactive QDRO has been sent to me for my review and I have the following comments: 1. The only verbiage in the document making it retroactive is: "This Order is entered pursuant to the authority granted in the applicable domestic relations laws and the marital property laws of the State of Texas and IT IS ORDERED that this order is retroactive to December 28, 2009." Question: I am not that familiar with these things and I am wondering if this simple reference is sufficient to make this attempt at a retroactive QDRO, in fact, a retroactive QDRO? 2. Remembering that this payment has already been made and rolled into an IRA, I question the following section: "Commencement Date and Form of Benefit Alternate Payee shall be paid Alternate Payee's benefits as soon as administratively feasible or, if the Alternate Payee so elects, at the earliest date permitted under the terms of the Plan." Question: Given the fact that the Alternate Payee was already paid out and rolled the proceeds into an IRA, this section makes no sence. In fact, it appears to me, that this probably was a boilerplate section inserted into the document on the assumption that when this DRO is approved, a payment will be made subsequently. It just seems inconsistent with what has actually happened. Do you agree with my opinion on this or am I being too picky? 3. Finally, with regard to the tax treatment on this distribution, the document indicates that the "...Alternate Payee under the terms of this Order...will be required to pay the appropriate federal income taxes on this distribution." Again, it appears to me that this wording would be more appropriate if the distribution was to be made in the future and not already rolled into a tax sheltered environment. Question: Again, am I being too picky with this wording? Thanks for the help, Rick

I was just given the following situation from a broker: An employer set up a SIMPLE-IRA in 2004. The plan utilizes the 3% match. This match was calculated each year by the company's accountant. Rather than computing the max match on 3% of compensation, he calculated it on 3% of the employee's salary deferrals. Therefore, he has undercontributed the match every year since inception. The only partially good news is that the only participants in the plan have been the owner, his wife and 1 employee. What would you recommend to the client? 1. Determine the shortfall to the employee, adjusted for earnings, and just deposit it? - I don't like this solution 2. Determine the shortfall for employee and the owners, adjusted for earnings, and deposit it? - I don't like this either 3. Just forget about it and correct it going forward? - I don't like this solution either 4. Apply to one of the voluntary compliance programs for correction? - maybe a possibility, but, cost could be a consideration Any other suggestions and/or comments on my possibilites above would be appreciated. Thanks, Rick

I have a doctor client in Texas that has maintained 401(k) and cash balance plans for the last 4 years. From the start of the plans, there has been a participant in the plan that the doctor (and the participant) thought was a citizen. Taxes, both income and Social Security, have been withheld and sent in with no problems. It is now found out, that this participant, who is now stuck in Mexico, was given a bill of goods by her mother regarding her citizenship. Whether it's believable or not, here are the issues I would like someone to comment on: 1. What happens to the monies in the pension/profit sharing plans? Does the participant have any rights to her vested account balance in the 401(k) plan, including her own accumulated salary deferrals? What happens to the vested accrued benefit in the cash balance plan? Are checks cut and sent to Mexico? 2. Are there implications for the medical practice by having her for an employee for the last 4 years? 3. I was curious if an individual can get a Social Security number without first being a citizen. I am sure she doesn't have a visa in as much as she thought she was a citizen. If you're not a citizen, what happens to the income taxes that have been withheld from your salary?

I don't think that I made myself clear. The company I am referring to will come into existence and incorporate let's say August 1,2010. Even though the company would didn't exist on 1/1/2010, can I still make the plan effective 1/1/2010? and

It's as simple as that? This would effectively avoid what would otherwise be prorations to compensation, integration limits and benefit limits?

I could be wrong on this, but, I remember reading somewhere, sometime ago that if a company incorporates after the beginning of a year, the Effective Date for the plan could still be established as the first day of that year in order to avoid short yeat limit pro-rations. I have a potential client that will incorporate around September 1st of this year and I was wondering if there was any way the plan's Effective Date could be made January 1, 2010?

Loans aren't allowed in this plan

I was just told by the investment advisor on a 401(k) plan, that our mutual client (without first consulting me), distributed $6,000 from their 401(k) plan to a plan participant in the form of a hardship distribtion. The plan only allows for hardship distributions in the amount of accumulated salary deferrals without earnings. Given this fact, the maximum allowable distribution should have been in the range of about $4,500. This excess distribution was made at the beginning of this month. What are the implications of this excess distribution to the plan? What are the implications to the participant? What is the best way to correct this problem?