alanm

Can a one participant, one employee sep plan terminate and the balance be transferred to a profit sharing plan adopted by that self employed individual? Also, can his regular IRA also be transferred into that profit sharing plan?

This discussion seems to have escalated into an esoteric debate over whether PEOs are legal or not and Robin's question has been lost. Robin, as TPA for a lot of PEO Multiple Employer plans, I have been involved in numerous audits on this subject and I feel confident that the PEO can and should send in the 5330 and the penalty check. The IRS has never raised any question as to this procedure, they just want the penalty paid.

IRC section 413

In a PEO multiple plan, the PEO is usually named the Administrator. Fiduciary liability boils down to functionality and the PEO, as adminstrator and Trustee, hires the TPA who tests the plan and provides the payroll information. Delays in refunds that are no fault of the client company are clearly the liability of the PEO. If the PEO falters in their responsibility and can't pay the fine, the client companies, or co-sponsors, are the next in line to pay. The clients have no power to unilaterally terminate or merge or amend the plan, only the PEO as administrator has that right as specified in the plan document. If the PEO does not correct an operational defect such as not making refunds, technically the whole plan with all the co-sponsors can be disqualified. Since the PEO files the 5500 and administrates the plan, they also must file the 5330 and pay the fine. Afterall, the client didn't engage the TPA or setup the trust nor does the client have the power to order distributions and refunds.

The PEO pays and the PEO submits the form

The situation falls under the successor plan rule Trea 1.401(k)(d) for one, that will lead you to the aggregation regs. Yes, the individual employers will have to file a final 5500 indicating a merger into the multiple. In your case, the 5500s are due 7 1/2 months after the mergers happen. Make sure the benefits as adopted in your multiple plan are the same as the former plan of the worksite employer or else you will get into anti-cutback issues. For a complete story on the situation you are in read Derrin Watsons book "Whos the Employer"

You have to aggregate. The worksite employer will have to adopt the multiple plan and it will be regarded as a continuation of a 401k arrangement by that worksite employer if a previous plan was in effect for that worksite employer. Each worksite is tested separately in the multiple.

You have to go with an insurance company with an MSA product. I know Golden Rule Insurance co does. No you can't have a co-pay. For example, a family buys health coverage with a $4950 deductible per family. the premium for a guy age 35 may be $400 per month. In addition you send an extra $309 per month to go into your MSA bank account- Golden Rule uses Northern Trust bank. YOu get a check book to write checks for medical bills throughout the year to the extent of your balance at Norther Trust. For healthy people it works well. You don't use it, you keep it adding up over the years.

Try looking at the court case Borda Versus Hardy, decided March 5, 1998 in federal circuit court docket 95-75493. the Judge was James Carr.

In the first place, I assume you froze the 401k plan in 2001 and didn't contribute to it because you can't contribute to a 401k and a simple IRA plan in the same year. For successor plan purposes, the simple IRA plan is a successor plan if started before 1/1/2003. That is one year after terminating the 401k on 12/31/01. Your only course is to freeze the 401k and let it sit, if you have started the simple IRA before that date.

Yes, you can't allow distributions: Treas. Reg 1.401k(d)(3)

If it were a multiple employer plan being terminated, I think the successor plan rule would apply to the adopting employer. In that case, the adopting employer should not allow distributions but direct a plan to plan transfer to the new PEO plan.

The 1120 instructions say it is an employer contribution, however, I had one agent in an audit say only the match or profit sharing is an employer deduction and the deferrals should be deducted on line one under compensation. I would go with the written instructions - it is all an employer contribution.

The answer is in Baron's March 27, 2000 issue page R16. When you transfer company stock out of the 401k plan, don't do it to an IRA or ask for a liquidation check, transfer in kind the shares to a taxable brokerage account and you will be taxed on the cost basis not the appreciated value. Later when you sell the stock, you will will taxed at the long term capital gains rate not as ordinary income.

The amount of income the Docs are paying fica, medicare or self employment tax on.

The interest is not deductable. Page one of the wall street journal 2-21-2001 relates the finding of the Federal court in Ohio whereby the IRS attacked such an insurance arrangement and won against American Electric Power. The judge called the whole thing "a sham in substance".

A plan isn't terminated until the last dollar leaves. The proper sequence would be. 1. The selling company does a board resolution to terminate the plan and stop contributions before the buyout occurs. In the buyout agreement the acquiring company states they do not intend to pick up sponsorship of the plan. After the buyout, participants can take distributions and the plan can be terminated when participants are finished being processed out.

Carribean Pensions in Plantation Florida specializes in adminitrating plans there because the laws are a little different. One of the administrators there is Vidally, she used to work for me, that is how I know they do Puerto Rican plans.

Hi Tom, I think you must consider all owners of both companies HCEs in the current year and the following year. The merger is regarded as a continuation of L's plan and the business of L. When stock is sold by an HCE, they remain an HCE in the year of the sale and the year following. The fact the owners of L traded a more than 5% interest for a less than 5% interest in A due to the merger, probably wouldn't change their status.

Individual accounts are ok to charge for participant directed events as long as they are not charged for mandated rights under ERISA. For example, ERISA does not mandate the plan have loans or hardships, it is an extra benefit. However, a pure distribution is a mandated right of a terminated pariticpant and the charge should be assessed against the trust in general not against the participants individual account. But, 404c, self directed, individual accounts are not a mandated ERISA right and an individual charge could be assessed for such things as doing a trade, final accounting, closing such an account. Therefore, in that case, I would word the fee: "404c account closing fee" and not call it a charge for distribution.

To get a determination letter issued in the name of each adopting employer in the multiple plan you file a 5300 with a Schedule Q for the sponsor's employees and a Demo 4 for each adopting company. The Fee for each Demo 4 attached is $200.

Not only is X right, but leasing doesn't get the Docs out of considering the leased employee their common law employees. The plans have to be aggregated for testing and they probably have a problem.

The cite is section 413c. I have many multiple employer plans, see http://www.slavic.net under compliance for details on how to operate one.

The IRA application must be a UMGA IRA account with the guardian signing the application until he is 18.

no that is not really important. A w2 is sufficient.