kwalified

I posted this in another thread and thought this is probably the correct placement for this topic. A small SH401 is currently in arbitration. A former HR employee who had access to the plan was found to be an embezzler. Apparently this employee was setting up double accounts for a few participants in order to access them at a later time. One of these participants put in a distribution request in August and the distribution was never issued as the plan sponsor is of the opinion the participant may not be entitled to all the funds. The participant was never issued a written notice why the distribution was not processed. The claims procedure in the plan document addresses a plan administrator's decision to not provide participant claims. My question is what exposure, if any, does the administrator have for not providing written notification.

Thank you for responding. There is plenty of money in the plan, but there may be too much which is the problem. There are a couple of participant accounts which may be over funded due to the bookkeeper who embezzled. Apparently she was establishing extra accounts in order to access them and request refunds at a later time. The plan sponsor seems to think that a couple of these participants who are now terminated did not actually defer as much into their account as their balances would lead you to believe. Therefore, if they pay them out the money is gone or at least much more difficult to recoup if in fact fraud was committed.

A plan sponsor had a former employee embezzle funds. It appears as if phony accounts MAY have been set up in their 401(k) to allow this employee to have access to additional money. One of the participants(not the embezzler) with an account in question is requesting his money and submitted distribution paperwork in August 16. The plan sponsor ignored the request and the distribution request expired in November. The plan sponsor did not provide the former employee written notice regarding the plan going into arbitration and the fact that his account is under scrutiny. The former employee has since submitted another request for distribution. Should the Plan Sponsor provide written notification now or should alternative action be taken (EPCRS)?

Should have said "no thanks" to this one. Lost money first year in on two plan years worth of "excitement". I reckon the SIMPLE IRA issue is on them and they can VCP if they choose to. Only 1 participant (family member) actually contributed to both. Regarding the late sign up of participants, either QNEC or throw your hands up to an auditor if they don't want to fund it. Think I will have an adult beverage(s) this weekend.

What would you not worry about? Would you worry about it if they had a SIMPLE IRA in place too after being formally advised more than once that they could not?

Calendar year small plan had a short plan year in its first year(10/1-12/31). However, deferrals/match did not commence until the first payroll in November. No QACA or auto enrollment, just basic safe harbor match. Regardless of whether the plan sponsor failed to permit or implement a deferral election, the correction will be made by QNEC or is there an issue with the fact the plan while in existence legally for 3 months was not funded for 3 months?

I am looking for the old TEFRA percentage factor that is used to calculate RMDB when dealing with cash values. I believe it started at 140% and then was reduced 1% a year until age 75 when it bottomed out at 105%. A link or chart would be great

when you say "scale the value of the policy down" are you referring to the CSV or face amount? I'm thinking CSV

there are a few policies in a terminating plan, a couple participants have significant CSV north of $300K. If they do not have the funds to buy the policy and it is their desire to keep the coverage, is the only option to take out a loan on the policy? thank you.

Yes and yes. I felt the answer was affirmative and that the participant will not be allowed to defer in Plan B for 6 months.

Can a participant in Plan A receive a hardship from Plan A? Plan A is not frozen, but no new money is going into it except loan payments.

Plan A will be merged with Plan B. The assets are to be merged prior to year end. Participants in Plan A are now participating in Plan B. Can a participant in Plan A be granted a hardship? Their plan does allow for hardships.

it's a PSP. I'm thinking some providers would not accept rollovers without spousal consent

Plan participant has $125K in his account. Resolution to terminate has been executed. This is a very small plan. The participant does not know where his wife is. He as hired a P.I. and begun divorce proceedings. How can he get his account out of the plan so it can shut down?

Yes it is. Thanks for your comments.

Sure the issue of the new plan not allowing loans or ROTH is fairly easy fix. The main issue is the fact that terminated participants were not given the election to take a distribution in cash or rollover. Their funds were just transferred and you can't necessarily transfer them back to the old plan and do a "do over" and I don't think you can give the participants the option to distribute now that they are in the new plan.

A new small plan recently was established with TRANSFERRED funds from a plan whose sponsor sold the company of the participants of the new plan. The financial company of the prior plan, which was a large plan, just transferred funds to the financial company of the new plan sponsor. It appears the 11 participants in the old plan, which was VERY large, did not receive a Benefit Payment Election Form and were not given the opportunity to roll or take a distribution in cash. Their funds were just transferred to the new employers new plan. Total transfer is less than $40K for the 11 participants. Additionally, the new plan was established with no ROTH provisions or loans, yet a couple of participants have small loan and ROTH balances. It would appear that the Large plan sponsor would have the liability. However, the new plan sponsor has tainted funds in it's brand new plan. Should this call for a VCP filing? The ratio of participants/assets affected is miniscule compared to the overall balance in the large plan, but I don't know if this is SCP material. Thoughts please?

A one part plan owns a farm. The plan, which used to be 2 participants, now is just one and the plan files a shortened 5500SF. I'm trying to find up the code pertaining to annual valuations. Are they required in a 1 part plan?

Has a Trust EIN, but used his SSN for TIN on plan document. Apply for EIN using SS-4 for 5500 purposes?

It is a small error.

A S.H. 401(k) had a couple of participants whose deferrals/match were "turned off" by the plan sponsor for one payroll. The sponsor discovered this and apparently authorized the payroll company to double up on the subsequent payroll to make the participant "whole". It is my understanding that the sponsor should have self corrected (the amounts were miniscule compared to the plan assets) by depositing 50% of the missed deferral and match into the participants account. Now that the problem has been exaggerated by the employer doubling up on a future payroll and in essence allowed the participant to change their deferral rate outside the plan parameters what would be a recommended course of action? Here is an example, $2000 payroll participant was deferring 5% and getting a 4% SH basic. To make up for the missed deferral/match, sponsor upped them to 10% and a 8% SH. Even if you allowed the participant to double up on the deferral, the SH basic would still remain at 4%.

If the plan is frozen and terminated participants have balances in excess of $5000, can they still leave their funds in the plan?

I think they are considering a 401(k), but for the time being they are just freezing the plan.

Yea me neither. What about notice to participants. Is a formal resolution required?

I know it's not required, but is IRS approval to freeze a plan encouraged? Aside from the additional cost to the plans sponsor what other downside? Response time from IRS?