jpod

Not an actuary, so I can't quibble with Mike Preston's advice, which seems quite sound. However, if the client is willing to pay for one good valuation and nip this in the bud once and for all you can probably then get a prohibited transaction exemption from the DOL under the EXPRO rules for the Plan to sell this asset to the client personally.

Larry Starrr: Thanks for the education. Were you also voted Mr. Congeniality of the Year?

Is ignoring it completely a possibility under EPCRS guidelines? (This wouldn't resolve a Title I claim by the employee, but c'mon . . . .)

You may have a leg to stand on. How big was the ESOP (number of participants and $$)? If large enough an ERISA plaintiff's lawyer may be interested in at least doing some preliminary investigation. It's a public company so he/she may find enough just from readily available information to think there's potential.

Larry Star: Yes, it's a bit problematic, but no need to be so dramatic. Should he have dipped his toe in the water with this investment outside of the plan? That probably would have been best, but what's the point in making a speech about this? Bird is just looking for some suggestions of how to make the best out of a bad situation. Bird, is $15K what he paid for it, or is it what he seems to think it is worth now?

If, as the OP said, each expense account is "held within the trust," then don't we know the answer? You can't use Plan A's assets to pay Plan B's expenses.

As to the first person, just because he is receiving W-2 compensation doesn't mean that he's an employee or that the compensation is "compensation" for plan purposes. Sounds like deferred compensation to me. As to the second person: (1) Isn't there a rule that says if you were an HCE after age 55 you will always be an HCE? Maybe that would be some help here. If not, can't the employer just give him a QNEC to bring his ADP up to an acceptable level? (2) Assuming he really is entitled to a top-heavy contribution, what's the big deal? 3% x $200 equals $6 per month.

Consider IRC Section 401(a)(2) and ERISA Section 404 and you will probably find your answer.

Assuming the allegation is true, what he should make happen is to get a new cpa. Completely irresponsible.

Everyone must get the same percentage of compensation (as defined in the Plan and subject to the $270K limit), except those who are at the 415 limit.

Unless there are some facts which weren't presented that suggest some operational errors or coverage problem issues, this would be a slam dunk in VCP. I am merely suggesting that because this "error" has nothing really to do with the plan per se I see very little risk here by skipping VCP. It's not like a new employer with its own separate workforce started participating without adopting the plan. This was merely a redeployment of the same active participants from one employer entity to another, with deferral agreements already in place.

Sounds like a minor foot-fault to me. I would have the appropriate documentation executed retroactively (dated currently, not back-dated), and take my chances with an auditor, whether it's an IRS auditor or, if applicable, the auditor engaged to perform the annual 5500 audit.

Not sure. Assuming one can read the instructions to require it, is there any risk as a practical matter if you don't?

Why ill-advised? Maybe I am naïve, but let's say the overfunding upon a reversion is projected to be $1,000,000. Isn't 10% of $1,000,000 better than 100% of $0? Let's look at it another way. I intended to fund an eventual benefit of $2,000,000, through tax-deductible contributions of $200,000 over a period of years - let's say 8 so $1,600,000 of deductions and a tax deferral of let's say $640,000. As it turns out I have my benefit of $2,000,000, plus the 10% of the $1,000,000 of reversion, so that's $2,100,000, and it only cost me one year's contribution of $200,000! Yes, I lost $560,000 of future tax deductions, but I still got my $2,000,000 benefit anyway. Sure, it would be a neat trick to find a way around the reversion taxes, but how can you complain about an investment return of such magnitude?

Doesn't the reversion tax apply if the plan was EVER qualified under 401(a)?

Huh? The facts are that there are no accelerated distributions. I would call it a "freeze" rather than a termination, but whatever you call it the termination provisions in the regs are relevant only as exceptions to the anti-acceleration rule, so if you aren't accelerating those provisions can be ignored.

Why? The facts are that there would be no acceleration of distributions.

I am probably splitting hairs but the analysis is not based on the application of constructive receipt or tax accounting principles. The reason only $10,000 is reported on the 1099-R and taxable is because the $50 in my example is a legitimate plan expense that can be paid with plan assets under both IRC 401(a)(2) and Title I of ERISA. The fact that this expense is not borne by the plan as a whole but is charged to the participant's account is irrelevant.

If you want the 1099-R to say "$10,000," and if a $50 fee will be a non-taxable payment of plan admin. expenses (in this case, the distribution fee), don't you need to ask for $10,050?

If the insurance company agrees that it has the liability, I don't understand why anything needs to be done, other than giving the insurance company whatever data it needs. If, on the other hand, the insurance company is saying that it is responsible for providing the benefit but the employer must pony up an extra amount as a premium adjustment, I still don't see any need to worry about a trust, or the PBGC, or 5500s, etc.

I agree with the consensus. So, if I need a 2018 MRD of $10,000, and I am going to be charged a distribution fee of $50, I better request a distribution of $10,050, right?

Yes, this is a brain teaser. Playing devil's advocate, two factors go the opposite way. First, there is no indication that there was a promise of a gross-up if the HCE did not contribute, only if he did contribute. Second, the word "indirectly" is used in the regulation, and it has to mean something; perhaps it means there need not be Palsgraf-like proximate cause.

A little bit of hair splitting, don't you think MoJo? I think everyone knows what I meant when I said "first right to any plan assets." Anyway, Happy New Year!

Putting aside different levels of risk tolerance, an "estate" exists whether or not there is a probated will or letters of administration. There may be creditors of the decedent who have the first right to any plan assets. If there is an abbreviated statutory procedure that protects you if you pay it to the persons designated, great, but short of that you are taking a risk. I doubt a post-death amendment to change the default beneficiaries would work if someone with standing to challenge it challenged it.

More important: Are his co-members aware of this arrangement and ok with it?