Belgarath

Employer maintains a SIMPLE-IRA for 2015. Employer's fiscal year is 7/1 to 6/30. Wants to install a 401(k) plan for 2016, with an initial short year from 1/1/2016 to 6/30/2016 due to the SIMPLE-IRA plan being in place for 2105. Any thoughts on the following? 1. Deduction limit is based on fiscal year compensation, so Employer will need to be aware of this. 2. Deferral limits are calendar year anyway, so nothing out of the ordinary there for 2016. Same as always with off-calendar year plans. 3. Not sure yet if this will be safe harbor plan or not. If not safe harbor, then I believe for ADP/ACP testing purposes, since no calendar year ENDS in the short plan year, that compensation used for testing must be short plan year comp, and compensation limits under 401(a)(17) must be pro-rated. What if it is a safe harbor plan, with no ADP/ACP testing required? Is the compensation limit still required to be pro-rated if they wanted to do a profit sharing contribution? (I think it must be prorated, since compensation period is defined as plan year, and it is a short plan year) 4. Limitation year is full 7/1 to 6/30, so I don't think any pro-rating of 415 limits required. I should know better than to look at this stuff in the afternoon. Thanks for any thoughts!

Don't know if there is a corporate resolution, etc., authorizing this or not.

Just curious as to whether you commonly see this - I don't. Plan document names the Employer as Plan Administrator. Presumably, the Employer can designate anyone they wish to sign as Administrator on behalf of the Employer. Do you commonly see the CPA sign in this capacity, assuming so authorized by the Employer?

I'm like Bird - these numbers are WAY out of our league. So, speaking from a position of ignorance, and knowing nothing of the particular circumstances, is 105,000 on a 70 million dollar plan really necessarily out of line? I mean, (ignoring possible additional/better services) suppose they are getting the plan a return of even 1/8% higher than an "average" or better than average advisor? Wouldn't that more than make up the difference? Just curious.

If you have a pre-approved plan that permits it, seems like it would be hard for them to argue that it isn't permissible. I wonder if some other provider might have decided not to allow it in their own pre-approved documents not due to legal reasons, but for administrative convenience. Sometimes they have some plain vanilla options only because they want only cookie cutter plans, or they don't want to deal with the 414(s) testing, or they don't want their clients to screw up because they (the clients) didn't test, etc., etc...

I see no problem with it.

I'm not entirely certain I understand what you are asking. I agree that it is fine to exclude bonuses for purposes of a match, subject to passing 414(s) testing. Obviously, without passing the testing the opportunity exists for discrimination - pay HC's all on W-2, and pay NHC's 60% of their comp via bonus. Clearly discriminatory when you come to allocating a match.

Hmmm - can't recall ever having seen that up here in the frozen North, but then, I haven't looked. I'll have to keep my eye out. P.S. just googled it, and discovered it is Bourbon. Sadly, I simply can't force Bourbon past my tonsils, so I'll stick with the Scotch.

"Some" is a fluid standard. By that, I mean my level of benevolence and tolerance is directly proportional to the number of fluid ounces of The Macallan that I have lovingly sipped. Since my intake is drastically limited by the expense, my sympathy is limited to "some."

Thanks. Y'know, I actually do have some sympathy for the regulatory agencies, having to write regulations, procedures, come up with forms, etc., for all this stuff.

Assuming you are not an Applicable Large Employer (ALE) - just trying to confirm WHO must do the filings... If plan is insured, the insurance company prepares and files the 1095-B's. Do they also do the 1094-B transmittal, or must the employer do this? If under government sponsor (for CHIP, Medicare, Medicaid, etc.) or Health Insurance Marketplace, apparently they handle on a 1095-A, and with certain exceptions, on a 1095-B, and the employer doesn't have to do anything?. If self-insured, then the employer must file both the 1094-B and the 1095-B's, right? Thanks.

John's answer is far better and more complete than mine...

Actually, you've got that reversed. You can require a last day, but not a minimum hours requirement if you are employed on the last day. P.S. - for citation, see 1.416-1, M-10.

Yes, my apologies for the typo on the citation. Thanks for correcting that. Yeah, the reason I said there is debate on this issue is the first sentence. (B) Related Employers. Service with an employer is treated as service for certain related employers for the period during which the employers are related." Some read this to say that you only have to credit service that was service earned WHILE the businesses were related, and others interpret it that if the businesses are currently related, you must credit all service earned with any of those businesses, even if the businesses were not related while that service was earned. I lean toward the latter, but I certainly can see an argument for the former. Way back when as I was first doing some research on this issue - many, many years ago, I seem to recall that such luminaries as Derrin Watson and Sal Tripodi didn't necessarily agree - but that may have long since changed. An interesting question, regardless of which interpretation you favor.

I will also say that there are probably more of these that are "found" in files, properly dated, than anything else I can think of. I would never tell a client to do this, nor do I advocate it, but I must say that in a business that is rife with ridiculous requirements, requiring a signed election prior to the time income is known is mentally arthritic. Someday, when I'm elected dictator, this is the type of foolishness that the IRS will be prohibited from enforcing. (As dictator, I could abolish the IRS, but I'll need someone to collect my income for me!!)

Different rates of match are subject to 401(a)(4) testing. You shouldn't have any problem with current availability, assuming the different rates of match are available to anyone who defers that requisite rate. Effective availability, which is a facts and circumstances test, may be another issue. So you could potentially pass the ACP test yet still fail 401(a)(4).

Sure. All of the pre-tax vested accounts can be converted to Roth at any time - some will need to use in-plan Roth rollover, others will need to use in-plan Roth transfer - depends upon the account type and timing. Most important thing is the plan must be properly amended to allow it in whatever circumstances you want to utilize the rollovers/transfers. And of course, the plan must allow Roth...

Oh, the oddness is with me all right. Deeply ingrained, in fact. If I had been Homer, I'd have written the Iliad and the Oddity.

Hi Bill - again, without opining about correct vs. incorrect, I'll just say that there is a lot of legal talent out there that might disagree with you. And probably as much or more that agrees with you. There are (or at least were) many insurance companies out there that took the approach that only taxable term cost would be reported via the use of the rollover money. Not saying it is right or wrong, just saying... Personally, I wouldn't do it. But then, we try not to allow insurance in our plans anyway, so these issues don't arise. Oh Happy Day!

I agree that the 3-year requirement is out in left field, or beyond. As I said in first post - no idea where that came from, and I wouldn't hesitate to ask for a citation. I'm wondering if this is a twisted and incorrect interpretation of the 3-out-of-5 year IRS vesting rule for a "complete discontinuance" - see IRS Announcement 94-101, and 1.411(d)-2(d)(2). And that's a vesting issue anyway. Who knows... As to the rest, I'm not in any way disagreeing that I've not seen this level of scrutiny/enforcement, merely that there is an argument for it, and it wouldn't be impossible for an auditor to make this argument. And in a plan of that size, getting nailed on that issue could be expensive.

More random musings... If in fact it is a problem to start with, then I don't see how this cures it. In the old days, owners could, under IRS approved documents, have a "waiver of compensation" to manipulate their contribution. Then the IRS said you couldn't do that, but they allowed "allocation abeyances." Then they said you couldn't do that either. Under the EGTRRA pre-approved prototypes, they limited the number of groups you could have, then under PPA they said it was ok to have everyone in own group in a prototype (or of course in a VS). But the "deemed CODA" still remains an issue. I cannot say how closely this is scrutinized, but I'd think it does warrant a certain amount of caution. As to the self-employed taxpayer, I seem to recall that the IRS fussed about this a little bit, but even they were forced to conclude that it simply isn't reasonable to try to shoehorn a sole prop into this "deemed CODA" box. Boy, I'd hate to be at one of those Board meetings! 40 doctors in a room having to agree on financial matters? Yikes!

All 40 doctors are on the board of directors? That seems odd, but I don't deal with large medical practices, so maybe it is normal. All of the following is just IMHO. I have no idea where the "3 year" idea came from. But technically the attorney is correct that the individual doctors can't make the decision on employer contribution level - this is set at the "employer" level. If the "employer" - i.e. the board of directors - determines the contribution at the individual level for each doctor, I think this is perfectly acceptable, BUT, taking a conservative view, if there isn't some standardized or reasonable formula for determining that amount, and each doctor simply tells the "board" that they want "x" amount, and the board rubber stamps it, then it seems possible that the IRS could challenge this as in fact being a CODA. Haven't heard of this happening, but seems possible.

I'll just say that there is some question as to whether the entire premium would be taxable, or whether just normal taxable term costs would apply. Or maybe I'm misunderstanding what Bill is saying in his post. I'd be more concerned with establishing a PS plan, and funding it with just rollover money to purchase life insurance. Unless you have other, "recurring and substantial" contributions, then I think you have a potential qualification problem. Thankfully, we have almost no plans that even permit life insurance, much less actually purchase it, which helps me to sleep at night.

I don't know why anyone would give you a document for free, but perhaps someone will. Whose document are you using now?

Does the document, since individually designed, have an IRS favorable determination letter?