Belgarath

I'd say it depends somewhat upon the specifics of how the fee(s) is/are imposed. For example, if the new IRA custodian charges a $100.00 set-up fee to the plan to "register" to use this custodian, plus $50.00 for each IRA, then I'd say the $100.00 set-up fee cannot be imposed against the participant's account, but the $50.00 fee can be imposed against the participant's account. On the other hand, if the custodian simply charges a flat $100.00 fee for each IRA they set up, then I'd say this can be imposed against the participant's account. And of course, the fee must be determined to be "reasonable" by the Plan fiduciary.

Well, if they are determined to apply a hard line then you may be stuck. You've probably tried these arguments already, but are there things like employee handbooks? SPD's? Investment disclosures? E-mails? Was a 5500/SAR filed timely - although these wouldn't prove timely adoption of the plan, they would indicate that the plan was operated legitimately, and if nothing else, possibly aid in negotiating a reduced penalty if ultimately imposed. Possibly the plan adoption agreement could actually have been signed as late as 6/30/02, depending upon the plan type and assuming the plan has a year of 7/1 - 6/30. Is there any additional documentation available prior to that date? (P.S. I just realized this is a 401(k), so assuming deferrals, this wouldn't have been an option) I have no brainstorms here, but maybe someone else will. Good luck!

Arguably, to be deductible, it would need to be paid directly to the plan - there is a school of thought that says if it is simply paid directly to the insurance company, albeit to a policy owned by the plan, that it isn't a plan contribution. As I said, I've never seen it questioned, but my recommendation is always to have all contributions paid to the Trustee of the plan, who then disburses the funds accordingly. This also, for purely practical reasons, makes tracking of contributions easier. As to the deduction, the TTC for an unincorporated owner is not deductible. The balance of the premium is deductible. So if you contribute 50,000, of which 20,000 is insurance premium, and there is $1,000 TTC, then the owner only DEDUCTS $49,000 on his 1040. (This is different for the common law employees, if any). And as ETK observed, this TTC is not recoverable at a later date as basis for the unincorporated owner.

I doubt you'll learn anything from my post, and I'd defer to the attorneys out there on the legal ramifications. My observation is based more upon paranoia and practical experience. I've found that once you make them squirm and hold their toes to the fire by some sort of sign-off, they are more inclined to follow your advice. Whether this sign-off actually provides any additional meaningful legal protection is something I can't say.

In case anyone is interested, I posted the question to TAG - here's their response: ANSWER Starting with the employer discretionary contributions, it seems that under 1.414(s)-1(d)(3)(iii)(A), you must take into account all employees who BENEFIT under 1.410((b)-3(a). I agree. And this means that if you don't receive an allocation, even though you are included in the rate group testing, you are NOT included for the 414(s) testing. Have I got that right, or am I missing something? They are not included in the 414(s) testing. They are nonexcludable and not benefiting for purposes of 410(b). For the consideration of the matching contributions and doing ACP testing under 401(m), it seems a little confusing. If they are excluded due to, say, job classification or insufficient hours, then they would be excluded for 414(s) testing purposes for the ACP test. Correct. But, if an employee is excluded from eligibility for the match based purely upon the nature of the compensation, (say they receive supplemental compensation only) then it seems to me that this employee should be INCLUDED when doing the 414(s) testing. ??? Yes, I agree.

I'd get them to sign off on something saying that they are doing this against your advice, and that if the IRS audits and imposes any penalties, it will be their responsibility, and not yours. I grant you that this is not a "big deal" - but if the excrement hits the windmill, most clients automatically say, "Who can I blame?" It is a constant mystery to me why employers pay TPA's to properly administer a plan, then refuse to follow the TPA's advice...

See also ERISA 4041(e). Not directly on point, but often the next question that comes up.

Hi Tom - yeah, it almost seems as if you get into a never-ending loop on some of this stuff. In the absence of something really clear, I guess I make a distinction between eligibility based on not being excluded, and "ineligible" based purely upon the nature of your compensation. So if you have satisfied plan eligibility requirements, but simply don't RECEIVE a match based upon the nature of your compensation, then I'd think you should be included when calculating the 414(s) ratio. I'm just not sure that's right. I think I'm going to make myself crazy over this, 'cause I can argue both sides...

I agree, but let's stretch this a bit. Is it, for example, a one-person self-employed plan, and the self-employed person writes two checks - one for 20,000 to the insurance company to pay the premium, and one for 30,000 to the fund, but counts and deducts both of them as a 50,000 plan contribution? (minus the TTC, of course) If so, while not the recommended or cleanest way to do it, I doubt the IRS would object. I've seen a lot of plans operate this way in a prior life, with nary a problem. Mind you, doesn't mean I'd recommend this!

Thanks ETK. However, I'd like to explore this a bit more. "It is confusing; which is why I try to design the plan away from this issue :-) If a person is "eligible" to defer or receive a match for all intents and purposes except for the fact that all his Compensation is "supplemental"; is he benefiting? If you're answer is yes, then he's included in the 414(s) test. If you're answer is no, then he is not. I've seen this both ways, but typically say that he's not benefiting." To use an extreme example to illustrate why I question this - Let us suppose that most of the NHC employees receive all their compensation as "supplemental" compensation, whereas the HC receive NO supplemental compensation. So the NHC receive no match on this supplemental compensation. Do you think it is reasonable to argue that they are not benefitting, and therefore aren't counted in the 414(s) compensation testing? Granted that this is an absurd example, it illustrates why IMHO they should be included. It sort of seems like "double dipping" to first exclude this compensation, then say, "oh by the way, since you can't receive a match on this, then it isn't included when determining whether the compensation is discriminatory." Seems to me to defeat the purpose of the regulation, although I do see how it could be read this way. Anyway, I appreciate any additional observations you may have.

I just want to see if I'm off base here. You have an ERISA 403(b) plan. It includes deferrals, matching, and employer discretionary contributions. There is "base compensation" and there is "supplemental compensation." Deferrals are allowed for total compesation. Matching contributions and employer contributions are based upon "base compensation" only - the supplemental compensation is excluded for these purposes. Certain employees are excluded for all plan purposes (students who satisfy the requirements under 1.403(b)-5©(4)(ii)((D)) and certain other employees are not eligible for the match purely based upon the exclusion of "supplemental compensation" for matching or other employer contributions.Employer contributions other than the match are allocated under a "new comparability" formula. So, when you get to doing your 414(s) compensation testing, the question becomes, which employees do you include? Starting with the employer discretionary contributions, it seems that under 1.414(s)-1(d)(3)(iii)(A), you must take into account all employees who BENEFIT under 1.410((b)-3(a). And this means that if you don't receive an allocation, even though you are included in the rate group testing, you are NOT included for the 414(s) testing. Have I got that right, or am I missing something? For the consideration of the matching contributions and doing ACP testing under 401(m), it seems a little confusing. If they are excluded due to, say, job classification or insufficient hours, then they would be excluded for 414(s) testing purposes for the ACP test. But, if an employee is excluded from eligibility for the match based purely upon the nature of the compensation, (say they receive supplemental compensation only) then it seems to me that this employee should be INCLUDED when doing the 414(s) testing. Thoughts?

Flyboy - what about an employer who wants to maintain both? Wouldn't that be a good reason to keep the 403(b)? Granted that I don't think this is necessarily all that common, a hospital, for example, comes to mind. It's a way around normal 415 limits. (as an editorial observation, I've never understood the reasoning behind not aggregating the employer contributions in these cases, but that's another issue)

Hard to know for sure - chances are he's screwed. While RP 2013-12, Section 6.07(3) provides for relief if you go through VCP, it sounds like this was a prior employer? Odds are good that perhaps the prior employer's plan provided for acceleration of the loan upon termination of employment? Unlikely that the prior employer will be willing to do a VCP filing in this situation. Obviously I'm just guessing here, as there are a lot of unknown details. Unless an employer/Plan Administrator who was obligated to handle this differently failed to do so, odds of a correction seem small. Was this some sort of business/plan merger? That might make a difference in who was obligated to do what. Was the loan actually rolled over/transferred to a new plan?

Why not just have them sign an 8905 to avoid trouble? I don't recall the specifics, but it seems like with at least some GUST or maybe TRA 86 documents, that the AA had a statement that the document would only retain prototype status if the employer was paying the document provider a fee, and if they didn't, it ceased to be a prototype. I don't know if that was technically correct even then. But that raises a question as to the responsibilities of the TPA if a client leaves, or if the TPA terminates the service agreement. I guess I'll have to refresh my memory at some point - I think RP 2005-16 (or an update) covers this. Doesn't seem reasonable that a TPA should have to be responsible for providing amendments, but that may possibly be the "default" under the Revenue Procedure if the engagement letter doesn't specify.

King Ozymandias of Assyria was running low on cash after years of war with the Hittites. His last great possession was the Star of the Euphrates, the most valuable diamond in the ancient world. Desperate, he went to Croesus, the pawnbroker, to ask for a loan. Croesus said, "I'll give you 100,000 dinars for it." "But I paid a million dinars for it," the King protested. "Don't you know who I am? I am the King!" Croesus replied, "When you wish to pawn a Star, makes no difference who you are."

While I'm sure no one on these boards would either do this or recommend it, I have heard stories about TPA's who would do a substitute page, and do a new SPD to be distributed due to an error omitting the includible bonus compensation, the error being discovered in the SPD during a routine review of the language - such paperwork being hand-delivered to the client... As to a correct method, Revenue Procedure 2013-12.

Shouldn't be a problem IF no allocation under the PS plan based upon 2012 service/comp. Quick excerpt from the 5404 form below. Also note that forfeitures do NOT count unless they replace otherwise required contributions. "You do not maintain during any part of the calendar year another qualified plan with respect to which contributions are made, or benefits are accrued, for service in the calendar year...."

Bird - maybe what they meant was that it is effective for deduction rules in that the additional contribution is deductible for the year in which made? I guess you'd have to ask them.

It may very well be correct. A plan is permitted to not allow in-service distributions, even if you have attained Normal Retirement Age under the plan. Check your Summary Plan Description, and if this isn't clear, ask the Plan Administrator to show you the portion of the plan that specifies this. So, such a provision is legal - you'll just want to make sure this is actually what your plan specifies.

Surviving spouse can roll it over to own IRA. See 402©(9).

I'm starting to pick up a little more information on ESOP's, and the more I see, the less I like them! I just wanted to make sure I've got this right. If you have a non-allocation year, even if there actually isn't any contribution/allocation for that year, the client is still screwed because a prohibited allocation includes both an allocation AND an "impermissible accrual." And the inpermissible accrual potentially includes accumulated contributions, and not just current year allocations. In turn, this puts you under the prohibited allocations consequences, etc., etc... Have I got that right? I realize the IRS has thankfully provided some "fail-safe" language, but wow!

Austin - I guess I misunderstood the thrust of your initial question. Yes, I agree - IF recordkeeping expenses are paid BY THE PLAN, then I think they must first come from forfeitures. I thought you were asking if forfeitures must first be used if the plan sponsor was going to pay, rather than using plan assets.

It does seem that this document is less flexible than their standard 401(a) document in the language produced. That said...given that these are not "prototypes" and therefore I think a trifle more latitude on interpretation and operation might be allowed, I wouldn't hesitate to allow a plan sponsor to pay administrative fees if they so choose. I really find it hard to picture an auditor saying that you must go back and reduce the accounts of participants because a plan sponsor chose to pay expenses. You may want to bring this up to Sungard - they are pretty good about modifying language based upon reasonable feedback.

Thanks Dave. Yeah, I couldn't find any regs on this either. I do think that getting a PBGC ruling would be crucial in that I don't see how the IRS could challenge a full deduction to a DB and DC if the PBGC itself says the plan must be covered under PBGC. Without the PBGC ruling, then I think subject to challenge. I don't know, obviously, but would anticipate that the PBGC "default" answer if you call would be that yes, PBGC coverage required.

Thanks.