Belgarath

It would depend upon whether the loan can be "offset" or not. If it is just a deemed distribution and there has been no "distributable event" then the loan can't be "offset." Technically it is still an asset of the plan, and technically the obligation to repay still remains. (In real life, it is rarely repaid, and the PA rarely attempts to collect it) But, if repaid, you will then have non-taxable basis which must be separately tracked. If it can be "offset" then you could no longer carry it on a separate line, as the account balance would then be reduced.

From Sal Tripodi: At the Western Benefits Conference in Los Angeles earlier this week a DOL official said that the DOL will NOT be issuing any automatic extension of the Form 5500 series for 2009 reporting years, in spite of difficulties with the new EFAST2 filing system. Accordingly, if you are wanting extra time to file for any of your clients, Form 5558 needs to be filed to obtain the extension. Remember that the filing of Form 5558, if timely, results in an automatic extension. For calendar year plans, the Form 5558 for 2009 needs to be filed by July 31, 2010 (assuming the plan did not have a short year due to an amendment or a final distribution of assets).

Well, hang on a minute. If he wants to keep the insurance in force and not pay current income tax, there are strategies for doing that - the simplest being to write a check to the plan for the full FMV, and the plan assigns the policy to him. He can then roll his entire plan benefit to an IRA. He just can't roll the policy ITSELF to an IRA. Might possibly also be able to have the Trustee/PA do a maximum policy loan to "strip" the CV out prior to assignment to minimize current taxation, but this may not be viable or desirable. Rcline - see 1.72-16(b)(4). Seems that the taxable term costs are not included in "basis" by an owner-employee.

Be careful on that. If the "single participant" is an unincorporated owner, then the taxable term costs are not recoverable as basis.

No. Life insurance cannot be rolled to an IRA.

"A loan default by an owner is a prohibited transaction..." That's a pretty strong statement. EGTRRA added IRC 4975(f)(6)(B)(iii) to allow participant loans to shareholder-employees and owner employees to rely on the normal prohibited transaction exemption for participant loans. I think a mere default, in and of itself, does NOT necessarily rise to the PT level. However, if under 1.72(p)-1, Q&A-17, it was not a "bona fide" loan, then it could be deemed prohibited transaction from the beginning. Based upon the fact pattern you give, I think this is a very unlikely result. Personally, I would never suggest to ta client that they treat this/correct it as a prohibited transaction.

Or a mole.

I haven't run into this, but I suspect I'd include anything that was included on the Schedule A.

I'd argue that that's on overly expansive interpretation of the law. Granted that the participant and Trustee may be one and the same person, the plan document will still grant or restrict specific rights and duties, and there is in fact a division where the person is acting separately as a participant and as a fiduciary. If the plan document does not provide for participant direction of investments, then I think it is permissible to invest in artwork, SUBJECT OF COURSE to the fiduciary being able to prove that in excercising his fiduciary capacity, that it is prudent, etc., etc... Mind you, I'm not an attorney, so I wouldn't advise either way. I'd tell them to talk to their attorney, and if that were you, you'd advise them not to, and we'd both be happy!

Is there life insurance in the plan? Everything may go ok, but if you don't have an actuary on staff who is familiar with life insurance, annuities, and 412(e)(3) plans in general, you really are opening yourself up for the potential of a nightmare. Even plans that are "clean" where nothing has been done incorrectly can be subject to some fairly ridiculous jumping through hoops. Or it may sail right through - you never know. If you do take the case, take Rcline's comment seriously and bill hourly, or you may live to regret it. However, I do understand - those of us who are not "bosses" must do what we are told...I'm most fortunate to have a truly exceptional boss so I have no complaints.

412(e)(3) plans (the artist formerly known as 412(i)) are indeed subject to PBGC under normal PBGC coverage rules, although not, as Andy has pointed out, in your apparent situation. Are you really prepared for the potential mess you are getting into? Plan terminations on these can be excessively difficult and time-consuming, depending upon the plan and how it has been operated. Particularly if there is life insurance, you may wish to reconsider, and pass this along to some other firm. Have fun!

Don't know where it came from, so I can't give credit where deserved. It seems like there should be another paragraph... I try to explain pension funding to people like this: imagine you're making Vichyssoise soup for the King of France, and you need ten potatoes. His birthday is, quite auspiciously, on Bastille Day (July 14th). It's currently early February. You're not going to buy ten potatoes now, but you figure you will plant some potatoes in the ground so that, by the time Bastille Day rolls around, you'll have the ten potatoes you need to satiate Le Roi. Seems like a sound investment, right? Unfortunately, the King is guillotined and replaced with a fatter, hungrier king, who demands twenty potatoes in his vichyssoise. You won't have nearly enough. On top of that, an early frost and bad advice from your RIA and your actuary means that your potatoes are at risk and must report liquidity shortfalls on their Schedule SB, and now your potato supplies are in the hands of the Potato and Bean Grower's Cooperative (PBGC.)

Nope. (Way off base, maybe, but not on this question...)

"That's takes real chutzpah!! (definition provided upon request . . .)" Sieve - while there are probably lots of definitions, my favorite to date is: A child who kills his parents, then throws himself upon the mercy of the court because he's an orphan. Our documents specify that the Administraor must get written certification from the Participant and that available withdrawals and loans have already been taken. Has anyone heard of the IRS giving a PA a hard time because the PA didn't require anything other than a written certification? Seems unlikley when there's a reg to support this practice.

While we don't have a dog, I always seem to be in the doghouse...

Couldn't agree more, and we (and probably most other TPA's) tell them, in writing, that we recommend that. And guess what - for our clients, probably 90% of them don't. It's always a mystery to me why folks pay us to do their plan administration, then ignore what we tell them to do.

All of our letters have come from the IRS. I'm with Mbozek if there is proof that they were filed, but they (IRS) generally don't accept just a copy of a signed form as "proof." However, since they sometimes do, then that's always step 1, and if they don't accept that, then our clients have been choosing to file under DFVC. As one of their CPA's told them, "how much is it worth to you?" The CPAs have (thus far) been unanimous in their advice to clients in this situation (those with no proof of mailing) to file under DFVC.

That was it. Thanks!

But I'm suffering from brain cramp. I'm certain I saw something about the IRS potentially having an issue with splitting the pre and post tax money, and doing a direct rollover of only the pre-tax - seems like they said you could only do this under the 60 day rule, and not as a direct rollover, or something like that? My search isn't turning it up. Anybody recall this issue, or something similar?

Kevin - maybe I'm misreading what you are saying, but it seems like Mike is talking about TWO separate ALLOCATION formulas, and you are talking about a safe harbor allocation formula combined with a safe harbor definition of compensation, but not TWO safe harbor ALLOCATION formulas? If you read the document language you cited, it seems to me that it is not discussing two separate allocation formulas?

This is one of those things that has suddenly been "outed" a lot recently. I rather suspect that at some point, the repayment will require interest as well. But, what do I know...

I've spoken with somone in this exact situation who just filed the next return as a short plan year - in your case, 2-1 to 12-31. While I don't recommend knowingly filing an incorrect return, it does seem like it is one of those no-harm-no-foul situations.

Sometimes we find that if you check Freeerisa.com, you can see that the form has indeed been filed and received. This gives you a stronger argument, obviously! However, we find that most of the time this isn't the case, and most clients, particularly once they check with their CPA, are just going DFVC to put it behind them.

Agreed. That's why I'm saying it is my interpretation - I can't point to anything that specifically supports one position or the other.

Interesting question. My "best" interpretation of ERISA 104(b)(1) on this would be that it says within 90 days after he becomes a "participant" - therefore, giving it 14 months, or 3 years, or whatever early, would not satisfy the literal requirements. I rather expect there might be some sort of fluid opinion on what is reasonable - for example, if you have immediate entry, and it is given to the prospective employee 2 days prior to the actual "hire" date, I certainly wouldn't lose any sleep over it. But in your 14 month example, it seems like it might be stretching the point a bit. I wouldn't think that the DOL would waste too much time on this issue, as long as it can be proven that it was in fact actually given, but that's just a gut feeling - I have no basis for that opinion. Just a hope that they have better priorities for their enforcement actions.