Belgarath

That's an interesting issue. I'd maintain that if you want to be technical, and are using the IRS model SIMPLE forms, that you cannot "amend and restate" a 5304 SIMPLE plan to a 5305 SIMPLE plan, or vice versa. They are two separate plans. The SIMPLE form provides for establishing a SIMPLE plan, but not for restating. Some support for this theory can be found in IRS Notice 98-4, Q&A B-3. It would apear that the prohibition against establishing a SIMPLE plan in a given calendar year applies if you maintain anotehr SIMPLE plan, as for these purposes, the SIMPLE is considered a qualified plan. Also, see Q&A K-1 of 98-4. So, I'd argue that if you want to switch from DFI plan to non-DFI plan, or vice versa, you must wait to establish it for the next calendar year. And then, the separate rules may continue to apply to the separate SIMPLE-IRA's that were established - surrender charges allowed or not depending upon whether DFI or non-DFI. As to the Nationwide approach not to allow the charges on any SIMPLE, I think this is an admirable solution to any possible confusion or conflict, and is user-friendly. Obviously, they have determined they can still make money even with no such charge. Too bad this doesn't extend to all other qualified plan business as well!

I don't think you have any cause for concern.

You may find this helpful. Good chart. Taking into account that free advice is worth only what you pay for it, it might be wise to engage a California attorney to give you a definitive answer. http://www.aicpa.org/pubs/jofa/jan2006/altieri.htm#state

I agree that a bona fide loan where there is a subsequent default does not, in and of itself, create a PT. If this is what the IRS agent is saying, then you need to push back. However, not having all the facts at hand, it is possible that the IRS agent is really asserting that there was no "bona fide" loan - just as an example, if an owner takes a loan without proper documentation, or there's no effort to repay it, etc. - which leaves some discretion to the agent - then it is possible that there's a legitimate PT here. Well, Ok, I hadn't seen Name's reply, which I just noticed. Yup.

I contacted one of the authors of IRS Notice 2007-63, and asked this question. The individual was not sure of the answer, and is going to check and get back to me - was also quite honest in acknowledging that this issue has been floating around for a long time, and that they (IRS) may not have an answer. I'll report back on whatever I hear.

Maybe. When you get down to exclusions, you are of course talking about "employees." If they are not employees, they aren't covered regardless. So let's assume they are "employees." It is possible to use various exclusions, but again, this is so dependent upon facts and circumstances, your plan document, required coverage testing under IRC 410(b), etc., that it seems unlikely you will get a solid answer here. I guess I'll just say that yes, within limits, it is possible to exclude certain classes of employees. Whether it will be possible in your situation will require that you do some research. Hope this helps.

Going back how far? This will give you back to 1996. http://benefitsattorney.com/modules.php?na...p;lastyear=2007

That's always the million dollar question. This is determination that simply cannot be made on these boards. I suggest you refer to Pub. 15-A, and the client's tax/legal counsel. http://www.irs.ustreas.gov/pub/irs-pdf/p15a.pdf Quick edit - sorry, I had a call coming in and had to hurry the response a bit too much. As you'll see from the publication, the proper determination is so dependent upon specific facts and circumstances that it is really difficult to give good advice without an extremely detailed knowledge of the situation - and such detail can rarely be properly conveyed on these message boards.

I don't think that was the real reason for filing. (Mind you, we never recommended that EZ eligible clients file when it wasn't required.) But the REAL reason that some practitioners advised filing in this circumstance is that by filing a Schedule P, a 3-year S/L applies to the income on an exempt trust. This would be all trust income, not just UBTI. If the IRS were to disqualify a plan retroactively, the 3 year S/L could be a big deal. Since the IRS had, in Announcement 80-45, stated that a Schedule P could only be filed as an attachment to a 5500 form, some practitioners had their clients file a 5500EZ even when not required just to add an extra layer of protection in the event of plan disqualification.

Gosh, I had no idea that this seemingly innocuous question would generate so much discussion! I thank you all for sharing your views, it has been enlightening.

Hard to change words once they creep into the common lexicon. My in-laws still refer to a record player as "the Victrola" - and EVERYONE here at work says they are going to "Xerox" something rather than copy something. And 412(e)(3) plans will continue to be referred to as 412(i) plans forever. Unless, of course, they are being referred to in less complimentary terms.

I don't think it is eligible for self-correction, regardless of whether or not it is egregious. I would classify this as "significant" which gives you the "2-year" limitation. I think you have VCP all the way - just a question of the fees/sanction as to whether egregious or not.

Let's assume that the only HC/Key employees are 50+, and are, by sheer coincidence of course, the only employees who are 50+ and therefore the only employees eligible for catch-up. I think you are agreeing that you can't provide a deferral limit of 0% for them, and a higher limit for all the NHC? Thanks!

Hi Gary - I agree, given that there is no NHC "group" to use to calculate the missed deferral percentage. The SIMPLE-IRA's don't necessarily quite "fit" with the 401(k) fixes. So let's say this employee makes (made) $30,000 for each applicable year. Let's further assume the HC/owner was the only other person deferring, and deferred 10% each year. That makes the "deemed" missed deferral $3,000, so there would be a basic make-up contribution of $1,500. In addition, there has to be a correction for a match, and it seems reasonable to use the 401(k) safe harbor method for this. So, since there is a dollar for dollar match up to 3% of compensation, there would be a $900.00 make-up on the match, for a total of $2,400, times however many years this applies, plus earnings of course. The next question is whether this can be self-corrected, or must go under VCP. This is a tricky call, and I'm frankly not sure. The program specifically states that the requirements are not meant to preclude a small employer from using the program - BUT - since this would seem to be a "significant" error, you may be beyond the allowable period, in which case VCP would be required anyway. So this will require some analysis and advice from someone who has all the data at hand. Sound reasonable?

It's hard to say. While I'm inclined to agree that it is egregious, I think I'd try filing under a regular VCP. If the IRS determines that it is egregious, they will come back and impose the higher fee.I'd say that there's at least some chance that the IRS will let it go through under the regular VCP fee schedule.

I'd like to briefly resurrect this topic, as a similar question came up again today. I think that the last sentence in 1.414(v)-1(e)(1)(i) would prevent a plan from having an employer provided limit of 0% for the HC (who are over 50 and catch-up eligible) while providing a higher deferral limit for the NHC. That final sentence, which must of course be read in conjunction with the rest of the section, says, "However, a plan may not provide lower employer-provided limits for catch-up eligible participants." If you disagree, could you discuss your reasoning, as I don't quite see how you get around this section. Additionally, is anyone aware of any discussion from the podium at any conferences? Thanks!

6.66%.

I'm a little confused. If this is a SIMPLE, and the matching method is used, then employee participation is voluntary. Was the employee given an opportunity to defer, (via the required annual election notice) and elected not to? If so, then there's no problem. If not, then yes, the employer is at fault, and you'd want to look to Revenue Procedure 2006-27. A bonus to make her "whole" doesn't solve the problem. And I agree with Gary, although I'll state it a little more strongly - the fact that "the sales rep left the business" isn't the cause of the failure. Employer neglect is the cause of the failure. If a client's CPA leaves the business, is the employer no longer responsible for getting a tax return filed?

While I agree with the prior posts, let me just spend a moment playing Devil's Advocate here. As a TPA, how do you make the determination of what is and is not as soon as "administratively feasible?" Particularly in small employer situations where there is no highly automated payroll service handling things? In other words, are you making this judgement yourself, or do you provide an informational disclosure to the client, and make the client decide, for anything between day 1 and the regulatory maximum?

"You didn't indicate why you are not comfortable. I assume it because of liability. Why is that? You listed a bunch of designations and job titles that should be able to make this determination. Since you work for a large company, why don't you perform the determination and get the larger company to present it to the client with an indemnification or other disclaimer?" I wouldn't be too quick to assume that this function could/should be performed by the TPA. This could very well be considered an unauthorized practice of law. (And I'm not an attorney, so I'm not trying to protect any turf here.) On a practical level, as Kim mentions, many TPA's in the small plan market simply cannot charge enough for the necessary data gathering, (often like pulling hen's teeth) questioning, analysis, etc., to adequately make such a determination and accept the liability, even if the practice of law issue doesn't faze them.

FWIW... I suspect the whole issue may be theory vs reality. For those that believe a cash basis EZ filer for a profit sharing plan must make the contribution prior to filing the EZ, can I ask this: Have you ever actually seen a case where it has been kicked back, had problems on plan audit, etc., for this reason alone? Any penalties levied on a filing for this reason? I will say that I have seen, literally, thousands of EZ's filed for PS plans, on a cash basis, and filed prior to the time the full PS contribution has been made. Have never once seen a problem associated with this method. Since many clients do not actually make the contribution until the last possible minute, I'd certainly say the chances of filing the EZ late (and adverse consequences of that late filing) surely outweigh the "risks" associated with a cash basis filing prior to the date the contribution is made.

The default rule under IRC 404(a)(1)(A) is that the contribution is deductible for the fiscal year when paid. IRC 404(a)(6) allows a special "dispensation" to deduct for the prior year if certain conditions are met, which they have not in this situation. So yes, I agree that there should not be a problem deucting for 2007.

The following was from yesterday's Benefits Link newsletter. The emphasis is mine. Obviously I have no idea if the claim will be successful (I'm dubious that this will be judged to fall under ERISA) but I thought it interesting in light of this thread. School workers sue union over retirement plan By GENE JOHNSON AP LEGAL AFFAIRS WRITER SEATTLE -- Two school workers have sued the National Education Association, accusing the union of betraying its members by accepting millions of dollars in kickbacks for promoting a high-fee retirement plan. The lawsuit, filed in U.S. District Court in Tacoma last week, seeks class-action status on behalf of at least 57,000 other teachers and school personnel who invested with the Valuebuilder plan offered by Security Benefit Life Insurance Co., of Topeka, Kan., and Nationwide Life Insurance Co., of Columbus, Ohio. In all, the union's members invested more than $1 billion since 1991, according to the complaint. The fees and expenses charged by Nationwide and Security Benefit as part of the so-called 403(b) plan were far higher than those charged by comparable and better-performing plans available on the market, but the NEA and its for-profit subsidiary, the NEA Member Benefits Corp., accepted payments from the companies to endorse those retirement plans, the lawsuit said. The payments created a conflict of interest and cost NEA members tens of millions of dollars in lost retirement savings, in violation of the Employee Retirement Income Security Act, it said. Furthermore, in Valuebuilder's menu of investment offerings, Security Benefit and Nationwide only included funds that had paid to be listed, the lawsuit claimed. Union leaders "should be endorsing plans because they're good plans, not because they're paid money to endorse those plans," one of the plaintiffs' attorneys, Derek W. Loeser of Seattle, said Tuesday. The types of plans at issue here are typically exempt from ERISA, but Loeser argued that in this case, the union endorsed the plans, requiring it to comply with the law's requirements for acting in employees' best interests. The NEA directed a call for comment to Lisa Sotir, general counsel of NEA Member Benefits, who called Loeser's analysis of the law a "dramatic expansion" of previous court interpretations. She said lawyers are still reviewing the lawsuit. She said the payments are used to pay for costs associated with the Valuebuilder program, including oversight, customer surveys and compliance with Securities and Exchange Commission regulations. "We don't use the funds in any way other than to benefit our members," she said. Loeser said that when a union endorses a pension benefit plan, its members can reasonably assume the union has done due diligence to ensure that the endorsed plan is the best for its members. It isn't clear exactly how much the NEA was paid for endorsing the plan, or how much the union members lost, but that is expected to be revealed during discovery, Loeser said. The lawsuit was reported in the Los Angeles Times on Tuesday, and the complaint quoted extensively from a Times article discussing the payments NEA received to endorse the plan. According to the complaint, Nationwide was the exclusive plan provider to NEA from 1991-2000, when it sold the Valuebuilder program, with $860 million in assets, to Security Benefit for $72 million. A Security Benefit spokeswoman declined to comment, and Nationwide spokeswoman Carah Brody said the company had not seen the lawsuit and could not comment. The lawsuit was brought by Jerre Daniels-Hall, a school psychologist from Port Orchard, Wash., and David Hamblen, a teacher from Diamond Springs, Calif. It seeks the disgorgement of any kickbacks paid to the NEA and excessive fees paid to Security Benefit and Nationwide, as well as damages for any investment losses suffered by the union's members. In April, Loeser's law firm, Keller Rohrback, filed a similar lawsuit against New York State United Teachers Member Benefits Trust.

Hijacking is fine. No elevated terror alert on these boards! SoCal - can you explain why that is? The same language is there under 412(d)(2). Is there something else in the actual calculation of cost that will effectively preclude use of it? (Sorry I need explanation, but I'm not an actuary, so the intricacies of calculating a DB cost are far beyond my capabilities.) Thanks!

Some CPA's are adamantly opposed to filing these, so if you do it on your own, you might get some irate people.