Belgarath

No. So it appears that there are two possible choices here: (a) it was a rollover, and a 1099 should have been issued, and was not, or (b) it was a trustee to trustee transfer as Paul mentions, in which case it should have been reported on the Schedule I. Not really our problem, as we don't administer the ESOP, but I wanted to get it straight in my head. Thank you both for your responses.

No need to be sorry - disagreements are welcome and informative! Since I'm neither a CPA nor an attorney, let me ask this further question: Does a CPA have the authority to make this determination under their license/designation/whatever, since the CPA must know whether the employment is legitimate, in order to calculate deductions, etc.? Does a CPA refer all such questions to an attorney?

1. CAN it be legitimate? Yes. IS it legitimate? Facts and circumstances. Really a question for the CPA as to whether the child is a bona fide employee, IMHO. 2. Yes.

I'm looking at a 5500 Schedule I that was prepared for an ESOP. Diversification elections were made, whereby assets were transferred to the employer's 401(k) plan. The Schedule I, Line 5b, does NOT show these transfers. It seems to me, reading the instructions (excerpt below) that this should have been reported on Line 5b? They were included on the distribution line on the 5500 itself. I don't know how critical this is, in real life terms. If it was reported incorrectly, at least it was "reported" - if the DOL audited the report, maybe just an "oops - reported on wrong line" and do amended 5500 form(s)? I have no idea how far back this goes... Line 5b. Enter information concerning assets and/or liabilities transferred from this plan to another plan(s) (including spinoffs) during the plan year. A transfer of assets or liabilities occurs when there is a reduction of assets or liabilities with respect to one plan and the receipt of these assets or the assumption of these liabilities by another plan. Enter the name, plan sponsor EIN, and PN for the transferee plan(s) involved on lines 5(b)1, (2), and (3). Do not use a social security number in lieu of an EIN or include an attachment that contains visible social security numbers. The Schedule I and its attachments are open to public inspection, and the contents are public information and are subject to publication on the Internet. Because of privacy concerns, the inclusion of a social security number or any portion thereof on this Schedule I or the inclusion of a visible social security number or any portion thereof on an attachment may result in the rejection of the filing. Note. A distribution of all or part of an individual participant’s account balance that is reportable on IRS Form 1099-R should not be included on line 5b. Do not submit IRS Form 1099-R with the Form 5500.

No, not yet. What do these letters say? Would it be possible to post a fully redacted copy of one such letter?

Depends on what you mean by "make it work." As Lou said, the 25% deduction limit kills it right there. The 25% deduction limit with the total compensation given is only $55,256. IMHO, no way can you get the owners to an employer contribution of $27,000 each and pass nondiscrimination testing. Unless they can take salaries that are way higher, so their percentages are way lower... Personally, I think the best you can do is to find out how much they are WILLING to give the NHCE's, and work backwards from there to come up with the most efficient maximum, within the constraints of the document and coverage/nondiscrimination results. And consider what plan design changes might be beneficial, again, within the constraints of coverage, nondiscrimination, and the allowable timing of any amendments. Talk to an actuary about pairing with a DB plan - I'm no actuary, so I don't know what might be possible.

What Lou said. And an enhanced ACP safe harbor match, while theoretically possible to get to the 27,000 match using an ACP safe harbor match formula of 671% (app) of deferrals up to 6% of compensation, would be most unlikely to make the client happy - giving way more to the NHC than he would normally want to!

We've been through this exercise with our documents (not FTW) as well. I agree with Paul - different interpretations may be used, and the PA needs to make a choice, and use that choice consistently.

I think you are correct, but depending upon the Trustee, you might not even need the increased bond. If the Trustee of the limited partnership asset is a "regulated financial institution" (and you can look up that term, but a bank, for example) then the limited partnership should be considered a "qualifying asset."

"Let me make one thing perfectly clear" - for those of us old enough to remember...😁 Thanks CB - this is helpful.

Without doing any research, and going from memory... I think you are looking at the distinction to determine whether you are ELIGIBLE to even file a 5500-SF, regardless of the IQPA Audit waiver issue, or whether you must file a 5500 as a small plan with a Schedule I. If you look at the definition of "eligible assets" in the SF instructions, I do seem to recall there are certain differences, such as Employer Securities. If there are employer securities, you can't file the SF. On the other hand, if you are looking at the 5500 Schedule I, you CAN have "qualifying employer securities" in the list of allowable assets when claiming the IQPA waiver, which you can do for a small plan 5500. So I'd start with comparing those two "lists" in the instructions to the 5500-SF, and the 5500 Schedule I. But check carefully, as I'm going from memory only. Caveat emptor!

So, now that we have self-certification for hardship reasons for hardship withdrawals... Some plans allow loans only for hardship reasons. We generally draft the loan procedure to define "hardship" as one or more of the 401(k) "safe harbor" hardship reasons. Occasionally, there are other oddball hardship reasons which are added due to a specific participant situation - furnace died, dog ate the homework, broke a fingernail, etc.... Anyone see a problem with allowing employee self-certification for a hardship reason that is one of the 401(k) "safe harbor" hardships? I feel quite comfortable with it, but perhaps I'm missing something. Thanks for any opinions.

I've always found the following requirement somewhat scary, as it is subjective on the part of the IRS: An explanation of how the failure occurred and a demonstration of the existence at the time of practices and procedures reasonably designed to promote and facilitate overall compliance. Obviously, even if you have great procedures, mistakes can happen, which is one reason that EPCRS exists. I'm curious if anyone has ever had a plan audited, where SCP was used, and the IRS disallowed the SCP due to a perceived defect in such "reasonable" procedures?

Agree, assuming the plan has the requisite language.

Re your first question only - not necessarily. If the bond is increased to at least the full amount of the non-qualifying assets, and you meet enhanced SAR requirements, you could still avoid the audit. Take a look at DOL regulation 2520.104-46 for detailed info on the subject.

Hi Peter - I haven't given this an exhaustive reading, but it appears to me that re question #1, the most potentially useful changes (for what I perceive as the majority of practitioners on this board) are #'s 2, 4, and 6 under Q&A-3. Self-correction is now allowed under 2 and 4, and the correction period for Significant failures is no longer limited to the "3 year" period. I didn't have a "wish list" so I have no comment on your question #2. As to question #3, I've never had a real rule of thumb - it has always been facts and circumstances, as we don't do a lot of VCP submissions. Someone who deals with them on a more regular basis could doubtless provide you with some thoughts on this. Being of an essentially conservative nature on these issues, I guess if the Self-Correction is "gray" I'd at least tell client they should check with ERISA counsel as to whether they believe VCP is indicated, or if they are comfortable with Self-Correction.

Well, theoretically (or maybe practically) speaking, an employer might not want to match these higher catch-up contributions, either for financial reasons or considering it "unfair" to younger catch-up eligible employees, or both. Possibly other reasons I haven't considered. I'm feeling particularly antiquated myself these days, so I need some reprogramming. Our son was discussing a new "smart" TV with us the other day which I'm not smart enough to understand, and I informed him that he was (A) going to go to the store with me to tell me what I should buy, and (B) he was going to set it all up for us at our house. With what it costs to raise your kids, there needs to be SOME small return on the investment...

I see Mr. Bagwell and I were typing responses at the same time!

Depending upon your plan design, you might well satisfy ADP via the safe harbor, yet STILL need ACP testing if there are matching contributions that don't satisfy the ACP safe harbor. The testing for the Profit Sharing, again, will depend upon your profit sharing formula, and whether you utilize a "design based safe harbor" under the 401(a)(4) regulations, or whether you are general testing, etc. Also, there's no automatic top heavy exemption, even in a 401(k) safe harbor, if you are making profit sharing contributions or reallocating forfeitures. So be careful on this. Your 401(k) safe harbor contributions can be used toward top-heavy, but may not be sufficient if you are allocating safe harbor based on compensation from date of participation. There are enough possible "hooks" or complications, depending upon the specific plan design and employee census, so that using general answers from this board is risky business. If I were you, I'd discuss with co-workers/supervisors/etc. to get some clear direction/instruction, and consider sources such as the Erisa Outline Book, for example to give you a better understanding of these issues.

I'm just not sure I will thrive along with them...this foolishness is turning me into a grumpy old man. ☠️

if all HCE's are excluded, not an issue.

Most people these days used pre-approved DC documents, which as advised above, will almost certainly have language dealing with this situation. I'd add that if there is one, you should carefully look at the Appendix to the Adoption Agreement, as this often contains overrides to the "boilerplate" language in the basic plan document for this (and other) provisions. I speak from the embarrassing experience of occasionally forgetting to check the Appendix in the past - I'm much more careful now - the burned hand teaches best!

To my non-legal mind, this seems like a reasonable and equitable decision.

You've probably checked this already, but have you used their EIN to see if 5500's have been filed for 19, 20, and 21? If so, did client prepare themselves, or have their CPA do it, etc.? Seems like the client or CPA/financial advisor should know SOMETHING about what happened, but maybe not... Hopefully someone here will have some better ideas for you. Good luck!

Agreed - we routinely recommend that the employer have this option in their plan - if they never use it, no harm, no foul, but it is there. Sometimes, they still don't want it there, as they do not want participants to have any expectation of a profit sharing contribution, but that's unusual.