Belgarath

FWIW - the attorneys out there should probably weigh in on this issue. Assuming your contract with the employer allows you to cancel services for nonpayment of fees within a certain specified timeframe, it seems likely that you should be ok. The Plan Administrator/Trustee has a legal obligation to administer the plan properly. And if you cancel services, due to their failure to remit fees, as allowed/required by your legal agreement with them, then I think THEY are on the hook, and not you. It might possibly be advisable to have some language in your "pay up or else" letter that mentions the ramifications of failure to communicate a "blackout period" properly, but again, I'd run this by legal counsel. Hopefully they will say "nah, don't worry about it!"

My inclination is the same as yours, and I always advise our clients to seek competent ERISA counsel for a question like this. Going beyond my gut feeling, there was a PWBA opinion letter 2000-10A which dealt with IRA's, and it said there was NOT a PT where the IRA owner was a general partner and family members had limited partnership interests, and the IRA invested in the limited partnership. Whether this same type of logic would/could be used in your non-IRA situation, I wouldn't care to guess without a lot of thought! I'm always inclined to be very conservative on any of these issues anyway, but if the client's legal counsel opines that it is ok, then all I ask for is a letter from the client so advising me.

The 5305 model SEP is the IRS model document. A prototype SEP has to be submitted to the IRS, and approved, like other prototypes. As Appleby previously noted, the 5305 SEP prohibits contributing to the SEP while still contributing to another DC plan. A prototype SEP can, and often does, allow the plan to have contributions to both, subject of course to normal 415 limits, etc., and may have other provisions as well that are not contained in the IRS 5305 model SEP.

Aha! Once you actually receive documentation, you find out that things are far different than what they tell you over the phone. First, SPOT is correct - the other TPA completed the form this way, but with the understanding that the client would get the audit done and attach it before filing the forms. Second, the DOL is not yet imposing any penalties - just asking for the audit. But this does make me feel better about the other TPA, since I couldn't imagine anyone doing this. Thanks to you all for your responses, and sorry if I wasted your time based upon incorrect initial information.

A final 5500 form needs to be filed for the plan year that ends when all plan assets were legally transferred to the control of another plan. Normal 5500 filing deadlines apply.

Have since found out more details. The TPA did in fact do this, because the client didn't want to pay for an audit! Oh well...I agree with Katherine that step one is for them to get an audit done immediately. Then beg.

I've never seen anything like this, and wondered if anyone had, and has an opinion of the likely outcome. The prior TPA had someone who was either inexperienced or insane prepare the 5500. On the Schedule H, line 3(a)(1), they checked that there was an unqualified opinion attached (although one was never done) and simply attached some statements from the various financial institutions! And the client, apparently not knowing any better, filed the forms as prepared. Needless to say, the DOL kicked it back and is proposing penalties of mega-thousands or something like that. Client is asking what they can do? I've never seen such a situation, and wondered if anyone had, or had a feeling as to the likelihood of some successful penalty reduction if they beg for mercy? (and there's the obvious step of a suit against the TPA, which I presume wouldn't be necessary, because I suspect any TPA in this situation will simply ultimately pay any penalty. But maybe not, once the attorneys get involved.) Any opinions or ideas?

I respectfully disagree with the attorney if you are talking about a new waiver. You have a document which, presumably, specifies the eligibility requirements. Once an employee has satisfied those eligibility requirements, the plan has language specifying how a given contribution is allocated. If the plan does not somehow have a written provision for a waiver of participation, then allowing it will be an operational error in that the operation of the plan is not complying with the terms of the document. I'm assuming that these are current waivers - I can see a reasonable argument being made that a prior (valid) waiver which was irrevocable at the time is still valid. I'm not sure what position the IRS would take on this.

I'm going from memory here, so I'd take this with a large dose of caution... If the plans are permissively aggregated under 1.410(b)-7(d), then I think you are ok to consider your money purchase contribution toward satisfying gateway. Conversely, if not permissively aggregated, then you couldn't count it. As far as the "topping off" in the PS plan where necessary, this could be a problem if the plan language does not allow it. Technically, I suspect you'd have to calculate a contribution where the "regular" allocation would get you up to the gateway minimum. There was some talk a while back about the IRS coming up with some form of specimen amendment for the "topping off" approach, but I haven't heard anything more about it.

You are correct.

Take a look at IRC 1563(e) to see if the "spousal noninvolvement" clause applies. It might. And beware that in a community property state, there's a debate among even some of the experts (and believe me, I'm not an expert in this area!) as to whether you are considered to have direct ownership in your spouse's business, even if you think you don't. If you come down on the side that there IS direct ownership, then the spousal noninvolvement clause CAN'T apply, because one of the conditions for it to apply is that there can't be direct ownership. I ALWAYS refer clients to their legal counsel for a determination of whether they are a CG/ASG.

Spot - just a small suggestion, which may or may not be helpful in your case. (I don't know the answer to your question, and haven't looked it up.) But the Rev. Proc. you reference has been updated - see Rev. Proc. 2003-44. It's possible that the IRS has modified or updated the applicable section(s) that you are looking at. The IRS website has a very handy "redlined" version which specifically shows modifications, so you can scan it pretty quickly to see if anything has changed.

I agree with asire2002. Although the circumstances where former employees are considered "parties in interest" are probably rare, it does occur. And there's a special rule under 1.401(a)(4)-10© to help employers avoid a qualification defect on the nondiscrimination testing of a loan feature by allowing a plan, as the DOL regs permit, to offer loans to former employees who are parties in interest, and treat them as employees for this purpose, but not to offer loans to other terminated participants. And I agree that a plan may not indirectly exclude former employee-participants by requiring payroll deduction as the only repayment method. I guess I've just been lucky - I've never actually seen a request for a loan by a former employee.

A little Jeffersonian purity is always a boost to an otherwise rotten Monday! Too bad more people don't embrace this concept. Thanks.

I suppose it depends upon how you interpret 1.401(a)(4)-4(e)(1)(i). I'd interpret this to mean that it is a protected benefit.

Others may disagree, but if I were the Trustee, I'd put the brakes on my greed and pay the participants their share of the earnings. If a participant ever got wind of this and made a formal complaint to the DOL, I suspect they wouldn't agree that the Trustee/HC/owner is "entitled" to all this gain. As an aside, if the consensus was that the funds would lose money in this short term, why wouldn't any prudent fiduciary have liquidated the investments and placed them in something that at least guaranteed the principal and a small return? The Trustee should check with legal counsel, but I surely wouldn't want this plan scrutinized if I were in the Trustee's shoes...

No. A bona fide participant loan that satisfies the loan requirements is not a distribution - hence, you wouldn't add it back in.

We've just had a couple of "additional information" requests on this, and it's the first time this has ever happened. One reviewer was from Cincinnati, OH and the other was from Portland, OR. In questions 17 j of the 5310, they ask if any participant received a distribution within the past 5 years. If we answered yes, we had to indicate the largest amount distributed. In these two, both reviewers asked us to provide the name of the particpant who received the distribution, their allocations to their accounts for the prior 10 years, or if they had been in the plan for less than 10 all the amounts allocated to their accounts since their participation. In the one we are responding to today, the amount distributed was $15,000+. The other one was a similiar amount. On the first plan the participant had been in the plan since 1987, however, it was a takeover, and we had to go back to the Trustees to ask for information for the years where we do not have the information. Has anyone else run into this? And if so, what in %$**& is the IRS asking this for? This is a lot of work for nothing - we haven't talked to the reviewers yet to ask them what kind of a game they are playing, but before we do, I wanted to see if anyone else is encountering similar problems, or knows why they are doing this? Thanks.

Well, you can try, but I'd be surprised if it gets you anywhere. My understanding is that under Revenue Ruling 82-66, if a document defect isn't corrected by the end of the remedial amendment period, the amendment will only help for the plan year in which the amendment is adopted. So as in your situation, this leaves prior years hung out to dry. And the only way I know of to correct this is to submit under what is now VCP under the new Rev. Proc. 2003-44. And under Section 10(.07)(2) of that Rev. Proc., the fee in your situation is the Audit Cap fee, not the normal VCP fee. Good luck!

Thanks. Actually, my initial reference wasn't on point - after reading these further, I believe I should have referenced 1.413-2(a)(3)(iv), and I think this confirms RTK's answer that disqualification of one disqualifies the rest. But these are old regs, and maybe as Mbozek says the IRS only disqualifies the applicable plan, which surely would be more logical. P.s. Here's a reference I just found through CCH on the above. But it appears that you are at the mercy of the Service. Thank you both! TD, PEN-RUL ¶23,034, COLLECTIVELY BARGAINED PLANS AND PLANS MAINTAINED BY MORE THAN ONE EMPLOYER , (Nov. 09, 1979) However, in the rare case of total disqualification, hardship could result to the offending and nonoffending employers maintaining the plan. Although no exceptions to total disqualification are provided in the final regulations, it is expected the Service’s administration of these provisions may shelter innocent and nonnegligent employers from some of the harsh results of disqualification. Accordingly, in a proper case, the Commissioner could retain the plan’s qualified status for innocent employers by requiring corrective and remedial action with respect to the plan such as allowing the withdrawal of an offending employer, allowing a reasonable period of time to cure a disqualifying defect, or requiring plan amendments to prevent future disqualifying events.

Since this is a subject about which I know nothing, thought I'd solicit some opinions. Suppose you have a multiple employer plan. Under 1.413©-2, each employer is treated as having a separate plan for purposes of nondiscrimination testing. Now suppose company "y" fails. If there is a disqualification, how does this work? Is the entire multiple employer plan disqualified? Doesn't seem reasonable... but what are the mechanics of leaving disqualified money in plan, or getting it out if there's a disqualification, etc.? I'm not looking for specific cites - just some opinions from folks who may be more familiar with these issues! Thanks.

I would say yes. It is now a plan asset, and there's no exception I'm aware of in the law exempting these rollover amounts from the anti assignment/alientation requirements.

Blinky - I can think of at least one other possibility, depending upon what ultimately happens with estate taxes. And I'm no estate planner, so I'll leave it to the experts. Having said that... one of my pet peeves with large amounts of life insurance in a qualified plan is that you subject the entire death benefit to inclusion in the taxable estate, whereas if purchased outside the plan by a trust, estate taxation can generally be avoided. (And anyone who can afford a 412(i) plan can afford the insurance outside the plan!) I don't see this aspect getting much publicity. However, if they (Congress) do away with estate taxation, then even following proper incidental limits, you can still purchase more life insurance in a 412(i) than in a "regular" DB plan. So if you can buy it with tax deductible dollars, and you will be purchasing the life insurance anyway, could be very beneficial. Again, there are a lot of "ifs" there and a very small niche. As to the issue of not getting deductions as large in future years, I suspect that under the current interest rate environment, at least, annuity interest returns aren't substantially above the guarantees, so your high level of deductions would likely continue for quite some time.

1. Agree with Pax. It is generally a matter of convenience as to which is chosen. 2. Yes, it could be established mid-year, same as any other plan. But you might want to give consideration to having the initial plan year being a full year in order to avoid prorating the limits. My understanding is that the IRS has informally stated that this approach is ok. But I guess I'd want a determination letter if I were going to do this. Probably safest (or at least easiest) to simply prorate for the short year. 3. Yes, if the Ins. company allows it. 412(i) requires "level annual, or more frequent, premium payments..." 4. Not that I'm aware of. I'll just add this. Ignoring the debate about insurance products, etc. - I have nothing against 412(i) plans. In the right situation, with full disclosure and responsible administration, they can fill a niche and be very valuable for certain select situations. What I do have a problem with is how some of them are sold and marketed, and there are currently companies out there which actively promote some (in my opinion) ridiculous abuses. And I think they will get their wings clipped very shortly, as KJohnson mentions - and about time. I've also seen cases where the CPA making the recommendation to install the plan is licensed as an insurance agent, and receives the commissions. I just can't help myself - such an arrangement makes me feel very uncomfortable. FWIW, if you are going to have a sales force promoting these plans, I'd be exceptionally careful in any disclosure and signoffs, promotional literature, etc. - whatever you are going to do. I'll climb down off my soapbox now - I try not to stand up here too often, so I'm getting dizzy.

I agree. The documents I've seen allowing life insurance say something to the effect that by the Annuity Starting Date, or if later, by Retirement... I do believe that if the participant had a greater than cash out benefit, and was young enough to not require minimum distributions, and elected not to receive any benefit currently, that the insurance could be maintained, assuming incidental limits were met. But since this participant has had an "Annuity Starting Date" already, I agree that there's no way to keep it in the plan. But maybe there are IRS approved documents out there that have other provisions, although I'd be surprised if the IRS would allow it - I seem to remember that such provisions were based upon IRS provided LRM language.