Belgarath

I respectfully disagree with ERISA-Atty. Suppose the individual has never had a Roth IRA, and the designated Roth account in the 401(k) Plan (which had satisfied the 5-year period while in the 401(k)) is rolled to a new Roth IRA. The 5-year period begins when the Roth IRA is established in this situation. See 1.408A-10, Q&A-4. It gives examples of how all this works. Sorry - I hadn't read Luke's post - he already provided the references!

Sorry about that! I probably shouldn't have even made the original post until I had more information.

To the moderator - please delete this post. Information now coming in is very different from originally received, and at this point, no one should be wasting their time responding to the original post. Thanks!

Thanks. I'm sure something else is going to pop up on this as more information becomes available...

Encountered what was (to me) an unusual situation on a possible takeover. Details a little sketchy at this point. John Doe, Sole Proprietor, sponsors a 401k plan, using a volume submitter pre-approved document. John has several employees, all covered under the plan, everything seems fine. However, it turns out that unbeknownst to the prior TPA (and if there's a problem, likely not their fault, as apparently neither client nor CPA ever informed them) the employees of John are actually PAID through another company. Details on this other company not yet known, but apparently has a different EIN than John. The reasons why it is handled this way are unknown. The CPA likely had good reasons for it - I'm not making any judgments since this is outside my sphere of knowledge. Now, my understanding has always been that the IRS will only issue one EIN to a Sole Prop. If true, (?) then this other company, apparently 100% owned by John, must be something other than a Sole Prop? At any rate, my question is this: Assuming these are "employees" of John, is the fact that payroll is run through another company in the controlled group a problem in and of itself? This other company has NOT signed on as a Participating Employer, and the document provides that employees of another member of a controlled group are not covered under the plan unless a Participating Employer Agreement has been signed. Although it is the CPA's purview, can John deduct contributions if payroll is through another company? I'd love to hear any thoughts on the situation. Thanks in advance.

I'm FAR from expert on this, but I'll put in my thoughts, FWIW. First, is it certain that they are taxable? I seem to recall that if the exercise price is equal to (or higher than?) the fair market value at the time the options are granted, then they are not currently taxable. Assuming that they are in fact currently taxable, then I'd be very inclined to agree with you that they qualify as a fringe benefit.

Seriously - your desire to help is truly commendable, but take heed of what these experts above are telling you. Do you really want to knowingly assist in a Fiduciary Breach? It is great to try to help people, but if they aren't willing to take the steps to help themselves, they don't deserve help. And while I would feel bad for the rank and file employees, I certainly wouldn't let that lead me to put myself at risk. If they are unwilling to pay VCP or VFCP fees, they are unlikely to spring for an ERISA attorney. At least in my experience... Best of luck on this one. Be careful not to sprain an ankle while sprinting for the exit!

Ok, thanks.

Hi John - do you have a citation for that? 1.401(k)-1(a)(3)(B)(v) refers to "any other plan or arrangement of the employer that is described in 219(g)(5)(A)" - I don't see that this applies to Health and Welfare plans? Thanks. (I can't remember the last time someone attempted to waive participation in one of our plans anyway, but having said that, someone will doubtless ask about it momentarily...)

Still allowed (although not in a standardized plan) if done before the employee first becomes eligible to participate in any qualified plan maintained by the employer.

I agree. After I thought about it a little more, I realized that just cutting a check, in this circumstance, wouldn't be correct. I just hadn't gotten around to re-posting. Thanks to you both.

This is truly a hypothetical question, but comes to mind since there have been a couple of "mistake of fact" distributions recently. Suppose you have a legitimate mistake of fact contribution. In order to return it to the employer, it is supposed to be returned within 1 year. Now suppose it is past the 1 year, before it is even discovered. I believe it then needs to be allocated as an employer contribution. Other opinions? Other solutions you have used or heard of in "real life" situations? Just curious.

Hypothetical for the moment, but could become real. Participant dies, no named beneficiary. Under the plan default, it goes to the daughter. Daughter is non-responsive, although her location is known. This doesn't really fall under the "can't be located" missing beneficiary. Let's assume after a period of non-response, the plan just cuts her a check. If she doesn't cash it, what then? Does anyone happen to know if Millenium Trust or similar organization will accept a rollover to a beneficiary IRA in these circumstances? (I realize I can contact them - just wondered if anyone already knows). Other options? P.S. - let's assume it is over $5,000, in case it makes any difference in your thoughts.

Yes.

Thanks Luke.

Silent.

Nope. But why should the Plan Administrator be tasked with determining (or questioning) this? If it is done pro-rata, seems like that question takes care of itself?

Sole prop (with employees) defers. But ends up with zero Schedule C income. Deferrals returned timely. Do you report this on the 5500SF on line 8(e) for the year of distribution, or another line, or not at all?

Gracias - that was my answer, but I thought it would be good to get the opinions of QDRO experts.

Say a QDRO specifies a lump sum of "X." Participant has several sources - deferrals, match, Roth, Pre-tax, etc. QDRO and plan are silent on the issue of which source(s) from which the funds would be distributed. My answer would be proportionately from all sources - but does the Participant or Plan Administrator have the right to then dictate the source(s) from which the distribution is made? For example, all from Roth, or none from Roth, etc.? Thanks.

Thank you! And yes, the actuary wants to offer a pre-termination window. We don't administer the DB plan, but get dragged in to some extent due to the 401(k). Again, the details are very convoluted and it isn't worth even attempting to explain!

Since I'm distinctly not a DB person, I'll spare you the weirdness of this situation and just ask one small question: When you have a terminating plan that wants to offer a lump-sum window, and the AFTAP is too low to allow it without (in this particular case) going with the special bonding rule to allow the lump sum to a couple of Highly Compensated people... For these purposes - are the "top 25" HCE's or former HCE's determined under the 414(q) definition, or does it mean the 25 highest paid, regardless of whether they are HCE's under 414(q)? I believe it is the former, but I'd love to get confirmation from someone who knows something about all this! Thanks in advance.

Hi Bird - ok, that would make more sense. So in that situation, then maybe the plan has made overpayment(s) to the participant, and then yes, I agree - try first to get it back, then if not successful, plan sponsor makes it up with interest.

Huh? What do you mean by "mistakenly" made RMD's from other assets? The cash value of the insurance policy is included in the participant's account balance. So the RMD is made based on the entire account balance, including the cash value of the life insurance. It isn't one distribution from the fund, and a separate distribution from the life insurance. And if the RMD's were made from "other" plan assets, (which is fine) then why is the life insurance cash value zero? Was the premium being paid by automatic premium loan or something, etc.? And although I find your post confusing, what makes you think the plan sponsor is responsible for making the plan "whole?" Nothing in your post suggests to me that the plan sponsor has distributed funds in excess of what should have been distributed. Please explain why you think the plan isn't "whole." Maybe there are distributions in excess of the total the participant is entitled to? As to the policy in the plan past NRA, you should look at your plan document. Is this participant still employed, or terminated? It sounds like you could have an operational violation - the plan will almost certainly specify the appropriate provisions regarding life insurance policies. Good luck.

Assuming you are talking about an "eligible rollover distribution" if ALL distributions for a calendar year total less than $200, generally no 20% withholding applies. You should look at the regs under 31.3405(c), as there are certain "unusual" circumstances.