Mike Preston

I wonder just how specific the major retirement plan vendors are in their disclosures to participants regarding the need to safeguard their access information? It would seem to me that in the case described by RCK, if the participant was adequately informed, while seemingly cold-hearted, the responsibility lies with the participant. Unless the participant can make a reasonable case that a plan representative or procedure was involved in creating or facilitating the loss, I would think an argument could be made that it is not prudent for the plan to expend funds or resources on this matter. If the Plan Sponsor chooses to do either, though, perhaps on the basis of employee relations, that would be ok. Has anybody done a comparison of disclosure by major vendors on this issue?

At the least, you should make it clear to the Plan Sponsor that they are operating their plan in a manner which is subject to unfavorable scrutiny by the IRS, and that the Plan Sponsor and the plan risks serious economic consequences by continuing the practice. Involve the client's counsel, if at all possible. Your responsibility should be laid out in your engagement agreement. If it isn't there in some manner, then put it in a supplementary writing. In the end, your responsibility will depend on whether the client is ever called on the practice and, if so, to what extent your client can or decides to make a case that you should have done something that you didn't do. However, notwithstanding the above, you should consider resigning if they refuse to modify their practices and should talk that over with your counsel.

Sorry, I assumed when you mentioned that HE made $500,000 that HE was paid $500,000 as an employee. I should also have asked how the $500,000 was received. As you state, you don't know whether he receives it as 1099 (making him a sole proprietor) or as W-2 (making him an employee of Sony). My guess is that he is paid as an employee and therefore he can't have another plan, unless it is set up by Sony for him. If he is paid as a 1099 then his sole prop can do as you describe.

True, but what about that shortfall amortization? Or should we be happy with 1/2 a loaf in this instance?

What kind of advisor? How are the funds invested? What are the participant's options? What is the marginal expense? How is the expense being paid?

Sounds about right to me. Of course, what you have said needs to be confirmed against the document's provisions, but it sounds like you have already done that. Reading between the lines, your GUST document provides that amounts in excess of the deductible limit (or maybe it is a hard coded 25%?) are not allocated and, instead, are held in suspense with the intent that they be allocated in the next year. Your EGTRRA document doesn't include that language, so you naturally are free to allocate up to the 415 limit. I don't see any other course of action available to you.

While there are technical requirements that a plan has to meet in order to skip the 2009 RMD (amend the plan at some point to conform the plan language with the plan's operation), most people just assume that 2009 RMD's for DC plans (and 414(k) accounts within DB plans) were, as the OP stated, "waived" by the participant. I prefer to think of the RMD requirement as being just that unless or until somebody tells me that the plan has made arrangements to satisfy the RMD waiver made available. In any event, I certainly agree with your numbers, Bird.

Well, there really isn't anything definitive out there that I've run across. The sole prop will file a tax return for 2010 and included in the sole prop's income will be an amount reflective of the company's operations through 3/31 and, most likely, receivables as of that date. I've seen two suggestions made by accountants in this circumstance: 1) determine the income reflective of the company's operations through 3/31 and use that in your allocation and new comp calculation. 2) use 1/4 of the income that is shown on the 2010 tax return as income attributable to the sole prop for the year. Depending on receivables and how the sale was structured, the results can be all over the map, so there really is no one right answer here. Maybe if you use the lesser of (1) or (2), above, you are safe from a charge of discrimination. Keep in mind that if your plan terminated 3/31 and the only allocation date is something (like anniversary date) which translates to 12/31 you may not have the ability to do any allocation in the year of termination without modifying the document a bit.

If you believe there are errors in the prior year valuation, you should let the client know and ask the client how they want you to proceed. If they don't authorize you to redo the 2008 work, I don't see how you can do it. If that is their decision, then you have to decide whether to resign or just go forward (your second option). You can have the client sign something that holds you harmless by just going forward, but I'm not aware of any specific case law that says you will really have protection if they do. Whether they authorize you to redo 2008 or not you still have to decide whether you contact the prior actuary to determine whether what you think is a mistake isn't. IMO, you should seek the client's authorization before you contact the prior actuary, as there may be circumstances of which you are unaware. I would proceed much more cautiously, though, if the client doesn't want you to contact the prior actuary. And, finally, with only one year in the can, I would push the client to authorize you to re-do 2008 as otherwise they might be on the hook for redoing many years if it turns out that 2008 provided an erroneous base for 2009 and forward calculations.

DId you mean 4/1/2010? I don't know how a participant can waive an RMD due by 4/1. I think you have an RMD violation. Are you confusing the fact that a participant with a 4/1/2010 RBD actually has an RMD for 2009 that can be avoided by deciding to take it in the next calendar year (by 4/1/2010) with something else?

Corp or unincorporated entity? If corp, C or S?

Who is the $500,000 paid BY? That entity can set up a plan for the difference.

You must follow the plan's provisions. They need to report different hours to you or nothing changes. There is no special exception for owners.

It seems the risk relates to the PBGC coming in and determining that A didn't receive full value from B.

Usually there is a provision in the plan that specifies whether one or both must sign when dealing with transactions. In ours, it is a rare case where we will require more than one. However, I'm not sure that provision covers the initial adoption of the plan. Personally, I've never understood why the Trustee is asked to sign the document, itself, unless it is a combination plan and trust. Is it?

I don't object to either. But 3% as a floor is a bit much, IMNSHO.

I don't see any justification for a minimum and would be concerned that a minimum would play fast and loose with effective availability.

Hard for me to imagine on what basis the employee of B wouldn't be able to participate in B's plan.

I think it is random. I have one which was submitted in early Feb and we are on the second round of substantive comments and one that was submitted months ago and nothing other than the acknowledgment.

Yes, by reading the document alone you will need to know which doctors are in which groups.

Absolutely.

Then you have some testing to do.

Certainly you can.

Doesn't sound like a problem to me. You test on the aggregated plans, of course, right?

Let me first answer an unanswered question you posed in an earlier post. Is it possible that a 5500, rather than a 5500-EZ is required? Yes, but highly unlikely. If things are exactly as you describe (sole proprietor and spouse, period) then you are looking only at the 5500-EZ. Only if your dad or mom had another business that he or she or they owned or were affiliated with is it possible that you might have a 5500 filing requirement. I won't lay out all of the details as to how you determine whether a 5500 is required, unless or until you say that there was another business (typically a corporation, but not necessarily). I'm guessing there was no other business and that you should therefore limit your focus to the 5500-EZ. If you have any doubt about this, this is one of the things that a pension advisor might be able to help you with. At one point you referred to the CPA as being appointed as the "administrator" (in our lingo, we would capitalize it and refer to such an appointment as the "Plan Administrator"). I'm guessing that never really happened because that is a function most CPA's, in fact most outside advisors of any kind, including pension firms, would not accept. I'm guessing that your mom had a discussion with the CPA and the CPA agreed to help your mom with the estate (and then dropped the ball in this area). If my guess is correct, then the estate has a potential claim against the CPA for any late filing fees which are assessed. But as I think you have already discerned, the IRS has (knock wood) been very forgiving regarding late filing penalties in the past, as long as you have a reasonable tale of woe. You do, and I would expect, at this stage, that with a few letters (ok, maybe more than a few, but certainly less than a mountain) that the late fees for all three years would be abated. So, in a perfect world you won't have to even consider recompense from the CPA because the IRS should, in this case, reverse the penalties. I suppose it wouldn't hurt to have your mom let the CPA know that if the penalties aren't abated the CPA will be asked to reimburse the estate, but that could very well sour the relationship prematurely. I know I would probably wait before doing so and instead focus on getting those penalties abated. If my guessing is on the mark, I'm not sure you would gain much from having the situation reviewed by a pension firm at this point. You seem quite capable of representing your mom before the IRS on this specific issue and the CP 213 is the very first notice that the IRS sends, so you are a ways away from anything that would require the estate to send money to the IRS. If you decide you want a referral to somebody in San Bernadino, I know someone on East Carnegie Drive. Send me a private message to that effect and I'll be happy to give you full contact information. Good luck.