Mike Preston

You can do both at the same time. I don't think it matters that the plan is safe harbor.

I think he was eaten by a four eyed cat.

I miss Blinky!

Larry is tired. Frankly, after all the effort he has spent on PPP this last week I'm surprised he isn't sleeping. :-) I read the OP as saying that he happens to have an existing plan that is balance forward, to date. They want to move to individually directed with daily recordkeeping with a twist. Instead of providing participants with a menu of mutual funds he wants to create a set of investment options where each option is professionally crafted and managed by an investment professional. Setting aside the fact that this design is very difficult to implement (from a fiduciary perspective) there is nothing wrong with the concept. I would be surprised if many of the recordkeepers in today's market can accommodate this construct. Instead, a big investment house is more likely to have created proprietary funds that are close. In short, the OP is trying to re-invent something which already exists. And if they were the size of, say, Boeing, they might just find an investment house/recordkeeper platform willing to create exactly what he is looking for. Otherwise, the fiduciary risk to implement this on his own is off the charts and makes no sense in today's marketplace. I'd be interested in @Peter Gulia's take on the fiduciary issue.

I've seen it in unusual circumstances: 1) the plan sponsor has some sort of covenant that is predicated on the plan sponsor having agreed to not take any position on their tax return on the wrong side of reasonable. Such a letter fulfills the plan sponsor's responsibility to the covenant. 2) the plan sponsor fancies themselves as "belt and suspender" folks when it comes to compliance. You and I can say that there is no practical advantage, but this kind of client sleeps better with such a letter.

What bg said. The response to all of your questions (except the last one, of course) is "Yes, but it is not related to the 5500 process."

Not yet.

The sloppy language all around causes much confusion to those that don''t do a deep dive. (3) Owner-employee. The term "owner-employee" means an employee who— (A)owns the entire interest in an unincorporated trade or business, or (B) in the case of a partnership, is a partner who owns more than 10 percent of either the capital interest or the profits interest in such partnership. To the extent provided in regulations prescribed by the Secretary, such term also means an individual who has been an owner-employee within the meaning of the preceding sentence.

Cash basis should be very little effort. Just report consistently with what the financial institution reports. There is nothing to reconcile to. It is what it is. We have a couple of cash basis that start out taking advantage of the ability to not file if the end of year assets are less than the 250k asset level. For some reason 1 person plans are sometimes enamored of the ability to put off filing for an extra year or two.

Because in the absence of a pre-nup (and said absence is by far the most common circumstance no matter how often you read in People magazine that the opposite is true) I've never seen a separate property agreement.

It is a change in accounting method that, without approval, exposes the client to the wrath of the regulators. That said, I don't think it is on the IRS' radar and hence some practitioners do it without thinking about the consequences.

Good point.

Read the article Larry Starr posted.

Good point. I should have worded it that way.

Wrong is a strong term. Regarding the non-involvement exception there are some attorneys out here who believe it is possible as long as the separate companies are separate property. Possible. Unlikely, but possible.

Is this in a state that recognizes common law marriages? How long has he been doing this?

A lot of the recordkeepers do cash basis 5500 reporting.

I'm wondering if there isn't a combination of fact and misunderstanding that is at play. Posit the possibility that the participant was married but somehow, some way had the marriage legally annulled. Could he then not be lying if he believes the annulment renders him "never been married"? Long shot, but worth at least a query that is targeted to such a situation.

Sounds right to me.

Right, thanks.

I think the disclosure is quarterly, but certain things which only need to be provided annually can use the 408b2 as a means for either delivery or disclosure. For example, if vesting is disclosed annually on a benefit statement, a quarterly 408b2 disclosure can identify the annual benefit statement as the place to look for information regarding vesting. I think.

Just the normal DB rules, which would mandate a new participant election.

And the QRP, too.

That wasn't what was being discussed. If the subaccount is less than 100% vested the only amounts includable in the calc are the vested amounts. Nobody includes unvested amounts on purpose.

Need more facts. Just because the employer pays the premium it doesn't mean that the employer is treating the amounts paid as not includable or reportable on the employee's W-2. Are you sure the entire premium, both the regular and the family coverage, is being run through the 125 plan and not showing up as taxable on the W-2?