Dougsbpc

Thanks Andy.

Suppose you have a small DB plan that has existed for 5 years and has been top heavy all of those years. The plan is not frozen. Assume there are no former key employees. All non-keys have received top heavy minimums of 10% (2% x 5 years). The benefit formula is amended to reduce the benefit for the one key employee. The key employee benefits are grandfathered of course. The key employee will not experience a benefit increase for years 6, 7, and 8 due to the reduced benefit formula. Is the plan required to provide top heavy minimum benefits for years 6,7 and 8? Section 416©(1)(B)(i) indicates 2 percent multiplied by the number of years of service with the employer. Section 416©(1)© defines years of service and 416©(1)©(iii) provides the following exception: Exception for plan under which no key employee (or former key employee) benefits for the plan year. For purposes of determining an employee's years of service with the employer, any service with the employer shall be disregarded to the extent that such service occurs during a plan year when the plan benefits (within the meaning of 410(b)) no key employee or former key employee.

We have had E & O insurance for almost 20 years and have never had a claim. Hopefully we never will. Isn't E & O insurance to cover damages resulting from an error and/or omission? The biggest exposure for a TPA firm is a plan disqualification as the result of a mistake. Is that not what it is for? In reading our current policy and the prior policy, the exclusions section seems to exclude coverage for damages resulting in any way from penalties initiated by the IRS. Just wondering if anyone else has run into this. Thanks.

To simplify, suppose you had a 2 participant DB plan that had a failure discovered on plan audit. Suppose the plan had existed for 15 years and one of the participants had a PVAB of $1,000,000. Suppose audit cap was offered and the correction was made. Let's say the sanction was 40% of the maximum payment amount. The maximum payment amount is the tax that would be paid had the plan been disqualified for all open years. Suppose $200,000 of the $1,000,000 had accrued during the open years. With respect to the amount taxable to the participant, is the maximum payment amount $200,000 x tax rate or $1,000,000 x tax rate? Thanks

We generally do not get a DL upon adopting the plan unless the plan design is complicated (for example a floor offset plan). In those cases we insist on obtaining one. On plan termination we leave it up to the client. The standard follow-up question from the client is usually something like "what have we paid you fees for over all these years? Are you saying that you think something is wrong with our plan?"

Unfortunately, I don't think his comments will matter. It sure seems like most democrats and republicans are in agreement with reducing or eliminating all deductions and in exchange lowering tax rates. The only disagreements are with the amount of revenue that is raised and the fact that entitlements are being cut. If a compromise is not reached soon they will increase the debt ceiling and then re-visit the tax simplification issue over the next six months. Everyone seems to be on board with this so it will probably not lose steam. Personally, I think deductions for those things that are difficult for most people and good for society makes sense. Buying a home, charitable giving, paying for health insurance and saving for retirement. However, others will claim that the lower tax rates and individual choice of the tax simplification plan will unleash such entrepreneurial freedom and economic growth that we will look back and wonder why we ever engaged in such backward thinking.

A few weeks ago we had a woman in her mid 80's call us to take over the administration of her defined benefit plan. Upon reviewing the plan, we found it to have assets that far exceeded the value of benefits (benefits at 100% of FAC). She has been the only participant, retired 15 years ago and has not worked since. It appears all filings, RMD's etc have been done. It looks like the administrator just kept the plan going without suggesting terminating the plan back 15 years ago when it was slightly over-funded. Of course you never know the real story as the prior administrator does not want to talk about this. At a minimum, they should have considered an in-service distribution. It looks like she could not have a qualified replacement plan as she has not worked and has had no earned income for 15 years. Has anyone run into anything like this? Are there any potential solutions to avoid 50% excise tax and income tax on the reversion? Thanks

Suppose you have a small calendar year DB. 1. Can you change from BOY to EOY for 2009 and then change back to BOY for the 2010 year without approval? 1.430(g)-1(f)(3) seems to allow this. 2. If yes, must the employer make a formal election to do so?

Thanks for the answers. If a profit sharing contribution were made and the SIMPLE is considered invalid, would that mean that any salary deferrals and match contributions are considered salary for that calendar year? Also, since 2010 has gone by, I would think the 6% excise tax would apply to those SIMPLE contributions since they would not have been withdrawn by December 31, 2010.

Suppose you have a company with a 6/30/11 year end that adopts a profit sharing plan for the 7/1/10 - 6/30/11 year. Suppose they also have maintained and funded a SIMPLE through 12/31/2010. 1. If eligible employees were not provided a notice for the SIMPLE for the 2010 calendar year, does that mean they had an invalid SIMPLE for 2010? 2. Since they cannot have any plan besides the SIMPLE, I would think they could not make any profit sharing contribution for the 7/1/10 - 6/30/11 year, correct? 3. Had they funded the SIMPLE at all in 2011, they would not have even been able to make a profit sharing contribution for the 7/1/11 - 6/30/12 year. Thanks a million.

Doe anyone know if there is a late filing penalty for form 945 if all deposits were made timely? Circular E talks mostly about form 941 and indicates there is a late filing penalty equal to 5% of the unpaid tax for each month or part of month the return is filed late. In this case there was only $5,000 withheld and it was deposited timely with no tax due.

We administer a plan whereby the client did not provide us the information timely. Upon completing the valuation we see the two owner participants defaulted on their loans last year. Has anyone had experience with trying to correct this through VCP? The only part that worries me about VCP is to have the client pay the fee and our fees only to have the IRS reject the request because they did not feel correction was warranted. For example they feel the participants should have made payments and the missed payments were not the result of employer error. Thanks.

We received a bunch of late notices from clients. We then wrote the IRS for each one and included a copy of the certified mail receipt and the tracking proving they received. So far one client received a response to our response saying thank you for your reply but we received your return on January 18 and we have assessed you the penalties. We have no idea how they randomly came up with January 18 as it was filed before October 15. And they must have just ignored the certified mail receipt.

It is interesting. This plan fails the ratio percentage test but passes the average benefits test. The document indicates each participant is in their own group. When the prior administrator was asked how they could have used the average benefits test when they do not have a reasonable classification, they gave a Bill Clinton-like answer. They mentioned that even though the document does not have a reasonable classification, in reality the allocation was such that no participant that could be of a certain class received a different contribution. For example, all the docs received 15%, all the CEO's received 9%, all the part time participants with under 40 hours received 25% etc. Basically, I did not have an unreasonable classification with respect to that plan, the XXX plan, given that in fact an unreasonable classification did not, in fact, happen! Maybe they are right.

Thanks Tom This is a takeover plan. We normally don't recommend this aggressive of a plan design as a 5% gateway is very often a good deal for the employer and employees. As it turns out, this plan may not pass nondiscrimination classification test. When we received a copy of the most recent plan amendment (adopted in 2010) they had each participant as their own group. I believe this would not be considered a reasonable classification per 1.410(b)-4(b) and therefore they not only fail 410(b) but also the average benefits test because of the classification issue. Do you agree.

Suppose you have two 401(k) plans sponsored by one company. Assume the plans are not top heavy and they have nondiscriminatory classifications. As far as Employer Contributions: Plan 1 - Covers all employees hired before xxxx date - Provides 15% to owners, 5% to all others Plan 2 - Covers all employees hired after xxxx date - Provides 2% to all participants - There are no Key or HCE's in this plan Our understanding is that as long as both plans pass 401(a)4 and coverage independently, the 5% gateway does not apply to plan 2. Suppose plan 1 fails 410(b). Is it possible to use ABPT to pass coverage? Or must both plans then be combined, and thus deemed to not pass coverage independently? Thanks much

We file them for our clients. So when penalty notices appear they just think we dropped the ball. We received 23 late notices so far. All EZ's. The proposed penalties are mostly $2,375. It is a lot of work calming down clients and preparing responses. I think SoCal has a great suggestion in copying your congressional rep. It sure couldn't hurt, and they need to know about problems like this.

Thanks Andy When the plan was set up they were so anxious to get going that they assured us the contribution would be funded as of December 31. So we gave them the target normal cost. Of course they changed their mind and will now fund by 3/15. We can go back and have them fund the contribution with interest, but it would be great if we did not have to. I will remind them of their original intention to fund as of December 31 but you know how sometimes clients develop amnesia over things like this. It is interesting how the maximum contribution page from our admin system (latest update only) contains the following at the bottom of the page: Note: Interest that increases the minimum required contribution for deposits made after the valuation date, MAY increase the Maximum Deductible Contribution amount shown.

Suppose you have a new plan with a 12/31/10 year end. The contribution will be funded 3/15/2011. The maximum contribution is the target normal cost. However, interest is applied to the minimum contribution from 1/1/11-3/15/11. Can the company contribute the target normal cost or must they contribute the amount with interest for the first year?

A small non-pbgc plan terminates December 31, 2010 with benefits that are slightly less than the value of assets. The plan was to allocate plan assets per ERISA 4044. They are now ready to distribute but have had an unexpected major increase in the value of plan assets within the past month and now have excess assets of about $30,000. They would like to allocate excess assets in a non-discriminatory manner rather than pay the 50% excise tax. However, it is now after the plan termination date. Is it possible to have them adopt an amendment allocating excess after the termination date? We will be applying for a determination letter soon but don't want to wait to distribute benefits. Back about 10 years ago we had a similar scenario and the IRS let the plan sponsor adopt an amendment allocating the excess. Anyone have any experience with this? Thanks.

Suppose you have a partnership with 8 partners that buys a corporation with 25 employees. Is there anything wrong with having the partnership sponsor a safe harbor match 401(k) plan and the corporation sponsor a separate but identical safe harbor match 401(k) plan? The partnership plan would exclude all non-keys and the corporation plan would exclude all keys. They are a controlled group and affiliated service group so both plans would be aggregated for purposes of 410(b). All employees that meet age and service would be covered with exactly the same benefits under either plan. The reason they may want to have two identical plans rather than one is that the partnership plan could file a 5500-EZ and not be subject to the audit / high bonding requirement for non-traditional assets. Many of the partners are big non-traditional asset investors. A controlled group can now qualify to file an EZ.

The majority of the 401(k) plans we administer have all of their assets invested with one of the major platform providers. They will be able to provide the investment disclosure information. What about small 401(k) plans that allow each participant a brokerage account? Identifying the investment alternatives and the investment performance of each investment alternative would be impossible as there may be thousands and thousands of investment alternatives. Does anyone know if this has been addressed in the new disclosure requirements?

A small DB plan covers the company owner and 5 employees. Plan assets are invested very aggressively (not our recommendation). In early 2008 the plan had assets of $1.8m and liabilities of $1.4m. As of January 2009 assets of $200k and liabilities of $1.5m. As of today assets of $1.8m and liabilities of just under $1.7m. The owner has reached NRA and we would like him to be able to take an in-service distribution of his entire benefit. This way he can satisfy his gambling addiction with his benefits and not affect employees. I believe any reasonable method can be used in valuing benefits for determining whether plan assets will exceed remaining benefits by more than 110%. How about valuing benefits using funding segment rates (yes those same rates that make new DB plan benefits exceed assets by 20%)?

A partnership sponsors a DB and a 401k. The partnership is owned by two corporations. Each own 50% of the partnership. Each corporation has one employee (the owner of each corporation). They are related employers so each corporation adopted the plans as participating employers. Each corporation (as a participating employer) deducts the contributions that are funded for its employees (just the owners of those corporations). The participating employer section of the DB is somewhat ambiguous on contributions. However, it appears to indicate that all compensation paid through all related employers is considered. Each of these participants have w-2 salary from their corporations of more than $245K and each have DB contributions of about $75k. One participant has no contributions in the 401(k) (no SD and no ER contribs.). The other would like to contribute $54,500 to the 401(k). Something tells me he must be limited to a 6% employer contribution in the 401(k). But then again, the participating employer section of the document seems to indicate that compensation from all related employers is considered. Does anyone have any insight on this? Thanks much.

Suppose an employer sponsors a safe harbor 401(k) plan with a safe harbor match. Also, suppose the sponsor a cross-tested profit sharing plan. The profit sharing plan must be tested for 401(a)4. Must all components of the safe harbor 401(k) be aggregated for testing purposes? Or does the safe harbor 401(k) stand on its own? Thanks.