Dougsbpc

I'm sure many have run into this in one way or another. A few years ago a local financial planner contacted us about administering two small profit sharing plans. They wanted us to go through them (essentially work for them). We agreed and had them sign our services and fee agreement. After receiving the plan information (documents, prior 5500's etc.) it became clear that both plans were a mess. We should have resigned right then and there but we did not. Since it was close to the filing deadline on both plans we spent about twenty hours cleaning up the plans and preparing 5500's. The financial planner has refused to pay us and has generally not been cooperative in providing us information. The IRS now wants to audit one of the plans. We would like to resign as administrator on both plans as we have never been paid and dont think we should have to go through the audit for free. Our services and fee agreement states that either party can resign with 30 days written notice. Does anyone have a take on what our exposure would be by resigning? Thanks much.

I appologize for posting these fees. I had no intention of doing anything other than answering the question. Perhaps I should have tried to get an email address and follwed it up with "here is what some administrators charge". We do the vast majority of our work locally and have no desire for any new business that does not come to us through local CPA's etc.

I'm not sure there is a standard, and fees may vary in defferent regions of the country. Here is what we charge: Base Fee...........................................$1,300 Per Participant.......................................$45 Per hr. Trust Accounting........................$100 Per hr. Non discrim testing.....................$100 Per Partic distribution............................$110 Per Plan amendment..............................$100 Per Participant Loan...............................$100 Plan Document (one time fee)..............$1,050 The above generally includes everything other than QDRO's and plan termination fees. We do not sell investments. We find most other firms in our area have comparable fees with some higher and some lower.

Merlin. We administer a plan like this. As Blinky mentioned, we went the extra mile to make sure they understood how the plan worked. In this case the employer had two 50% owners, one age 55 and the other age 45. When they asked what would happen if one of the two left, we suggested they either have some type of agreement to have the company make up the difference via payment(s) to the owner that left or to terminate the plan at that time. Although potentially an expensive alternative (100% vesting for EE's etc), they chose this option. The PVAB vs. asset problem is then often solved as excess assets are more heavily allocated to the owner that left provided he/she does not have a 415 problem and provided they pass 401(a)(4) with that allocation. The company could then establish another DB (if desired) in the future with the remaining owner participating.

DB plan receives a DRO in good order and the administrator determines it is qualified. The court orders the plan to distribute benefits to the alternate payee per the terms of the QDRO. A mistake was made by the atty who drafted the DRO and the administrator did not catch the error. Specifically, the order indicated that the alternate payee is awarded 50% of the participant's accrued benefit. It should have been 50% of the participant's accrued benefit earned from the time of marriage to the time of separation. The alternate payee was paid 50% of the participant's benefit through the date of separation and now wants more (i.e. 50% of the participant's benefit forever). Is there any such thing as an amended QDRO? The participant and alternate payee have not finalized their divorce and have not fully divided joint assets yet. Perhaps I am wrong, but if joint assets are being split 50/50 couldnt the participant reduce other assets being given up by the same amount of excess plan benefits resulting from the mistaken language? This occurred in California which is a community property state. Thanks much for any responses.

Suppose you have a calendar year small db plan that terminates June 30. Does that automatically change the plan year end to be June 30? Is there ever a case where you determine the cost for the short year (Jan 1 through June 30) but file the 5500 for the plan year Jan 1 through December 31?

I think the comments by GSHAC are excellent as well. He/she touched on this but it was very important in our success. We looked at where we were geographically, what our competitors were offering and then determined our specialty. For example, we knew most of our competitors were administering simple safe harbor plans (afraid to venture out). We determined our market area was comprised of several small very profitable businesses (they had to be to live here). We let our competitors bang their heads trying to compete with fund companies and large administrators, while we concentrated on cross-tested DC and DB plans and floor-offset plans. So as GSHAC pointed out, making a name for yourself like the " " guy is very important.

Mwyatt This is exactly right. Where is the PBGC's liability? In fact, they have almost no liability for the vast majority of small plans. They should allow all plans to reduce the value of benefits (on the schedule A) by the benefit of any greater than 50% owner participant. It would be so simple and so fair.

This is actually a hypothetical. The fact is that this plan is an active PBGC plan with several issues. There is a single 100% shareholder participant and six other participants. The employee benefits are relatively small. This may be a takeover case for us and I'm not sure what happened in the past. They probably invested too heavily in the market in the late 1990's and got clobbered. One thing is for sure, they will have high PBGC premiums. This leads us to think they may just want to terminate the plan and then adopt a new one starting 1/1/05. The premium savings could be $20,000 over four years. A DB plan is right for them as the business has consistent profits. With a small reduction in benefits for the owner, it makes sense.

A Single employee corporation wants to adopt a new DB. The sole shareholder and participant previousely sponsored a DB under which he accrued a benefit of $5,000. Under the new plan his salary will be $10,000/mo and his projected benefit will be $10,000. Under the new plan we must adjust for his accrued benefit under the prior plan for the 415 100% of pay limit. Question: suppose they terminated the prior plan in 2003 with insufficient assets (i.e. the shareholder participant accepted a major reduction in benefits). For purposes of adjusting his benefit under the new plan, must we use $5,000 or the reduced equivalent of his benefit. Thanks much.

You have probably addressed this but does your client have W-2 salary in past years? If so and if average salary is high enough to support the benefits/contribution you want, then you may not have a problem.

Yes, we will be excluding by class in this case. Suppose we fast forward three years, they have 30 employees and the plan excludes all salespersons. Furthermore, suppose they happen to have 5 otherwise eligible sales employees who are all over age 40. Perhaps we still would not have a problem because we would be excluding by class. If we excluded by name, we may have a problem.

We administer a small DB plan with 10 participants. The emloyer has 13 employees. The employer just hired a very highly compensated employee and wanted to exclude him from the plan. The employee is age 49. There will be no problem passing 401(a)(4) or 410(b). I believe ADEA only applies to employers with more than 20 employees. Anyone see a problem with this?

We have a PS plan where we are using accrued-to-date for 401(a)(4). One participant reached NRA and took an in-service distribution of all but $10,000 of his account back 3 years ago. I assume we need to add back his distribution to his balance when testing correct? Thanks much

What is the definition of uniform and reasonable? Although not certain, we contend that a safe harbor plan would be considered as providing benefits on a uniform and reasonable basis. Owner employees need not benefit for a plan to be a safe harbor plan. Therefore, as long as all participants other than the owners benefit on a uniform basis, you may satisfy 1.401(a)(26)-5.

Thanks for the replies Blinky I guess one option for us is to submit these plans for a determination letter. If the IRS determines the DB plan does not meet the minimum participation requirements because the two HCE's do not benefit in the DC plan, they will let us know.

Everett Thanks for your answer. In this case I can just have the HCE's get the same % contribution as the NHCE's in the DC plan. I guess it really doesnt matter as the total benefits from both plans (for the HCE's) will be approximately the same as if they were receiving $0 in the DC plan. Just curious though, would a safe harbor DC plan be considered a plan that provides uniform and reasonable allocations to all? If so, an HCE can receive lesser contributions in a safe harbor DC plan and it would still be considered a safe harbor plan.

Suppose you have a new non-safe harbor DB that is offset by a new profit sharing plan. The DB will provide 5% of pay per year of partic for shareholders and 2% of pay per year of partic for non-shareholders. All benefits are offset by the act equiv of profit sharing balances. The employer will make contributions of at least 7.5% in the profit sharing plan. However, they wish to provide no profit sharing contributions to the two shareholder employees in the profit sharing plan. The plan easily passes the general test and they will have no problems with 404(a). 1.401(a)(26)-5(2)(iii)(A)(2) states that an employee whose benefits are offset is deemed as benefiting but only if he/she benefit in the other plan on a uniform and reasonable basis. Does this mean that we simply do not count the two shareholder employees for 401(a)(26) purposes because their benefits (in the DB) are not being offset? Or does this mean that we cannot count any participants because two HCE's did not receive the same contribution as every other eligible participant in the profit sharing plan? Thanks much!

Can a non-key HCE be prospectively excluded from a top heavy db plan when he has already accrued benefits under the plan? I dont think so. I think it is a different story if he was excluded from participation right from the effective date (i.e. he never accrued a benefit under the plan). Then as long as the plan passes 401(a)(4) they are OK. Anyone disagree with this? Thanks

Have an existing 401(k) plan and wish to convert it to a Safe Harbor 401(k). If the employer wishes to make the basic match safe harbor (100% match up to 3% of pay plus 50% up to 5% of pay), do existing match accounts need to be 100% vested? Clearly, future match contributions must be 100% vested, but what about existing match contribution accounts? Thanks much

I agree. The same five or fewer owners who do have 51% identicle ownership between A and D do not together have at least 80% ownership in each company A and D. Companies B and C do not have more than 50% identicle ownership.

Have a small profit sharing plan (10 participants) that requires employees to be employed on the anniversary date of the plan to receive a contribution. One of the participants terminated employment prior to year end with 750 hours and therefore did not receive a contribution. However, this participant did receive contributions for the past three years (i.e. he has an account balance). We are using the accrued to date method when testing for 401(a)(4). Is it correct that he should have an accrual rate even though he did not benefit this year? Thanks.

Administer a small cross-tested 401(k) plan that has depended on QNECs to pass ADP test in prior years. Next year they will not need QNECs to pass ADP test. However, the employees now count on getting a 3% of pay 100% vested contribution on top of the 5% Nonelective contribution subject to a vesting schedule. Question: can they make a QNEC anyway even if they already pass the ADP test? Does the QNEC simply become an additional Nonelective contribution that just happens to be 100% vested? If so, I would think we could use the QNEC in the a4 test and not have to pass a4 without it. We suggested the employer simplify matters and just make an 8% of pay Nonelective contribution but they just cant face the wrath of the employees who have gotten used to the 100% vested contributions.

We administer a (non-PBGC) 20 participant DB that provides a lump sum and installment payments from the plan as optional forms of Benefit. Our concern is that the plan will terminate soon, optional forms of benefit cannot be eliminated per 411(d)(6), an therefore we cannot eliminate installment payments from the plan. What happens if a participant has 20 years to NRA and chooses the installments? Does that mean the plan must be maintained for 20 years after termination? Has anyone run into this? Thanks.

I found a prior post that directly answers my questions.