Dougsbpc

Have a 1 participant plan with $6 M of private investments. For the first time the one employee will be eligible for the plan. However, it is a profit sharing plan and no contributions are intended. We are thinking about changing it to a 401(k) plan. Suppose the 1 eligible employee never makes salary deferrals and never receives a profit sharing contribution. Would the small plan audit be required if the employee never has an account balance? An audit would probably run $4k to $5k. We are thinking the bond premium would also be about $4k to $5k.

Small defined benefit plan covering a business owner and 3 employees. The business owner has a higher benefit than employees in the DB and the employees get a 15% of salary contribution in the DC plan. We don't have any other plans with life insurance but this one does have a policy on the business owner. The employees will need to have comparable policies (for example if the business owner has a policy of 50 times monthly benefit, employees need the same). The problem is the employees have smaller benefits in the DB. I think the employees will then need comparable coverage in the DC plan. The insurance agent is telling me his home office legal department claims that employees can waive insurance in the DC plan. I know this is probably the case for a DC plan by itself but don't think it is possible in this case. Any thoughts? Thanks.

Have a small 401(k) plan sponsored by an accounting firm. They were bought by another firm and decided to terminate the plan. We explained that we would obtain benefit elections then prepare an instruction letter for distribution all at one time after all elections were received and verified as properly executed. One of the two partners of the firm (and also a plan trustee) received her benefit elections, signed them and then immediately called the brokerage firm to transfer her benefits to an IRA. This plan has self-directed brokerage accounts. Is it a problem that the key employee and HCE was paid her benefits weeks before any other employees received their distribution? Thanks.

Thanks for the replies. In re-reading the actual amendment, it is made clear that the amendment is only applicable for the 2014 year. I don't believe this would relate to the short service memo. In this case, the plan had passed 401(a)4 for many years. It just happened that recent personnel changes caused it to fail. I could see short service being a problem if the plan was designed to always fail or if there was a pattern of bringing in only short service employees year after year.

Sorry, this was originally posted to the wrong category. A calendar year 6 participant cross tested 401(k) plan fails 401(a)4. The plan has a 1 year eligibility requirement. To make the plan pass, an ineligible employee was brought in, given a contribution and made 100% vested through a corrective amendment. Once he is made eligible through the corrective amendment, is he then eligible for all other plan purposes or does he need to wait until when he would have entered? Normally he would not enter until 1/1/16. Thanks

A calendar year 6 participant cross tested 401(k) plan fails 401(a)4. The plan has a 1 year eligibility requirement. To make the plan pass, an ineligible employee was brought in, given a contribution and made 100% vested through a corrective amendment. Once he is made eligible through the corrective amendment, is he then eligible for all other plan purposes or does he need to wait until when he would have entered? Normally he would not enter until 1/1/16. Thanks.

A few months ago we took over a traditional DB plan that had been in place about 11 years. The plan will terminate by year end. The plan sponsor sold most of the business and let go 4 of 5 employees in July 2014. All of those employees were long term and were paid substantial benefits from the plan back in December. Now it is just the business owner and one of the lower paid employees as participants. The owner has PVAB of $1,500,000, the employee about $10,000. The plan has assets of about $1,700,000 and they are planning on funding $300,000. Apparently, this was all planned out with the accountant a while ago. The owner has about $700,000 of room until he hits his 415 limit. This seems like a potential discrimination issue to me but maybe not. I believe they could allocate excess to remaining participants at plan termination up to the 415 limit. Also, I think it is acceptable to run a 401(a)4 test on the allocation using a current year basis rather than accrued-to-date. If the test can be done on a current year basis, I cannot see how the 4 that were terminated and paid out just a little over 4 months ago would factor into this. Does anyone disagree? Thanks.

A one participant DB terminates. The one participant has been taking RMDs for 5 years, every year on December 15. If all assets are distributed by May 15, 2015, is he required to take an RMD for 2015 even though he would not have made it to December 15 (the annual annuity date)? Thanks.

Thanks Lou That makes perfect sense.

Plan only allows for one outstanding participant loan at a time. It does allow for loans to be refinanced / renegotiated. One of the drawbacks of not allowing concurrent loans is that any participant who refinances can have a shorter repayment period than 5 years. For example, if a participant has been paying 2 years on an existing loan. The new refinanced loan would then be restricted to a 3 year repayment period. What if the participant's first loan was for a home which the document indicates can have a 20 year repayment period? Suppose that even though he could have had a 20 year repayment period, he only chose 10 years. Now if he refinances, what is the new loan repayment period restriction? Or is there a restriction? Thanks

A plan participant is 82 years old and recently retired. She has been very sharp as the office controller for many years. She elected to take her entire $500k distribution as a lump sum. We followed up with a phone call to ask her if she had really thought this through. She replied that she did and wanted to take the lump sum rather than doing a direct rollover. She seemed to be of sound mind when speaking with her. So we processed the distribution as a lump sum just like the benefit elections indicated. Today (30 days after the actual distribution took place) her financial advisor called and mentioned that she is not well and should have rolled over the entire amount. She has another 30 days to roll over the entire amount (including the taxes withheld) to keep it all tax deferred. However, it appears she does not have the liquid assets to do this. She does have non-liquid assets (Real Estate etc). I don't think there is any way around coming up with the withheld taxes in the remaining 30 days. Any ideas? Thanks.

Have a husband and wife only 401(k) plan that allows for Rollovers, Roth deferrals, after-tax contributions and Roth conversions. The wife has $100K in a traditional IRA. $50k is pre-tax and $50k is after-tax. Can she roll over $100k from the IRA to the 401(k) plan and then convert just the $50k of the after-tax account to Roth? Thanks.

Have a 15 participant 401(k) plan that is top heavy. The plan sponsor has always wanted all employees to be eligible for the plan upon being hired. However, they recently hired an employee who will be a very highly paid HCE. This employee will have no company ownership. The employee is currently eligible for the plan. Can they exclude this employee from participation prospectively? There will be no problems passing 401(a)(4) and 410(b). Thanks.

Have a few DB plans that would like to increase benefits for most participants. If possible, they would like to execute the amendment before March 15, 2015 but have it effective as of 1/1/2014. Can this still be done? Thanks.

We do not administer any plans with life insurance. However, we may be getting a single participant DB plan with $1M of whole life. If the participant's projected benefit is $14,500 the $1M should be well within the incidental limit of 100 times the monthly benefit. However, in reading the document it appears both the PV of the QPSA and the insurance proceeds together cannot exceed $14,500 x 100 = $1,450,000. The document indicates that rollover assets can be used to purchase life insurance with no incidental limit. If this participant rolled over $500k from an IRA to the DB plan, would it count toward his limit? For example, would the limit now be $1,450,000 + $500,000 = $1,950,000. Thanks.

Client has had a July 31 C-corporation and a July 31 401(k) year end for many years. They switched to an S-corporation with a December 31 year as of December 31, 2013. We just heard about this for the first time now. We are trying to determine what to do now that the plan year runs 8/1/13 - 7/31/14 but the tax year is now 1/1/14 - 12/31/14. We are thinking about the following sequence: 1. Base the profit sharing contribution and allocation on salary from 8/1/13-7/31/14 and take the deduction on the 1/1/14-12/31/14 S-corp tax return as long as it does not exceed 25% of eligible plan salary for the period 1/1/14-12/31/14. 2. Next Amend the plan to have a December year end. This would then create a short year from 8/1/14 - 12/31/14. They would again make a profit sharing contribution for the short year and deduct it on the 1/1/14-12/31/14 S-corp tax return as long as both the contribution in #1 above and the contribution for the short year do not exceed 25% of eligible plan salary for the tax year 1/1/14-12/31/14. Does anyone agree or disagree with this? Thanks

A participant mistakenly made 1 additional loan repayment on her participant loan to her directed account. We will have the plan distribute the extra payment to her along with applicable account earnings for the period the additional payment remained in her account. Does anyone see a problem with this? Thanks

We know a qdro award to an AP must be taken into account for the participant's 415(b) limit. Must it also be taken into account in the participant's 415 compensation limit? Thanks.

Thanks John I did not find any timeframe when researching this. Does anyone think there would be a problem to first make an in-service distribution to the participant now, leave the excess in the DB plan for a few months and then have them adopt the QRP in a few months?

A 1 participant DB will have excess assets of $50,000 (above his 415 limit). Can: 1. A 1 participant corporation establish a qualified replacement plan (QRP)? The allocation(s) would only be made to the 1 participant of the DB who remains an employee of the corporation. 2. If #1 is possible, is there any time frame in establishing and transferring assets to the QRP? Would like to have him take an in-service distribution now (he is age 62) and leave the excess $50,000 in the DB for a few months until a QRP can be established. Our understanding is that at least 25% and up to 100% of the excess can be transferred to the QRP. Then it must be either allocated in the same year transferred or over up to 7 years. If #1 is possible, he may be able to take a $50,000 salary and allocate $50,000 in a profit sharing plan to himself and be done. No deductible problem as it is not deductible anyway and no 415 problem as up to 100% of salary can be allocated. Thanks.

A 401(k) plan had a participant with a participant loan. It turned out she made one extra payment on her loan and an additional $410.00 is in the plan. She was not making repayments through payroll deduction but by personal check. This seems like it should be correctable through self-correction. If so, I would think the additional $410.00 plus earnings would be refundable to her. Does anyone disagree? Also I would think earnings should be based on actual plan earnings between the time of the additional payment and the refund. Anyone disagree? Thanks.

Took over a small DB plan that excluded two physicians by name and highly compensated nurse practitioners. For the past 5 years, they have only had 4 physicians who met the eligibility requirements. All were HCEs and Keys. The plan passed 401(a)(26) in past years as 2/4 = 50%, which is greater than 40%. They now also have 3 nurse practioners who met the eligibility requirements. All happen to be HCEs and are therefore excluded from the plan. One NP was given a 1/2% of pay accrued benefit to pass 401(a)26. This was done with a corrective amendment. The employer also happens to sponsor a profit sharing plan. In this plan all the NP's are excluded (they are all HCEs) so no problem with testing across both plan. The DB plan indicates that the top heavy minimum is provided in the profit sharing plan. Question: By bringing in the 1 HCE Nurse practitioner, they passed 401(a)26. Since she was not covered under the PSP she received no Top heavy minimum in that plan. Must she get a 2% top heavy minimum in the DB?

It is interesting. They have enough forfeitures to make the safe harbor match contribution. The document indicates that forfeitures shall be used to reduce employer contributions. It is very unfortunate that apparently forfeitures cannot be used to fund safe harbor contributions.

Suppose an employer cannot fund the 2013 safe harbor match by September 15, 2014? What happens? I would think they would need to run the ADP and ACP tests and provide a top heavy minimum since the plan is top heavy. Any other horrible consequences?

In the past, we have designed plans to provide minimum vesting of 20% for this reason. Then if a corrective amendment is needed and the only available participant is a terminee who would otherwise not be vested, we would automatically have a corrective amendment that had substance. But maybe this is not needed if the corrective amendment itself could indicate that Joe Smith shall be provided a contribution equal to 7% of his salary to meet the requirements of 401(a)(4) blah blah blah. And, Joe Smith shall be 100% vested in this contribution.