lisabroc

Thank you very much, Larry!

Is there any possibility that SIMPLE IRA deductions can be reversed in January so that it can be replaced by 401(k) for 2020? I know the rule that both can't be maintained the same year. However, does the employer really need to wait another year to put in a plan with higher contribution benefits? Is there a fix or way to correct? Seems like it could still be done this early in the year.

Thanks very much, Flyboyjohn. I took Mr. Starr's answer to mean it is not too late:).

Thank you for the PDF link.

Is it too late to add safe harbor match provisions to an existing 401(k) plan for 2019?

We recently discovered that a client who had a SIMPLE IRA previously sent the January 2017 contribution deposit in error to the SIMPLE plan instead of to the new 401(k) plan that was set up for 2017. However, the W-2's are correct and the funds were withheld as 401(k) deductions. Any ideas how to correct and remove contribution from SIMPLE IRA and transfer to the 401(k)? Don't think 1099-R is appropriate since tax reporting is correct on payroll side.

We are working with a new 401(k) client and in reviewing the ownership structure, we see a number of IRA's listed as owners in the C-Corp. Is this permitted? The IRA's belong to employees (mostly with little or no ownership %). However, one of the IRA's belongs to an officer/co-founder/employee who has 5% ownership in the company. Could this pose prohibited transaction violations?

Thanks for your comments. Valic is the only 401(k) provider that I have come across who handles loans this way. In your experience, did Valic hold back just the loan balance or did they retain additional collateral that they released after the loan was paid off?

We have a client who is converting their 401(k) plan from Valic that is invested in an annuity platform contract. The contract provisions do not permit loans to transfer to the new recordkeeper and instead requires the collateral to remain in a security reserve account. The loans are made by Valic to the participant and must be paid back in full in order to transfer from the security reserve account. Has anyone dealt with this issue on 401(k) plans? It seems more common for 403(b) structures. The loans are assets of the plan and should be allowed to be transferred along with the other assets in my mind. Valic is treating them as policy loans which doesn't follow 401(k) loan procedures. Any insight is appreciated.

That's a very good point as to how it was set up to begin with and that may be part of the problem. Most broker/dealer firms require a Trustee Certification Form in lieu of the actual plan and trust document which clearly spells out the rights and powers of the trustee. At most, they should require a call from the plan trustee to initiate the sell orders. Will see how this plays out.

Thanks very much for the comments! That's the problem when brokerage firms treat plan accounts the same as retail accounts. They don't understand ERISA rules and their compliance department isn't any better. I will relay these points. They are getting hung up on only accepting sell orders from the participant and not the trustee.

We have a 401(k) client that is in the process of converting the participant-directed individual brokerage accounts held by a large wirehouse firm to a retirement plan recordkeeper/investment provider. The trustee provided a letter authorizing the liquidation of all of the assets in the accounts but the firm is insisting that the participants call to authorize the liquidation of their investments. According to the brokerage firm, it is a FINRA rule. However, the trustee made the decision to liquidate and transfer the plan assets another provider and provided the required black out notice and it should not be up to the participant to initiate the trades of the stocks/bonds held in the accounts. Has anyone encountered anything like this in their experience?

Thanks for the comments. Most of our plans are self-trusteed with the owner acting as trustee in most cases. Is it more prudent to apply for a separate trust tax ID number in that situation even if it is never used?

From a practical standpoint, it doesn't seem to be necessary to have a separate plan tax ID number when the assets are held with an investment provider/recordkeeper (i.e. John Hancock, American Funds, etc) who uses their own tax payor ID for tax reporting and distribution purposes. That being said, is there a legal precedent for applying for a separate plan tax ID number in this type of situation? We always apply for a separate number with assets in brokerage accounts or other arrangements that need it for tax reporting purposes. Some practitioners take the approach that it is needed to separate employer assets from plan assets in all situations. Not sure how this has been dealt with in the legal arena or how the IRS views this issue. Looking for some further guidance on this topic.

Thanks for the comments. I would agree that it is not a refinance to conform to the employer payroll frequency. In addition, I have requested a copy of the loan paperwork in the meantime to review the terms of the loan.

It sounds like that the best course of action is to bring the payments up to date based on the original bi-weekly loan schedule and apply the "missed payments" to the transferred loan. We will deal with the 1099 issue separately. Further, I would think we should re-amortize the loan under the employer's semi-monthly payroll frequency with the new recordkeeper if possible.

I am trying to schedule a call with the RK manager and will raise these questions. The good news is that the plan sponsor has changed recordkeepers so we won't have this problem moving forward. We discovered the loan issue during the conversion. That is the reason for the reluctance on the part of the prior RK to deal with this. They maintain that their "system" won't allow them to correct at this point since this assets are no longer there. In my experience with other RK, manual corrections can still be made even if the assets transfer to another RK. Thanks for the help!

Thank you for your comments on this topic! Very good points. This is very helpful and we hope to get a successful outcome with this additional "ammunition."

Yes that is why we would like the current recordkeeper to correct it before it is issued. However, they are not taking any responsibility and we will likely have to issue a corrected 1099 on our end somehow.

We have taken over a 401(k) plan which had a deemed loan for missed payments. From what we could see, the plan had the normal cure period listed in the plan documents. Loan amortization schedule was based on bi-weekly payments but employer payroll frequency was semi-monthly and neither the recordkeeper nor employer caught this discrepancy. Employer submitted payments semi-monthly. The recordkeeper had instituted an Auto Default/Deem loan process if loan payments were not up-to-date and deemed the loan without notification to the participant or plan sponsor. The end of the cure period is 9/30/15 according to the RK but loan was deemed 7/1/15 and the participant was not given an opportunity to bring it up to date. Should the RK have amended the plan document/loan policy for the Auto Default/Deem procedure? No updated SMM's or SPD's have been provided. The only documentation is a letter to the plan sponsor. RK says it following IRS regulations; however, it doesn't look like it following the terms of the plan as far as i can tell. I'm not sure if the loan agreement disclosed the terms of the auto default process. They claim they cannot correct or reverse the 1099 which is hard to believe.