Larry Starr

OK; of course.

The interest paid by the bank is equivalent to "rent" of those resources. Just like my brick and mortar store pays rent to the owner of the property, we then use that asset to make even more money by selling products and services people are willing to pay for at a rate that more than covers our "rent". The banks do the same thing, but their operation actually allows them to create money where there was none before. That's why a bank actually can afford to have major defaults and still make money. I remember the mystification when I first learned how that all works, and I know now why so many folks want to start banks (I was offered the opportunity twice to be a bank founder and I didn't go for it; one was a hit and the second is still trying to find its way....).

Having both an undergraduate and masters in economics, I remember being amazed in my first Money and Banking course to find out how banks really work. They really do CREATE money utilizing what is known as the fractional reserve system. Economics is called the dismal science, and most people's eyes glazed over when us eco majors started talking to non majors in school about the things we now knew, but I still find it fascinating and often think I would have gone on for my doctorate IF the field of Behavioral Economics existed as such when I graduated my MBA in the late '70s; it didn't, and thus the career I did have.....

If I was part of that prior conversation, my position has not changed. No written policy, as that only limits what should be done and cannot possibly contemplate every situation. It is a fiduciary decision and should be made (each and every time) in a fiduciary capacity. Basically, if there is a LARGE distribution, OR there has been a substantial change in the value of the underlying assets since the last val, then an interim val should be CONSIDERED (not necessarily mandated). Of course, the words large and substantial are variables and not specifically defined, so each situation must be considered individually. For example, if the assets are down, say 2% and the last val is $12,000, then it is unlikely an interim val would be done. If the distribution is $250,000, an interim val would certainly be considered and most likely done. FWIW.

Bill, I don't know WHY they always go along, but I don't really offer it as an option. I tell them that is what we are doing and that's it. I also have a problem with a client who has no good reason for NOT following my advice; that may be a client that I will dump because I am their consultant and if they don't take my advice here, they may not be a good client in the long run. The problem is they think they know better than me, and that's a real problem if I can't get them over that hump. I don't have any desire to be arguing with them in the future. Now, there are lots of things that I would PREFER, but sometimes the clients actually do have a reasonable reason for what they want (for example, we have few plans that have loans, but the ones that do had "acceptable" - to me - reasons for why we needed to add that provision and do loan documentation, so not the same problem as in this example). FWIW.

FIS provides samples to their clients; who provides your documents? Do they do likewise?

I think this quote from the OP answers that question: As I said he rolled the remainder of the DB assets into an IRA in October 2019. So, the DB terminated, an RMD was paid, the remainder of the lump sum distribution was rolled to an IRA in 2019. So, in 2020 only a DC RMD was in play. NO? And as I recall, THAT does have something to do with the assets?

That's what happens when you have a 90 year old getting an RMD!? Can you embellish as to WHY the "Oy vey"? Larry

We are looking at the same issue at this moment, and your stance might be where we go also. In our case, time is not minimal but expense is; all our clients pay fixed annual fees that include a document compliance fee (including complete restatements) that covers such activity. The time factor is not that significant, but I would prefer to avoid the document restatement if I could. There is one comment I saw from FIS (Corbel) that seemed to be recommending document restatement IF you go for 5310 filing; it appears to not be so committed to non approval seekers. I need to look closer at that release again to make sure that is what they are really saying.

Yeah, but.... You are talking a DB plan where there is a third party (the PBGC) involved, so there are clearly different issues and a termination amendment in that case is absolutely justified and we would require same. A one man 401(k) is a very different animal.

Without looking for citation, when there is a partial termination, your affected participant becomes 100% vested. It never goes down from that, so if rehired, he will continue at 100%.

Interesting, I tell my clients the same thing. But I say it this way: "Now, we are going to include a provision in the plan that allows participants to change their election with any payroll. When we first starting doing 401(k)s 100 years ago, we limited the change in election for deferrals to quarterly only. Ultimately, we (and the industry) changed to allowing participants to change any time they want, and we (and the industry) found that we actually get FEWER changes during the year. The reason is that when people know they can change with any pay period, they don't have to "worry" about whether they can continue their deferral for the next 3 months or not, just one pay period, so there is much less concern and, therefore, much fewer changes by participants. In addition, you don't have to keep reminding them every quarter that they are coming up to a "change date" and they need to decide if they want to make a change; that also eliminates substantial stress in your employees' minds". I have to say we have never had one client go with anything other than allowing changes with every payroll period.

So sorry; I went back and re-edited my prior short answer, because I meant to say the answer is NO. Derrin's examples (I thought) were right on and this is not a capital intensive business. Sorry for the confusion. As to a management function: I don't see this meeting that criteria.

Assuming the payout was correct in 2019, I don't see an issue. The 2019 RMD was done. The plan terminated as was converted into a DC account (an IRA) by 12/31/19. For 2020, the RMD would be determined based on DC rules using the 12/31/19 balance. The DB influence has disappeared. Since the 2020 RMD doesn't exist, no distribution needs to be made in 2020. Assuming they don't again change the rules, the 12/31/20 balance will be used to determine the RMD required for 2021. Does anybody see it differently? Larry.

Love these PERFECT answers! 100% agree!

Of course it does! Yes, that was exactly my point, that the quoted language is almost definitely NOT what the document actually says. I don't like having to guess at what the plan really says when the OP provides less than exact language. Our business is one of details making a difference.

SO SORRY! This should have been NO IT ISN'T!!!! See my longer response with Derrin's material from Who's The Employer.

This may be helpful to you (from Derrin's book, WTE): Q 13:5 What is a service organization? The Code defines a service organization as an organization which primarily performs services. [Code §414(m)(3)] The proposed regulations are more helpful. They give two alternate categories of service organizations: An business is automatically a service organization if it engages in the fields of: health, law, engineering, architecture, accounting, actuarial science, performing arts, consulting, or insurance. However, an organization is not described above if it merely manufactures or sells equipment and supplies used in the field or does research or publishing in the area. Nor is a business described above simply because it has an employee who performs those functions "in house," but the organization does not provide those services for the public. [Prop. Treas. Reg. §1.414(m)-2(f)(2)] Simply listing the fields involved leaves many questions open whether a particular business is engaging in one of the listed fields. There have been no rulings under Code §414(m) defining these fields. However, there may be another source for guidance. Code §448, which deals with ability to use the cash method of accounting, contains a virtually identical list of fields. [Code §448(d)(2)(A)] There is no particular reason that the "consulting" field should mean different things in the two contexts, especially when the list of fields is the same in both. There are rulings and temporary regulations interpreting the fields in that context. The definition of "consulting" is particularly open to interpretation. The Code §448 regulations define consulting as the provision of advice and counsel, not sales or brokerage. The regulations contain numerous examples of what constitutes consulting. [Treas. Reg. §1.448-1T(e)(4)(iv)] Alternatively, a business is a service organization if capital is not a material income-producing factor. [BL 130] Whether or not capital is a material income producing factor is decided on the basis of all facts and circumstances. The regulations give three examples to illustrate this point: Capital is a material income-producing factor for banks and similar institutions. Capital is a material income-producing factor if there is substantial investment in inventories, equipment, plant, and machinery. Capital is not a material income-producing factor if the income of the business comes primarily from fees or commissions for personal services performed by one or more individuals. [Prop. Treas. Reg. §1.414(m)-2(f)(1)] Given this definition, most all manufacturers, retailers, and wholesalers will not be service organizations, because capital is a material income-producing factor in their business. [BL 76; BL 77] The type of entity involved, (e.g., sole proprietorship, partnership, corporation, etc.) is immaterial. Any type of business can be an "organization" for the service organization rules. [Prop. Treas. Reg. §1.414(m)-2(e)(1)] However, the author believes performing service as an individual partner or as a common-law employee does not constitute a separate organization for this purpose. [BL 107; BL 126] The definition of "service organization" is one of the most crucial issues in dealing with traditional ASGs. Only service organizations can be FSOs or A-Orgs. Because of its importance, we will present several examples of businesses and determine whether they are service organizations: Example 13.5.1 Bob is an actuary. His business is a service organization because he is in the field of actuarial science. It does not matter whether capital is a material income-producing factor. Example 13.5.2 Clayton plays baseball professionally, and has set up a professional corporation under contract to his team. Sports are not listed in the fields that are always service organizations. It is not a "performing art." [Treas. Reg. §1.448-1T(e)(iii)] However, Clayton’s corporation is nonetheless a service organization because capital is not a material income-producing factor. Most of the revenue of the business comes from Clayton’s personal services. Example 13.5.3 Henry is an eye doctor. He has invested over $500,000 in laser equipment used in his practice. Without the equipment, he could not practice. Even though capital is a material income-producing factor, Henry’s business is a service organization, because health is one of the listed fields. Example 13.5.4 Lindsay Leases is a corporation that rents and sells medical equipment, such as crutches and wheel chairs. It is not in the field of health, per se, because it primarily sells and rents equipment. Because of its inventory, capital is a material income-producing factor. It is not a service organization. Example 13.5.5 EastLaw prints law books. It is not in the field of law because it primarily engages in publishing. Inventory and equipment costs are substantial, so capital is a material income-producing factor. EastLaw is not a service organization. Example 13.5.6 Katherine is a freelance author writing for a variety of publications. She has a computer she uses to type her material, and other normal office equipment, but otherwise does not have a substantial investment. Katherine is not in one of the listed fields, but capital is not a material income-producing factor. Her business is a service organization. Example 13.5.7 Allcity is an insurance company. Although the capital in its business is enormous, Allstate is a service organization because it is in the field of insurance. Example 13.5.8 Rebecca owns a veterinary corporation, which has substantial investment in its physical plant. Although "health" is not defined, arguably veterinary science is health related. For Code §448, the IRS has ruled veterinarians are engaged in the health field. [Rev. Rul. 91-30] The revenue of the corporation comes primarily from personal services performed by individuals, and hence capital is not a material income-producing factor, notwithstanding the physical plant. The corporation is a service organization. Example 13.5.9 A partnership operates a health spa. There is a substantial investment in the physical plant, and capital is a material income-producing factor. The question is whether this is in the health field. Although not binding for Code §414(m), the analogous Code §448 temporary regulations define "health" as the performance of medical services by doctors, nurses, dentists, etc. Health clubs and spas are excluded from being in the health field. [Treas. Reg. §1.448-1T(e)(4)(ii)] The spa partnership would not be a service organization. Example 13.5.10 Ashley is a performer, singing at numerous rock concerts during a year. She has invested heavily in musical instruments, costumes, and electronic gear to put on her shows. Since she is a performing artist, her sole proprietorship is a service organization. CD Talent, Inc. manages Ashley and other singers. The management company is not in the field of performing arts, but capital is not a material income-producing factor in its business. Hence, the management company is a service organization. Radio station KRAS regularly plays Ashley’s music. With the equipment required to operate a radio station, capital is a material income-producing factor. It is not in the performing arts field. [Treas. Reg. §1.448-1T(e)(4)(iii)] Example 13.5.11 The Rams Head Inn is a restaurant. It derives its income from the sale of its inventory. There is also substantial investment in equipment, furniture, etc. Capital is a material income producing factor, and it is not a service organization. Example 13.5.12 A hospital is in the field of health. While it is true that capital is a very material income producing factor, a hospital is a service organization. [BL 203] Example 13.5.13 Ray is an independent real estate broker. He operates his brokerage as a sole proprietorship. Brokerage is not regarded as consulting, so he is not in one of the listed fields. However, Ray’s investment in capital is minimal. Income primarily comes from his rendering personal services. His business is a service organization. Example 13.5.14 Worldwide is a huge real estate brokerage company, with offices in every American city with over 40,000 people. It has a large computer network which it uses to list and sell properties. Because of the significant investment in plant and equipment, capital would likely be an income producing factor, and so Worldwide would not be a service organization. Example 13.5.15 Andrew retired and sold his company to a third party. As part of the sales agreement, Andrew receives $30,000/year for consulting services to the buyer. He is available to help with the transition, make suggestions, and provide institutional memory. Assume he is an independent contractor in that role. Consulting is one of the listed services and accordingly Andrew’s consulting business is a service organization. Example 13.5.16 Chris owns a public relations/advertising agency. She consults extensively with her clients on the program best for them, produces some advertising in-house using her own equipment, and places the ads with the media. Chris’ clients pay her for the production and she receives a commission for ads she places. According to the §448 regulations, Chris is not in the consulting business, principally because she is not paid separately for her consulting work. [Treas. Reg. §1.448-1T(e)(4)(iv)(B), Example 9] Example 13.5.17 Melvin advises clients about their computer needs. He reviews their information processes and goals and makes recommendations on equipment to purchase and systems to implement. He does not provide additional programming or sales services and is paid strictly for his time. Melvin is in the consulting business. [Treas. Reg. §1.448-1T(e)(4)(iv)(B), Example 2] Example 13.5.18 GrabEm is a private equity firm. It acquires other businesses, sometimes holding them for long periods, and other times repackaging and selling them. GrabEm is not a service organization. Capital is not merely a material income producing factor; it is the only material income producing factor. [BL 338]

Belgarath gave you the correct answer, but your question shows a fundamental error in your analysis of how loans work. I think it's worth some time to make sure you understand what Belgarath is saying, because your comment about there being "little or not funds" in his account show that your understanding of the financial accounting of a participant loan needs some enhancement. Don't feel bad; it is clearly one of those "accounting" concepts that many people have trouble with (I find myself having to explain this often to accountants and clients). My strong accounting background certainly helps us, but most in our business don't have that advantage and have to learn by the seat of their pants. This fits in with the whole mistaken comment we often hear with regard to taking a loan from the plan: "wouldn't you rather pay interest to yourself than to the bank" which also shows a fundamental misunderstanding of investment concepts and something called disintermediation. Hopefully this is helpful to some folks.

You need to ask your employer to get (possibly) the correct answer. But it is possible for a plan with "its own trust" to also invest some of its funds in a master trust though it would be highly unusual. Query: why do you care?

I can tell you I have a couple of situations where the father and son just hate each other; the father owns 100% of the business and the son thinks HE owns the business. Not a fun situation for meetings with the two of them. I keep asking the same question: why not fire the son? But I know the answer: because he's my son!!!! Sheesh!!!!

Client's plan is poorly designed if it only allows changes on entry dates, since a participant has only ONE entry date ever which means he can't ever change it! Probably doesn't actually say that (the words we use do matter, especially in our business). Maybe it says it allows changes only on 1/1 and 7/1, but that is just a bad design. Amend plan to allow changes at any payroll date; why not?????

"We are a retirement plan service provider". I often add for additional clarification "we do everything with regard to the retirement EXCEPT handle the money; we account for it and make sure every penny is in the right place, but we don't sell investments or get paid for investment advice and won't accept a penny from any investment firm where your assets are housed".

LOUD noise by the same people who think they can just capture all the money and provide mediocre service. I don't see this as a threat at all.

Agreed; I would prefer to see an amendment/resolution that actually terminates the plan. No big deal, so we do it. Is it absolutely required? Maybe not. Maybe just paying out 100% of the assets (correctly) and filing a final 5500 is enough. My guess is the IRS would not quibble over this issue. But do make sure the plan is up to date at the point of "termination".