Larry Starr

You haven't provided the details necessary to give you an answer. Who is the 401(k) "provider" and what is the reason they say they "froze" the plan. Barring something very odd, the plan administrator has the absolute right to approve distributions; has the provider been appointed as plan administrator? Give us the details and we can better advise.

You won't be able to get the plan disqualified. ONLY the IRS can do that, and it is an enormous chore to get that done as it required AUTOMATIC involvement of the IRS National Office as well as Chief Counsel's office and an enormous amount of work to justify it to be done by the IRS agent and local office that is recommending it. I have had two plans where the clients were referred to me BY the IRS regional office to help them and in both cases plan disqualification was actually the best result. When we tried to get the done (thinking the IRS folks would be pleased to help), we found out how much they resist such an action because of the enormous amount of work they would have to do. Ultimately, the manager (who I've known for years) called and asked if it was ok with me if they just issued a closing agreement where they imposed the exact same conditions we would have had if they disqualified plan; of course, that was just fine with us (and both clients). Having said all that, in this case there is no justification for IRS to DQ the plan and it's unlikely they would. Also, the participants have a legally enforceable right under ERISA to those monies so IRS won't DQ because they would have a DOL problem as well. Sorry, but that's been my experience in trying to get a plan DQd.

Let's start with your "obviously" comment. We just set up a combination DB and 401(k) where the owners can defer $14,000 ($5k less than the $19k maximum for this year) and the employees defer nothing. No safe harbor because it's too late in the year. In case folks need a reminder how this works, you are allowed to ASSUME a 3% prior year average for NHCEs in the first plan year which allows a 5% average for the HCEs. In this case, the HCEs are above the comp limit of $280k, so 5% of $280k = $14,00 (and in addition, we also have the $6k catch up available, so the actual deferral for the HCEs for 2019 will be $20k of the max $25k). Have no idea if that helps you (I'm guessing it doesn't) but I did want to challenge the "obviously" part in case this was overlooked or people forgot about it. I realize refunds were already done, so I'm hoping this was taken into account already. And just to confirm, I assume it is NOT a safe harbor plan in 2018 or 2019. But based on what you did say, I'm assuming that is the case. Of course, one needs to know why it wasn't set us a safe harbor plan; was the original admin firm incompetent and didn't explain how these plans work? As to the TH issue, assuming my assumptions above are correct, I see no way out of it other than them suing their prior advisors IF they are at fault for anything (probably not; the client probably just didn't listen or did this on its own). The refunds are NOT liabilities as of 12/31/18. Is the word "palace" supposed to be balance? Assuming it is, that doesn't work either! ? I'll comment on the "disqualification" issue on a subsequent post.

First of all, I don't know what CIT stands for; I'm guessing some sort of collective trust? Or is it something else? As to why, that's a question that should properly be asked of the person/entity that is selling it. They may (or may not) have a good reason (or at least, what they think is a good reason) for doing it. Once you have that insight, come back here and you can get an opinion (or 2 or 10!) about what we think about that answer. Who knows, maybe there is a REALLY GOOD reason (other than higher revenue).

I usually try to avoid responding to posts on this board that are NOT from industry people. Clearly, you are NOT an industry person but an individual looking to set up a plan. Recommendation: stay away from "Company 1". They are either incompetent generally or just incompetent in communicating with you about how this all works. In either case, write them off. Find a competent retirement consulting/administration firm and BE WILLING to pay the price for proper assistance. And to repeat what others have said, there is NO SUCH THING as a "solo 401(k)". It is simply a 401(k). And whether it subject to Title I of ERISA (all plans are subject to ERISA, another incorrect statement in your posting; some are just not subject to ALL the sections of ERISA) or not, there is no difference in the plan documents. The facts of the situation determine if you are subject to Title I or not. Best of luck.

Again, interesting! I hope you noticed the smiley face following that comment. And it is a very convenient shorthand method of pointing out that you cannot get good answers unless you provide good (and complete) information. If not, GIGO! And now, multiple smiley faces.....???? And of course, a panda (for those in the know):?

Interesting! I don't even know what you are considering rude. There are MANY people who just read these posts, and the answers posted are intended to be educational for all the folks listening in. If folks can learn a better approach to asking questions by reading these comments, we have accomplished much. If you are offended, you might want to keep the above in mind.

Absolutely; the key here was in the original question, which had to do with when do you meet the eligibility and, therefore, when do you enter. The answer I gave includes that the 12 months must be completed (even if you have not worked the entire period) so it doesn't matter when you complete the 1000 hours, you have to wait until the end of the year and THEN you enter the plan at the appropriate dates, not sooner. I don't know what the problem with rehires is. If they were previously in the plan, they come in immediately. Our software retains SS numbers of every participant that was ever in the plan, so if a "new" employee shows up who was in the plan 10 years ago and was paid out, our software will flag him/her as a rehire and handle appropriately.

Feel free to do it either way that passes and you can switch whenever you want. Of course, we have NO plans that use prior year testing.

The client is an idiot? Unless they are paying the employees in cash, they already have a built in system to handle the payroll deduction repayment on a basically automatic basis. We set up all loans (the few we have) on a payroll deduction payment method and the payments are tied to the dates of the payroll. All the client has to do is send the check in to the plans investments, which they would have to do with the funds received with the coupon also.

The "normal" use of the one year/1000 hours is that it requires BOTH the completion of a year (12 months) AND having at least 1000 hours. At that point, the person has met the eligibility provisions and now has to meet the entry requirements, which would normally be the next following or coincident semi annual entry dates. That combination allows us to keep out participants as long as legally permissible. Now, insurance companies and brokerage firms are notorious for wanting to have provisions that bring people in faster (because that's how they make more money by having more assets to manage), so you do need to confirm the exact language that your plan uses in this case.

I just realized, I think we are talking about two different types of annuities. I am thinking of an annuity as an investment (think, single premium deferred annuity). So the lump sum for the participant goes into a SPDA and the annuity is distributed to the participant. I believe that needs a 1099R since the participant received a distribution from the plan, the distribution of an annuity CONTRACT. HOWEVER, if we are talking about, say, the lump sum is used to purchase an immediate life annuity (or J&S), then that is a transfer of the liability to the insurance company and I'm willing to bend to not needing a 1099R in that situation. Sorry for the confusion. Is that any better?

And as to what your predecessor did, was there a commision paid on the annuity purchase. And if the plan allows lump sum distributions, I don't see how the plan administrator/trustee could buy single premium deferred annuities, which probably had a 7 year declining surrender charge. This whole thing is fraught with potential problems. Just say NO.

Agree; 100%. It is in the estate and the distribution was effected when the check was issued while the participant was alive. It would be different if the check was issued and he had already died.

I don't buy it. I think it is reportable. This is from the 1099R instructions: Box 1. Shows the total amount you received this year. The amount may have been a direct rollover, a transfer or conversion to a Roth IRA, a recharacterized IRA contribution; or you may have received it as periodic payments, as nonperiodic payments, or as a total distribution. Report the amount on Form 1040 or 1040NR on the line for “IRAs, pensions, and annuities” (or the line for “Taxable amount”), and on Form 8606, as applicable. However, if this is a lump-sum distribution, see Form 4972. If you haven’t reached minimum retirement age, report your disability payments on the line for “Wages, salaries, tips, etc.” on your tax return. Also report on that line permissible withdrawals from eligible automatic contribution arrangements and corrective distributions of excess deferrals, excess contributions, or excess aggregate contributions except if the distribution is of designated Roth contributions or your after-tax contributions or if you are self-employed. If a life insurance, annuity, qualified long-term care, or endowment contract was transferred tax free to another trustee or contract issuer, an amount will be shown in this box and code 6 will be shown in box 7. First, I do agree that NOT reporting it will not incur any problems. But that does not make it the right answer. I question why they would have the info I highlighted in bold above if there was no need to report an annuity purchase and transfer to the participant. It seems to me to be the same exact issue. BTW, calling the IRS and asking what the right answer is should never be used as proof of the correct answer. You do not connect with a tax specialist who knows the intricate issues involved; they might figure since it isn't taxable anyway, why report it? But that is not necessarily an educated or a correct answer. Since it won't hurt to file the 1099R, we would file it (and have the two times in 35 years+ that someone has actually had an annuity purchased for them). Larry.

Ed, don't say sorry; you are right on! That's what people need to hear from us "old timers" and I'm afraid we both qualify!

All distributions require a 1099R. And of course, the amount of the distribution is the amount of the distribution (out of the plan and TO the annuity carrier). Use the right code and all is fine.

I'll let others advise you on the specifics of your posting, but, geez, one has to ask WHY is this client not following orders for what is now 3 years in a row????? Time for a "come to Jesus meeting" or a client termination!

Don't worry; it was a mistake and won't happen again. That employee has been terminated! With extreme prejudice!!!!!

And more likely to get SOMEONE in trouble, which is always entertaining!!!! Larry.

To answer the question you asked, the answer is YOU BET THERE IS A CONCERN. Better answer: you can't do that.

The question is confusing and as too often the case, is missing substantial information to give the proper answer. What is the current form of the business and what is he selling (if corp, is he selling stock? or is it an asset sale which is most probable). If he is selling his practice via an asset sale, he no longer has employees at the sale date and therefore there should no longer be any issues about contributions. The new employer doesn't have the plan because they have not adopted it (assuming an asset sale). Please confirm the nature of the business and the sale and you can get what you need, but garbage in/garbage out! ?

I probably shouldn't answer this since I don't do any auto enrollments, but I think you still have a 30 day election period, it's just that there is ALSO a blackout for moving money in the same period. They can still make an election on Dec 20, it just won't go into effect until the blackout is lifted. Does anyone think I have that right?

Yes, they had a problem in the processing of the extensions in the service center in (I believe it was) Kentucky. I think we have covered this in an ASPPA item in the newsletter. Bottom line: if all they are saying is that it is not approved but you filed timely, then just ignore it. If you did use the extension, I think there was a method given for handling this (but I don't remember what it was; my employees can probably find it if no one else volunteers the info). At least IRS recognized they had some sort of SNAFU on this.

Agreed; it needs to run through the trust. However, all they have to do is go to the bank and open a saving account in the name of the plan and then make the distribution from that account.