Larry Starr

I did hold back; strong letter to follow! ??

An absurd situation with apparently no one paying any attention to the little details that we all spend our life worrying about! I would think the assets could not have been moved from A's plan to any other place without A authorizing it (which he probably did). But in military parlance, this is a FUBAR! (You can google that if you don't know the term.) It will likely take a seasoned ERISA specialist (possibly an attorney, but not always) to figure it out, get to the bottom of what happened, and figure out all the things that need to be done to fix it. And of course, it's unlikely the client wants to pay for it because if he had been paying for competent assistance all along, this would have been identified when it happened and fixed at that point! I'd get paid in advance if I was hired to help this guy.

ABSOLUTELY NOT (can the K-1 be used); only W-2 income from the S corp counts; the S dividend is just that, a dividend and not earned income. In partnerships, the net earnings from self-employment (and S shareholder is NOT self employed) comes from the K-1 information (and a few other items that need to be asked).

Well, I think learning the issues involved and the correct answer is the better choice, regardless that it took some time. Because NOW you know how it works for the next time something comes up. There is a substantial value to that, and the reason I spend so much time answering questions on this board for folks (especially since I already know most of the answers).

No, you won't receive a notice. They don't correlate the extensions to the actual filings. And absolutely, I've been an advocate for ALWAYS filing going back to the beginning of time!

If "nowadays many people roll.... into a ROBS account", then many people are idiots. None of MY clients are doing that. I'm not going to definitively answer your question, because I'm willing to bet there are other problems with this "plan". Anyone who takes their qualified plan money and buys into these ROBS schemes deserves everything he gets for being an idiot (in almost all cases). It's not his fault that he's an idiot (since most of us are investment idiots), but his being taken advantage of without getting appropriate legal advice IS his fault. See the attached IRS memorandum on ROBS. Each one that the IRS investigates violates at least one and often many rules about QPs. So, IF there becomes a bankruptcy case, a smart lawyer for the creditor is going to investigate the ROBS and find the flaws and argue there is no protection because the plan is not a "good" plan in the first place. Your question actually anticipates that there is something about ROBS that is problemattic. The real question (that you didn't ask) is "is a 401k retirement plan protected or exempt from personal bankruptcy" and you should know the answer (generally, of course it's proteccted). The question you are really asking is whether a ROBS is a "good plan", and I wouldn't want to have to defend that client who adopted one; I want to be on the other side explaining to the judge all the problems with that plan and why it should not be given ERISA protection! Best of luck. Guidelines_regarding_rollover_as_business_start-ups.pdf

They most definitely are two separate things; just ask any banker! ?

Almost definitely don't have an extension on that. That is not a government form; it is a notice to employees about their plan, and that has an effect on what benefits they are entitled to.

Which is one of the reasons why I think the IRS will NOT end up requiring in service withdrawals as part of the requirements, but that still is just an informed opinion, with no back up yet from IRS (that I know of).

Perfectly ok; plan language would have to be modified to basically say you have a union exclusion EXCEPT for Employee X. More importantly, you need a written agreement from the union, and many unions will not give it to you. You cannot unilaterally change the terms of work for any union employee; only the union is their representative and they cannot negotiate for themselves. The union represents ALL the employees, and unions think differently. If you (as the employer) are willing to give this benefit to one union member, maybe they should be negotiating it for ALL the union members. Dealing with unions can be extremely complex and difficult (I once almost had armed guards put in my house because I was helping a company with teamster drivers redesign their DB plan to get the union DB plan off their backs and because they were threatened with a strike, strike breakers were going to be brought in and their "consultants" suggested everyone involved needed to have significant "protection". My wife was not happy! It was settled the day before this would have happened).

Not a problem; see my other response which will be written and posted AFTER this one.

Viable solution? What exactly is the problem you are trying to solve? Yes, they can move the employees. Yes, the employees can participate in the 403(b) plan. So what if the assets of their prior 401(k) participation stay in the 401(k) plan until they actually terminate? What is the problem with that? I'm not sure there is anything to solve for. Termination of the 401(k) sounds like taking a sledgehammer to kill a fly!

There is no such thing as a 20% withholding tax. It is simply 20% withholding! The ultimate tax will be determined when the person's yearly return is completed and the amount withheld is compared to the amount owed. For some people 20% will be too little and they will still owe more; for some it will only increase their refund. But it is NOT a tax itself. Now, as to the question asked, I think we really don't know at this point. The regs might certainly be read that way, but for some reason, I'm betting IRS is going to say that they weren't including "in service withdrawals" from the list, but I certainly could be wrong.

I have no idea what an SDBA is, but I doubt I need to know. "THEY" insist? Really? What kind of "professionals" are they. Hopefully, they are not lawyers or accountants. In any case, they should not be "insisting" on anything, they should be listening to their PROFESSIONAL advisors IN THIS BUSINESS. Of course they can't do what they say they can, and you already know that. Deferrals have to come out of a paycheck. If it is not taken out of their paycheck by 10/31, then there is no deferral for the plan year ending 10/31/19 (assuming there were no deferrals in the period 11/1/18 - 12/31/18. The problem is NOT when do the contributions need to be deposited (which you have correct), it is when do the contributions need to be taken out of their pay! It could be taken out by 10/31 and NOT deposited until their extended tax deadline, but then they would have failure to make timely deposit problems, which is a separate issue.

LIke I said, you need a COMPETENT lawyer in this area; someone for whom it IS an area of expertise (or they have advisors like some of us who ARE experts in the area) so as to determine what your options actually are. Again, best of luck.

WHICH NOTICE!!! Is there a reason you are keeping the name of the specific notice due secret? Don't you think it would have helped if you told us which notice you are concerned about? More than likely relief is provided, but without identifying which notice, you don't get a usable answer. Which notice?

Blush! ?

Then you need to find a lawyer who will be helpful; I'm sorry, but you need competent advice if you want to make your voice heard. Whatever was in the stip (what's a stip? I doubt that it's actually titled "Stip of Settled" as you indicate in your first posting. I'm assuming it is some sort of property settlement? But nothing is final until the judge signs it, so you can still argue for something else. But I'm afraid this forum is NOT going to be able to help you any further. Best of luck.

To add to what QDROphile told you, you need competent counsel, whether an attorney or retirement expert (like some of us who do extensive QDRO work FOR attorneys) to guide you. There are a number of "third party" QDRO preparers who know very little about how this all works, especially when dealing with a defined benefit plan. Suggest you might want to find someone who can advise you appropriately, because the truth is that is what you need at this point.

Yes, buy Derrin Watson's book Who's The Employer. It is a MUST own (along with EOB and Natalie Choate's book Life and Death Planning for Retirement Benefits. Here is your answer from Derrin's book: ___________________________________________________________________________________________________________ The key element is that common control groups are limited to trades or businesses. An individual may employ a maid, a gardener, a nanny, or others to help with personal tasks, but that is not a trade or business. Example 12.2.1 Zoe is a lawyer and owns an incorporated law practice. She also employs a nanny to take care of her children while she practices law. The law corporation pays the employees of her law firm, while she pays the nanny personally, and is careful to withhold the appropriate taxes. Her law firm and her household are not a common control group, even though she owns both. The household is not a trade or business. The corporation’s plan should not cover the nanny. The nanny does not count as an employee of the corporation to determine whether the plan satisfies the Code’s minimum participation requirements. The result would be the same if Zoe’s practice were an unincorporated sole proprietorship. This conclusion is enhanced by the EGTRRA Committee Reports. EGTRRA added Code §4972(c)(6)(B) to the Code to exempt SIMPLE IRA or SIMPLE 401(k) contributions for domestic and household workers from the excise tax on nondeductible contributions. The House Committee wrote: As under present law, a plan covering domestic workers is not qualified unless the coverage rules are satisfied by aggregating all employees of family members taken into account under the attribution rules in section 414(c), but disregarding employees employed by a controlled group of corporations or a trade or business. The final clause indicates that a household employer can establish a SIMPLE IRA covering all household workers of either a husband or a wife, but excluding workers in corporations or other businesses they own.

My outline on self-employment income determination has circled the globe at least 10 times! ? If you send me an EMAIL to larrystarr@qpc-inc.com I will be happy to send you the outline which will answer ALL your questions. There are a number of additional steps that must be considered (for example, unreimbursed partnership expenses, Sec. 179 deductions, and certain oil and gas partnership issues) so it is not as simple as just pulling the numbers off the K-1.

There is no reason to wait for another restatement; this is an easy amendment to implement. And the statistics continually show that if you allow people to change their elections any time they want, you get FEWER changes than if you only allow changes at limited times during the year, so the payroll clerk won't have that big a deal in making changes. And, changes in payroll deferrals are EASY to implement: you go into the payroll program and just change the number or percentage to the new number or percentage for that person. It ain't complicated at all. And, who runs the business, the payroll clerk? Make the change now; it's best for the client AND the participants and it is almost NO EFFORT to implement.

OK; let's say that the term "vested benefit" really does incorporate by reference (at least) the idea of a DEFERRED benefit (and I think that is probably true in most situations of use of that term). The question then is "so what"? Is there an issue with that concept? If there is, what is it?

First, that is a dinosaur or a plan that only allows changes twice a year. The reality is that the plan should be changed to allow changes in the deferral amount at any pay period. Now, as to your situation, the employer was not permitted to take out deferrals starting in September. Since you are still within the same calendar year, I would probably have the employer reverse the deferrals through the payroll system (which means they will be paid back to the employee now) and treat the money that went into the plan as part of the employer contribution for 2019. There are other options, but this is most likely going to be the easiest (other than amending the plan to make this ok by allowing changes anytime, which is what my plan would have said from the beginning so this issue would not have arisen. FWIW.

I wish you were more specific with your facts, so let me assume.... He sold 100% of his ownership to non-family members so he is no longer an owner of any percentage of the business, directly or by attribution. He is going to continue as an employee of the company he sold (no problem there). How is the $500k paid to him? It appears it will NOT be salary (W-2) because you note he will still "draw a salary" which appears to be in addition to the $500k a year. Correct? So, with all that, the $500k a year is a payment for his stock; that is a capital gain item and not earned income. He can open an S corporation but the payments are not earned income so they are not available to use to justify a retirement plan. It is conceivable (but subject to scrutiny) that his "salary" might be able to be paid to him as an independent contractor (if that is realistic and depending on what services he is going to provide to his old company) and his fees paid to his S Corp and not as a W-2 employee and then he could be able to set up a plan and use the money in the S corp to provide W-2 income and retirement contribution to a plan. All in all, your idea as presented almost definitely won't work, but of course, we really don't have all the details. The client should be getting advice from a competent tax advisor (lawyer or acct) who understand these issues and can advise him on his options. You should refer the client to such an individual and not try to answer this on your own.