ldr
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Everything posted by ldr
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Hi to all and Happy Father's Day weekend to all the Dads! We have a prospect who has a work force of non-owner, non-HCE employees. In the profit sharing component of their potential 401(k) plan, they would like to favor a manager with a higher contribution than the other employees. Our thinking at least initially is that since there are no HCEs and no Keys, they should be free to do this. What are we forgetting to take into consideration? We are so accustomed to thinking in terms of plans that have both HCEs and Keys as well as non-HCEs and non-Keys that we don't remember if there is anything to conform to when this is not the case. There must be something - otherwise they might give the favored employee a contribution and nothing to those they don't like..... Any thoughts will be appreciated!
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Newly Key - as of exactly when? and a death question
ldr replied to ldr's topic in Retirement Plans in General
It's not my case (another member of our team has it) and I just assumed that he meant that the person is the corporate officer type of President and not just someone who was given a meaningless title. I guess I should go ask! Thanks. -
Newly Key - as of exactly when? and a death question
ldr replied to ldr's topic in Retirement Plans in General
Hi to all, Never mind. We solved it ourselves in the meantime. One team member was confusing the lookback year for HCE with Key determination rules, so that took care of President. Then, I did not realize that the deceased participant actually has a negative balance in our software! (oops on someone's part). The Top Heavy test is simply recording the balance of that participant as it stands and not "subtracting" the distribution from the total as I was originally told. Much ado about nothing - thanks anyway - have a great day! -
@RatherBeGolfing I have worked for 3 small TPA firms very recently and 2 of the 3 do not do anything at all, while one does the corporate resolution to which you referred, always has and still does. I have been knowing this is one of the things I need to address where I am now - we need to start doing something - and I was thinking of going back to that corporate resolution model..
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Good morning to all! We have a plan where there are two Key employees as identified by our software and they both surprise us in how they were handled. The first one was already HCE in 2016 but not Key, by virtue of his salary. He does not own any stock in the company. In 2017 he became the President of the company. The software identifies him as a Key employee in 2017 and we thought it would be 2018 before he would be considered a Key employee. The second employee was Key already but died in 2017 and his account balance was distributed before 12/31/2017. The software put his distribution in the account balance column as a negative number and subtracted it from the President's account balance to get a net difference for the Key employees' balances for the year. To be clear: President has let's say $200,000 which is considered a Key balance, to our surprise, and deceased person's distribution of his $10,000 account balance is picked up as a negative number in the test, so the net Key balances on the Top Heavy Test are $190,000. Does this seem normal to any of you? Thanks in advance for any advice.
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Thanks, RatherBeGolfing. That pretty much confirms what I thought too. We are doing all this via email and the employer asked us to attach this year's participant statement and SAR so she wouldn't have to deal with it. So for the under $200 people, we are just simply explaining that a check will be sent, no withholding will apply, no forms have to be filled out, and incidentally their statement and SAR for the year are attached. Easy stuff.
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Good morning, All! When a plan has automatic cashout provisions, and checks are being issued for under $200, it is my understanding that there is no withholding, and participants do not have to fill out forms. The plan's trust issues the checks and mails them to the last known address. My question is this: Does the participant have to receive anything besides a check? A notice, letter of explanation, etc.? As a courtesy we will draw up something or another, I am sure, but I wanted to know if there is a particular requirement or format or something we are supposed to follow. Thanks in advance for your ideas.
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Partial Plan Termination and de minimis distributions
ldr replied to ldr's topic in Retirement Plans in General
Well, we just made up our own procedure for this case. Our leader decided that everyone who has less than $35 in their accounts will receive a distribution check of their account balance but that the employer will pay the $70 fees. Everyone who has more than $35 but less than $300 will pay the $35 fee to the processor and the employer will pay our $35 fee. Everyone with over $300 will pay both the $35 processor fee and our $35 fee. The employer is covering the fees, or part of the fees, for those who didn't have enough money and will eventually deduct it as a business expense. Right or wrong, I don't know, but it seemed fair to him and it works for me. -
We have a partial plan termination of a pooled profit sharing plan where 69 our of 76 participants have balances under $5,000. 13 of them have less than $200. Our office uses a popular distribution company that charges $35 per person to prepare a distribution and they do the 1099-R at the end of the year. We also charge a fee on a sliding scale for processing distributions, although for balances under $200, we usually do not charge. In this case, we may need to charge something if we have to invest a lot of time in hunting missing people. That issue aside, for 8 of the 13 people, there isn't even enough money to pay the processor's $35 fee. My question is this: are these little balances considered "de minimis" amounts and can they simply be forfeited? Or must the employer pay the $35 per person so the distribution company can cut a check for as little as $4.26 up to $179.02? Any advice based upon what you and your firm do in such circumstances will be greatly appreciated. Thank you!
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Ok, I know when I'd better quit. Let them merrily roll their assets to the IRA and we won't even think about trying to hang on to this plan. Next week I am going to look into truck driving school again, if there is no upper age limit for acceptance. However, thank you all for your answers, and have a good weekend!
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card (thank you) : Just when I thought I had a handle on all this, your clarification changes things: So if the assets stay in the plan, since the plan is owner/spouse only and not covered by ERISA, there is no federal protection from creditors. If the assets are rolled to an IRA, because the assets came out of a qualified plan, there is unlimited federal bankruptcy protection. So in fact, the client is better off rolling the money to an IRA than he is in keeping his plan! And we are better off because we don't really want a plan with real estate in it, in the first place. Nothing against real estate - we just are not experts in that area and we try to avoid it. Any thoughts to the contrary on this?
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Larry and RatherBeGolfing: Well it's comforting to know that we do that much right - we furnish the same plan document to a one man plan that we do to a corporation with hundreds of employees. But we are a non-producing TPA, not a brokerage firm....
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Thanks, Larry!
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Lou S., that's very helpful. That's a big part of what we were trying to determine - whether there would be any truth in the statement that the assets would be better protected if they keep the profit sharing plan instead of rolling out to IRAs. From what that article says, it appears that if the assets originated in a qualified plan, there is no limit on the protection extended within an IRA, so there's no particular advantage to keeping the profit sharing plan. That being said, if anyone knows if there is any difference between the treatment of a Solo 401(k) plan and any other qualified retirement plan, we'd like to know, since that came up along the way. Thank you! @Lou S.
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@ESOP Guy I know, you are right about that, and the fact of the matter is that we don't really know anything about this real estate investment. It's in some sort of trust administered by a local bank but that's all we know. We do have a call in to the bank to try to get a better idea of what this is. That's our next step, and if this is going to get really ugly, they can move the money to the IRAs and we will be out of the loop.
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Hi to All, A client has a profit sharing plan currently with only the owner and his wife as participants. They want to invest the assets in a real estate program of some sort and have decided to terminate their plan and roll their funds to an IRA for each of them. Each IRA will invest in the real estate. The question came up as to whether it would be better to keep the money in the plan and let the plan invest in the real estate, because there would be more bankruptcy and creditor protection within the plan than outside of it. Is that true? Does the answer change when only a husband and wife are participants? Does the answer change if they amend and restate the profit sharing plan as a Solo 401(k) plan? Thanks in advance for any advice! I did look on the internet and found one article that states there is absolutely more protection within the current plan, and yet another one that said there is some kind of exception to that protection for Solo 401(k)s. We're confused.....
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That sounds logical to me (not to mention that it's what I wanted to hear :) If we have that much resolved, then all that remains is whether you report it whether or not anyone is actually using it. And for that, I agree with your logic on the match - if the plan provides for it, I also report it even if the employer never actually contributed any matching contributions. Therefore, my inclination is to use 2T whether or not any participants have ever been put into the default investment.
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@chc93 - Thanks for the thoughts - I had a similar idea as well. Now you've opened another can of worms, though. A plan can have a default investment arrangement without that arrangement necessarily being a QDIA. I only found this out a couple of days ago in dealing with a John Hancock case that has a EACA. To properly fill out the Annual Notice, I had to know whether the plan has an automatic investment, and if so, whether it is a QDIA. I posed the question to John Hancock and their answer was "We don't know. Ask the investment advisor. There are 4 different criteria that may make it a QDIA and we can't make that determination." in a nutshell. So does 2T refer to any automatic investment arrangement, or only those that are somehow determined to be QDIAs? I am about to decide I am sorry I ever asked this question. If I have to go hunting whether or not any participants happen to have been put into a default arrangement, and if I have to try to find out whether the default investment is indeed a QDIA, I am going to lose way too much time on what should have been a quick question on the 5500....
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Hi To All, Who would like to settle a tiny difference of opinion in our office? One of us thinks that Plan Characteristic Code 2T would apply to ALL such plans (with participant directed accounts) as those maintained by John Hancock, American Funds, Mass Mutual, Lincoln et al because there is a mechanism of some sort in dealing with money belonging to participants who never made a fund election. It won't just sit in cash. Typically it goes to a Target Date fund based on the participants' birthdays but it could be something else. So wouldn't all such plans automatically check 2T on the 5500? The other person in our office thinks that 2T only applies if there actually are participants who have defaulted into the automatic investment. He thinks that merely having the provision is not enough; there must actually be such people in the plan. What do the experts say? Thanks!
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@jpod - There are no partners so it is Schedule C income, not K-1, as you said. The income is subject to the self-employment tax. The plan compensation definition includes self-employment income. As per my colleague who brought this up in the first place. :)
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@jpodExcellent points and I don't know. I am asking on behalf of a colleague who actually has the details. I will find out and get back on this.
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Sorry, I realized I wasn't quite clear. One company issues him a W-2 for $190,000 and the LLC issues him a K-1 for the million dollar income.
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We have a client who owns two companies and both have employees including himself. One is a corporation; the other is a LLC. He has W-2 wages of about $190,000 from the corporation and over a million from the LLC. Both companies are adopting employers to the same retirement plan and all employees are covered for both entities. Question: In calculating the maximum benefit he can have for 2017, are we allowed to use both his W-2 wages plus enough K-1 income to get him up to the maximum we can take into account for the year of $270,000? Our gut reaction is "yes" but one of us has some doubts. We are grateful for any help!
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@ESOP Guy I am going to "err on the side of the participant" (if indeed there is any error) and give him credit for retiring each year. In the words of the client "the man officially retired 12/31/2013, but he has a wealth of knowledge, and he comes back whenever we ask him to, and he's a friend." And we are talking about very little actual money here because the participant didn't make that much each year or work that many hours. I bet it adds up to less than $1,000 altogether. In an audit, the IRS would never ask us to take the allocations away from the participant.....
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@ESOP Guy Oh my it just gets more interesting. The client failed to report to us that the participant retired in 2013. He came back for a special project in 2014, 2015, 2016 and 2017. Since we didn't know he left 12/31/2013, we treated him as a participant who didn't have enough hours to get a contribution in 2014 and 2015. We gave him a 3% TH minimum in 2016 (the first year the plan was TH). So now I have asked for the whole rehire and termination history for all the years and if I understand you and Larry correctly, he has retired 5 times, once each year 2013-2017. So I believe he's due a makeup contribution for 2014, 2015, the difference between 3% and whatever the allocation was for everybody else in 2016, and a full allocation in 2017. Whew! It isn't much money, but it's quite some time to get it all straight.