ldr

Glad to know we are not the only ones who are frustrated, but sorry we are all in this boat! If we didn't have their entire suite with Datair- administration, forms, and documents - we would probably be shopping too. Their total lack of consideration to their clients is basically going to force all of us to do what used to be two years of work (each previous restatement cycle) in one year. If their new document was available tomorrow, there's a learning curve in all organizations where the new document has to be read, discussed, and digested before one can run out and start applying it to clients. Plus they ALL have bugs in the beginning, no matter the source of your documents. So one must allow x amount of time for those activities before the "real work" can even begin. Not Happy!

We had decided to give a serious reduction in our fee for anyone who came on board in the last two years. However we had not thought about the fact that if Datair had been on time, anyone who came on board since 08/01/2020 would have been automatically in the proper document. I will mention that to the powers that be and see if we can provide those clients a free document. That seems fair. It's not their fault that we unwittingly picked the wrong document provider!

Thank you all for your replies. I think we are going to look into how to do a MEP. In the meantime another situation has arisen with 4 pharmacies where a MEP seems to be the only logical solution. Looks like we are going to have to figure this out sooner or later so it might as well be now.

Lou, it's good advice but we just don't do MEPs. We are a tiny shop with tiny clients and tiny plans. MEPS are outside our wheelhouse.

Good afternoon to all: An existing client with a 401(k) plan for his Company A at John Hancock has made us aware that he owns 50% of another very small Company, B. An unrelated partner owns the other half of Company B and has nothing to do with Company A. Company B has 5 employees, 2 of whom want to participate in the 401(k) plan of company A. Since our client does not own 80% of company B, we do not have a controlled group. We just also found out that we definitely do not have an affiliated service group. We are going to do a separate plan for Company B. However, only for purposes of funding the plan for Company B, could the two people who want to participate be added to the existing plan at John Hancock for Company A? It's probably going to be expensive to set up a separate trust arrangement at John Hancock for just two people in a tiny plan, and we were wondering if they could be added on to the Company A plan just for funding purposes. They could be listed as a separate "division" just to make it easy to spot them on reports, but is there anything "wrong' or "illegal" about putting on two employees who are in a different plan? Thoughts? Your advice is appreciated.

@Bill, thanks so much!

I have been researching this since I put up the question and I have some information to add. This is a small, sole proprietor/doctor's office with less than 10 employees. The sale was an asset sale. The sole proprietorship continues to exist and the doctor continues to receive revenue that he will report on his Schedule C. All the rest of the employees were hired by the new owner on 10/06/2020. We are leaning in the direction of saying that because the sole prop still exists, because he still has income coming in, and because this was an asset sale and not a stock sale, we could have let this plan terminate on 12/31/2020 and he could have the full deduction for the full year's contribution. I can't find this exact scenario and these exact questions addressed. Everything dances all around it and gives little tidbits without hitting the question directly on the head. Would still like to hear from anyone with experience in this matter.

Hi to All, We have a client who sold his business and ceased making payroll as of 10/06/2020. He let us know that we needed to terminate his (calendar year) 401(k) plan and we made the termination date of the plan 10/06/2020, which means we had to prorate the 415 limit and thus the client will not get to put in the full amount for himself that he would have had if the plan had run up until 12/31/2020. He is not happy with us and feels like his limitations are our fault. Did we make a mistake in terminating the plan to coincide with the business being sold and ceasing to make payroll? We have never done it any other way, but then we've never had a complaint before. Could the plan have run through 12/31/2020? Thank you in advance for your ideas.

Thanks, everybody!

Thank you, both of you. I will relay this information and I believe we will start getting this done.

Good afternoon, This is a "what is your shop doing?" question. Some years back, before each participant could be in his or her own group for new comparability contribution allocations, groups were specified in the plan document. For example "partners, family members of partners, supervisors, clerical staff, the office manager, and Top Heavy minimum participants". Each year, we (where I worked at that time) did a document something like a resolution of the board of directors approving a specific dollar amount of contributions per group for the year in question. We got it signed by the employer and provided them with a copy for their records. With the advent of each person being in his or her own group, those resolutions of the board of directors went by the wayside. The employers I worked for stopped doing them. My current employer was wondering if that's really okay and wants to know what the rest of you are doing. I did look it up in Sal Tripodi's bible, and found "Written direction could take the form of a separate letter, the acceptance of a proposed allocation report that shows how the nondiscrimination test would be satisfied, or an entry in the memo section of the contribution check." I believe my predecessor in my current position was using the part in italics above to justify not doing the resolution anymore. We run the numbers, we test, we send the employer a proposed contribution allocation, he accepts it and makes the deposit, say, at John Hancock in accordance with the contribution report. Later the employer gets that contribution report and the accompanying testing in the annual report for his archives. With that, my predecessor said that was enough, and there was no longer any need for further documentation. What are the rest of you doing? Thank you as always.

Thanks, all of you. I had not gone into this deeply enough to look at any regs yet. Thanks for posting the reference, MWeddell. @Bill Presson: I wonder if that is what the broker at Edward Jones actually has? Maybe if they fail their ADP test, excess contributions actually go into a deferred compensation plan and he just thinks they are after tax contributions. No telling. @BG5150: No, I haven't run any hypothetical tests. I wouldn't be embarrassed at all because if we did this, I was going to make it very clear that there is no guarantee this will work, due to the shifting of the funds to the ACP test. Remember, I did not offer this to them as a "cure" for their problems. I told them to become a Safe Harbor plan. Their broker is the one who came up with this cockamamie scheme and I am just trying to investigate it and see if it has any merit. My inclination is to simply say NO. However, I once worked for a CPA firm where the partners spent a lunch time (and bought lunch for 50 employees) for the sole purpose of telling us that saying NO is the easy way out. They said our job was to see whether perhaps, legally, there was a way to say YES to whatever the client wanted to do. Ever after, I have at least tried to see if YES could be the answer. I appreciate the feedback from all of you.

Thanks to everyone for their ideas. @MWeddell: This client isn't trying to correct something that happened in 2019, after the fact. They are asking on behalf of 2020, before the test fails again. If we put in voluntary after tax contributions right now and offered it to everyone and changed the SPD and handed out the SMMs, it would seem to me that they could use this tactic for 2020, if the test fails again. Nobody is going to sign up for voluntary after tax contributions but it can be announced and offered correctly. The reason I say that is that this is a manufacturing unit and nobody is going to understand the first word of any announcement about it. The CFO and her broker are looking for a way to keep from irritating the owner of the company with failed tests and required refunds again for 2020, that's all. All that being said, I did like Bird's answer better......"ldr - JUST SAY NO."

Hi Lou and MWeddell, I was wondering over the weekend: This plan at the moment only has deferrals and a discretionary match. Suppose the plan offered voluntary after tax contributions and the only person who actually used the feature was the owner of the company. His "spillover" refund that was due to him on the deferral side gets re-characterized as a voluntary contribution. Now, does his new "voluntary contribution" get mixed in with the normal discretionary match and all get tested together? If that's the case, everything might be okay. This plan typically fails the ADP test but not the ACP test. However, if the voluntary contributions are tested all by themselves, apart from the discretionary match, then of course this won't work. The Edward Jones broker who brought this question to me says that Edward Jones' own 401(k) plan has this feature and that's why he just assumed that it is a common practice. What are you thoughts on this? Thanks again!

Lou, I am not sure I understand either! I was assuming that what you described is what they are looking to do. We don't have any plans with voluntary after tax contributions so I am not very conversant on that subject. Like you, I thought that even if the ADP refund could be "recharacterized" as a voluntary after tax contribution it wouldn't buy them anything due to the ACP test. I had not thought as far as the 1099-R yet but that makes sense. Like everything else, there is always a "new" or "cutting edge" or "aggressive" way to approach a problem and I wanted to run this up the flagpole and see what everyone else is doing. This is why 90% or more of our 401(k) plans are Safe Harbor plans, but there are just a few employers will not agree to a Safe Harbor.

Good afternoon! A client just asked for something I have not heard about before (not that this is unusual)! They don't like failing the ADP test and making refunds to the owner of the business. They won't adopt a Safe Harbor contribution formula. Instead, they want to know if an ADP test refund can automatically become a non-deductible contribution and remain in the plan instead of being refunded to the owner. I have never heard of such an arrangement but that doesn't mean it doesn't exist. Does anyone have some insight on this? Thanks in advance.

@Bird: That's pretty much how our administrator felt about the "advice" he was given. Thanks for your thoughts on this.

Good afternoon to all, The Form 5500 filing for a client has been made under an erroneous EIN for years and was discovered in 2018. The administrator in our office after trying for days to get through to someone at the IRS finally got an employee on the phone. He was told to amend the 2018 return showing zero participants, zero assets and mark it final. Then file an amended 2018 return showing the correct EIN and all the original data that was filed on the first return. Has anyone else ever done this? It seems very convoluted and we don't want to create even more problems with the "fix" than we already have with the original problem. Do you agree with the agent? Thank you.

Thank you, Bill.

Good morning, this falls under the "please don't shoot the messenger" heading. A prospect for a non-ERISA 403(b) Plan, which is a church, is asking whether they can take advantage of the "tax credit under the Secure Act". We don't see how this could benefit an entity that does not pay any taxes in the first place, but we were still asked to research the question. Maybe we are missing something. Thoughts? Thank you.

@RatherBeGolfing: Thank you very much for expanding on what had been said earlier. I think all the pieces fall into place now.

@ Lou S. Thank you for the reply. We need to be very sure we understand exactly how this works. Half of our people think that it applies to all distributions taken in 2020 no matter what the circumstances might be. Half of our people think the employer has to adopt the CARES Act provisions and the person taking the distribution has to fill out a specific CARES Act form (from John Hancock or American Funds for example) in order to get the waiver of the 10%. If I am understanding you, the truth is in the middle between these two extremes. You are saying that whether or not the employer chooses to adopt the CARES provisions and whether or not the employee is using a specific CARES form at the time of withdrawal, the real test comes when the employee gets his tax return done next spring. At that time, he files an extra form to go along with his 1040 upon which he presumably is affirming that he was impacted in some way by COVID-19 and gets the 10% waiver?

Good morning to all, Is it your understanding that the 10% early withdrawal on distributions made from a 401(k) plan has been waived for all withdrawals across the board for anyone making a withdrawal in 2020, or is it your understanding that this break on the 10% penalty is only available for CARES Act related distributions (CRDs), which in turn is only available if the employer has chosen to adopt the CARES Act distribution provisions for the plan? Your advice is always greatly appreciated.

Thank you, everyone, for your input. @FPGuy, I like the way you think! We will pursue that idea and see what comes of it. Right offhand, I don't quite see how, because they all get reported to us as being employees of one big company. Maybe the sales organization could be separated out and turned into a separate company. All to be seen.

P. S. to the question: The reason this came up in the first place is because one of these "direct sellers" went online at the recordkeeper and applied for a distribution due to being 'terminated". In turn, I asked the employer's HR manager for a date of termination so I could approve the request. I kept pressing for a date and he finally told me that this employee and others so classified are "not exactly employees" and "not exactly terminated' either. Here's precisely what he said: We converted our salesforce to 3508 direct sellers on 2/1. The 3508 Direct Seller is an odd breed, and I have found that even the most seasoned accounting experts are baffled by it. We are not taking out federal taxes. He will receive a 1099 for the work done after 2/1, and a W2 for work before. The actual definition, according to our legal department, is “statutory non-employee”. In our state, we still take out state taxes. Many people (including myself initially) are quick to say that he is now an independent contractor. However, the 3508 is not an independent contractor. He is covered by our workers comp, gets benefits, and we have complete control over his work. So, I’m not exactly sure how this should be handled. If he wants to take out his money, that’s fine with me. There is no question that our sales (and thus, his income) is taking a tremendous hit due to the pandemic, and that he will likely file for unemployment even if not separated. Their 401(k) Plan document defines compensation as Box 1 of the W-2 form with the add-back of deferrals, 125 plan contributions etc. Our position was based on the fact that after 02/01/2020, there will not be any Box 1 W-2 income.