ldr

@Larry Starr, once again, Larry to the rescue! You will have the email from me within 5 minutes and thank you very much!

Hi BG5150, Thanks for the reply. Used in conjunction exactly how? This particular K-1 I am looking at has $99,948 as the 14A income and $1,028,249 as the 14C, "Gross non-farm income". Do you add them together or what exactly?

Hi to All, In calculating the potential maximum contribution for the partners in a LLC, which number on a K-1 for Form 1065 is used as the equivalent of a regular employee's W-2 wages for purposes of calculating a contribution? We are working on a plan where a prior administrator in past years has used Item 14A, "Self-employment earnings (loss)" as the magic number for the year upon which to make calculations. We'd like to know if this is the correct approach. Maybe I should clarify that Item 14 does not automatically come with the letter A attached. Whoever prepared the form has put that in there, which according to the list of codes, means that the number is ""Net earnings (loss) from self-employment". Thanks as always for your comments.

Thank you both for your answers. As it happens, we gave her the benefit of the doubt and sent a letter explaining that due to a complete lack of response from all parties, we are assuming that she did not use the plan in any way for 2018, and that we look forward to helping her with 2019. We copied her CPA and her investment advisor on the letter. We will see if anyone bothers to respond to us. 2019 is almost over and census requests and annual questionnaires will be going out again at the end of December. If once again we get the same total silence from her and her advisors, we will take Larry's "goodbye and good luck" approach. If we had seen this yesterday we would probably have done it this year.

@david rigby That's good advice if the CPA foresees that there will be income of some sort each year and presumably increasing income. However, if this was just a fluke, a one-shot wonder year, and he is in doubt that it will happen again next year, then it's not a great idea. I don't know, actually. The little bit that I wrote here is all the information I have. But we will ask, and thanks for the idea!

Good day to all: A doctor (of course) signed the documents to set up a new 401(k) plan in December of 2018 that was effective 01/01/2018. It was to cover only her, at least to begin, because she had no employees. She signed everything, we did the document, she paid the bill, and it died right there. No investment accounts were ever opened; no deposits were ever made. All requests for information have been completely ignored. Does this plan really exist? There is nothing to file because there would only be an EZ if she had over $250,000 in the plan. It makes me nervous, though - I can't quite wrap my head around a client for whom there is nothing to do, if she really is a client at all. Have any of you had this happen? If she ever answers us and says she changed her mind and doesn't want the plan after all, do we need to terminate it as we normally would (resolution, amendment) and file the first, final, and only EZ for it? Can an employer sign all the papers and pay for a plan and then just walk away from it without further ado? Thanks as always for your advice.

@Calavera: We did contact the CPA and ask if a DB might be feasible and he said the extra income from the sole prop is too erratic right now to justify setting up a DB.

Good point Calavera! Nobody has said just how much money this extra sole proprietorship generates. It might be enough to make a DB worthwhile.

Thank you very much, Belgrath and Larry!

Good morning to all, I have been asked to post the following question from a CPA referral source: "Facts: Individual owns 100% of an S corporation. Only employees are husband and wife. They have a solo 401K plan. They both maxed their elective deferrals and the employer contributed max profit sharing. Husband also owns another business with no employees that is taxed as a sole proprietorship Sole proprietorship is profitable in 2018. Can they also do a SEP for the sole proprietorship?" I have no further information than what is shown in the inquiry. Thank you in advance to anyone who has had to address this before and knows what is permissible.

Update: The account has been split according to the terms of the QDRO and the alternate payee now has an account under her own name and social security number. Both parties have completed their respective distribution forms and by Thursday this account will be history. Thank you again to all the participants in the thread.

fmsinc, that's not happening. I'd like to live to go home tomorrow night!

Good morning and greetings from the Wild Wild West! Update: Our participant was able to get a judge to sign and bless his home-made DRO into QDRO status yesterday. Tomorrow he is bringing it in person to me and will also sign his own distribution form for his distribution of his half of the account and leave it with me so that I can process his distribution just as quickly as his ex-wife's portion is removed from the account and set up under her name, still under the plan. She can then respond to the forms to get her part out of the plan at her leisure and it won't impede him. I surely didn't set out to start a controversial thread but I am really glad it happened because we see that not even the experts all agree with each other and not everyone has the same approach or the same procedure. We are still learning from this thread. Thank you to everyone who participated and is still participating.

@Larry Starr - thank you, done!

Good morning to all! Still no word from the participant. Larry Starr, you said: "Procedure prior to receipt of order: The Plan will apply the following procedure prior to the Plan's receipt of a Domestic Relations Order. 1. Suspension of Participant distributions or loans. If the Administrator is on notice (verbal or written) regarding a pending domestic relations action (e.g., a divorce) and has a reasonable belief the Participant's account may become subject to a QDRO, the Administrator may suspend processing the Participant's distribution or loan requests pending resolution. 2. Removing hold on the account. After placing a hold on the account, the Administrator should notify the Participant of the hold on the account. In order to remove the hold, the Administrator should request the Participant to provide written confirmation that a court will not issue a QDRO with respect to the account; such as a property settlement agreement awarding the entire account to the Participant. So, we have an OPTION to suspend processing, but are not required to do so. We also have the option to suspend processing and if it is not resolved in some short period of time (say 60 days), we can lift the hold and do the distribution. So you can (hopefully) do the same (assuming your QDRO procedure would allow); tell the parties that what you have been given so far does not meet the requirements of a QDRO and they have XX days to get the order to you, and if not received in that time, the hold will be lifted and distribution made to the participant." This addresses our whole problem. Our QDRO procedure, which came with our document software, has no such provisions. It begins with "Promptly upon receipt of a domestic relations order, the Plan Administrator will....." And that's how the whole mess got started. We had not been served with a domestic relations order, at least not anything we could recognize or identify as a DRO, and that rendered the rest of our procedure useless. What you have is perfect. Larry, if I send our "canned" procedures document to Word as a rtf file, I can edit it. May I add on your paragraphs to our procedure without being in violation of something or another? Would you mind if I do that? It will be of great help in the future. Meanwhile I am going to contact the Nice Document Lady at our document software provider's office and suggest that they work on adding this feature to their "canned" document. Thank you very much for this.

We spent most of today archiving old files and packing away boxes, so I can't do any of you justice at the moment. @Larry, Starr your latest post helps immensely and I will answer it as soon as I can. @ fmsinc, I didn't get to read the whole memo yet but the chicken soup story was great! @david rigby, thank you. @BobbyV, yes they do. Have a great weekend, everyone!

@ESOP Guy, we are in agreement but we are just saying the same thing two different ways. We thought a Marital Settlement Agreement was a separate thing, not a DRO, not a QDRO, and not capable of being considered either one, and not capable of containing either one, because we never saw it done this way before. We expected a separate document, a 4-5 page thing clearly labeled DRO or QDRO. When we were told we would never get that, we didn't know how to treat what we did get. I totally agree with you that so far, nobody has presented us with anything like a real QDRO. But what Tigerket was saying is that the one three-sentence paragraph in the Marital Settlement Agreement was a DRO, however incomplete it may have been. That's what we did not know, along with not knowing that the participant has a right to take his entire account out right now, as a terminated participant, regardless of what is in the Marital Settlement Agreement.

@Doc Ument and also ESOP Guy from an earlier post: Thank you very much for your encouragement. I really do appreciate it. And I know I need to grow a "thicker skin" but at this late stage of life it probably won't happen. @Tigerket: I think you are getting at a part of my question that was never resolved clearly in my mind. To be clear: We do have a QDRO procedures policy that came with our document system and we follow it when we get a DRO or a QDRO that we can recognize as a DRO or QDRO. We had only ever seen a separate document, clearly labeled as a DRO or QDRO, that generally contains most of the ingredients in the recipe and mostly never asked for anything the plan doesn't allow. All we have ever had to do is decide whether a DRO in draft form was complete, or a QDRO processed without us actually had been done right. The little 3 sentence paragraph I quoted from this case is a part of a 3 page Marital Settlement Agreement that covers children, spousal support, property (just a couple of cars), child support, insurance, income tax, "retirement", liabilities, debts and fees. They both signed it. We were struggling with and still struggle with our obligations given that at first, we were told that no DRO and no QDRO would be forthcoming. If all we would ever get was that one little paragraph, what were our obligations and what were the obligations of our client? Plus, we didn't realize that until we got a proper QDRO, we would be obligated to honor the request of the participant if he wants to withdraw his entire account. Now if I understand you correctly, you are saying that the little 3 sentence paragraph was a DRO, in and of itself, and that's what I was afraid of and needed to have clarified. We can't afford to just blithely ignore this document and say that until we get a proper QDRO, we have no obligation to do anything. We are back to this: If we as a TPA know that a former spouse has a right to a portion of a participant's account, we cannot ignore it. Anything we get in the future, even if it is just one paragraph, will be suspected of being a DRO, and we will follow the procedures until it becomes a QDRO. And apparently, if we never get the QDRO, then the participant can withdraw his entire account if he has an event that allows for distributions, and the fight is then between him and the ex-spouse and we have no further liability. We have not yet heard back from the participant as to what he wishes to do or whether he was successful in getting his home-made QDRO approved or in line to be reviewed. I will update the column when we find out.

Good morning to all, @QDROphile, I am not going to get into a discussion about how to save the extra 10% on $30,000 with the participant. It is an interesting "dodge" and could be useful in the future but it was hard enough to get to the point we are at now without muddying the waters any further. @JeffHartman, we are using distribution forms of John Hancock, so we can't edit a form in this particular case and add the language you are suggesting, but I like the idea. @fmsinc, the QDRO boilerplate we furnished to the participant is silent on the subject of earnings. It would appear from the way it is worded that if they agree on the division date as being the date the divorce papers were signed, then she will get 50% of whatever was in the account on that day. But thank you for the memo, which I will read at lunch - it's a little long and duty calls. @My2Cents, We realize that the little paragraph didn't constitute anything remotely resembling a DRO. We were led to believe at first that there would not and could not be a DRO or QDRO forthcoming. That changed yesterday when our participant decided to try to develop his own DRO using a boilerplate document from our ERISA attorney. It will have all of the ingredients you mentioned. If he can get a judge to bless it, we can split the account. If he can't, he can indeed direct us to distribute ALL of his account in any manner he dictates. That is what came of all of this discussion - we now understand that we can't hold his funds up if he wants a full distribution, he understands that if he doesn't get a QDRO he's going to pay taxes on the whole sum, and now we will see what happens. Thank you, all of you.

@fmsinc, your reply is fascinating. I had no idea so much plotting and scheming was going on. If I could please ask a practical question: I can see the appeal of amending the marital settlement agreement the way you suggested in order to avoid the 10% penalty tax. However, what would compel the ex-wife to give the participant his share of the funds, once the distribution was complete? People who are on somewhat amicable terms and can trust each other to honor agreements might be able to work this out, but what if they aren't? The agreement might stipulate that she is supposed to split the proceeds 50/50 with him, but when she receives the funds, what if she doesn't comply? I don't think the participant is going to want to take that chance. He's also in a hurry for a fast resolution and I don't know that he can wait on an amendment of the agreement. It is a great strategy to know about, though. @BVoss, I think a lot of the problem lies in the fact that possibly there wasn't an attorney involved at all. In one conversation, the participant made the statement that his ex had "done it all, paid the lawyer, whatever" but on the other hand, the HR lady said the ex-wife had gotten a boiler plate divorce document and done all the work herself to save money. I realize that it was up to her and/or her attorney to have done a QDRO correctly. At this point, the participant and the ex seem to be working together to try to come up with a DRO as cheaply as possible (or for free) and as far as we know now, they are trying to get it done with what we provided to them. Neither of them seems to be able or willing to hire competent legal advisers. That really is the source of my problem to begin with. I have only ever worked on cases where I was presented with a DRO or a QDRO. With a DRO, my job was to determine whether all the ingredients were in the document. Lately, I have been presented with QDROs where the attorney, without any input from us, has run the document by the judge and he has declared it to be a QDRO without the review process. If something is missing, I have to get the attorney to make changes to the document and take it back to court. I did have a case once, earlier this year, in which the parties to a divorce were truly abysmally poor and had to get the job done with no money. That's when our ERISA attorney gave us a DRO boiler plate to share in hard luck cases. That couple managed to get someone to complete the form, the judge blessed it into QDRO status, and we were able to proceed. This particular case started out as "there is no DRO, there is no QDRO, there isn't going to be a DRO or a QDRO, the participant isn't going to pay a lawyer to draw one up and neither is the ex." We just hadn't had that happen before, and yet we had to deal with an anxious HR department and a participant who wants money within 2 weeks so he can move. Anyway, it all seems to be working out now. He will either get the DRO approved, or he will take a distribution of all of the account and pay all of the taxes, and either way, he has some degree of control over what happens, and we now know a lot more than we did before.

@QDROphile: On the whole, the outcome so far was extremely positive and came the closest to satisfying absolutely everyone concerned. Yesterday we sent the participant the John Hancock withdrawal form for himself as a terminated participant, the Special Tax Notice, AND the boiler plate QDRO document that our ERISA attorney allows us to share in special cases. He called back today with a few questions on how to fill out the form, and then he was off to court to see what he needed to do to get this thing blessed by a judge and turned into a QDRO. He finally understands the tax consequences of merely taking a distribution of the entire account first and he wants to avoid that if he can. It remains to be seen whether he can get a judge to approve the DRO in the time frame that he needs. He's not trying to escape paying the ex-wife. At the moment, everyone is satisfied. The client and we as the TPA are not worried about being sued by the ex-wife. The ex-wife, who, as it develops, has been bugging the participant about getting her share, now knows that there is movement on her case and it should be resolved soon. The HR department at the client's office knows that we've done our dead level best to take care of both them and the participant and the ex-wife and that's what they wanted. The participant "gets it" about his taxes and has opted to try to do the QDRO. He knows he can always default to taking all the money and paying all the taxes if absolutely necessary due to time constraints. I appreciate the professionals who replied yesterday and I respect their expertise and advice, even if I don't agree with all of them. My one exception is you. You may have had some good ideas, but you delivered them with so much venom and sarcasm that the effort to "help" was lost. If you enjoyed belittling me and my efforts yesterday, then I hope you had fun. You won't get another opportunity. As for the accuracy, there were only two points with which I do not agree. First, the notion that we have no responsibility to do anything at all until we receive a genuine DRO does not play here. Our client expects us to listen, care, and take action of some sort when she alerts us to the fact that there something in the works with a divorce. Our ERISA attorney said it was "probably prudent" to freeze the account until it could be sorted out. We have stopped kicking ourselves for doing that, and we will assess each case individually and make our best decision in the future as to whether to do that or not. Yes, many of our employers are paternalistic and with good reason. We have no quarrel with that. Plus, our clients, and we, do not want to go to court over an ex-spouse's claim to a benefit that we approved to be paid out to a participant. It really does not matter that we would have technically been "right" because we did not receive a DRO or a QDRO. We would still have to spend the money, hire a lawyer, and use valuable time to go win the case. The other point with which I disagree is that "jerking John Hancock's chain" brought down some kind of adverse circumstance. It did not, and there is no problem there. And that is all I have to say on this subject, except that I will update the thread when I find out the ultimate outcome of the situation.

RatherBeGolfing, I had no issue whatsoever with anything you said. My issue is with QDROphile, who is simply rude, and not even 100% accurate in all the advice he gave. Responses like the one he gave will drive away people who might otherwise have participated on this forum, and will make many more into "lurkers" who read the information but don't dare speak up for fear of being ridiculed for asking questions in the first place. Even I am going to step back and read from now on and try to solve all of my questions on my own. I don't say I will never put up a question again - management may require it - but not if I can find any other alternative.

Larry, thank you for a great response too. Now in the meantime, the ERISA attorney and HR lady from the client's office have weighed in and the results are as follows: The ERISA attorney actually said that it was "probably prudent" of us to have had John Hancock freeze the account until we could see what was happening. She went on to suggest that the participant either get an attorney to do the DRO or take a stab at filling out his own DRO and getting the judge to bless it as a QDRO, AFTER we compare it to a checklist of ingredients to be sure everything is in it. (This is a very poor state where a lot of people do their own legal work). The incentive to do this is taxes. The participant's account has $60,000 in it. ERISA attorney agrees that as it stands right this minute, he does indeed have a right to a total distribution, but that he will pay 20% up front to the feds, he will owe something to the state whether he pays it now or at the end of the year, and he will also owe the 10% penalty for not being 59.5. He will be paying the taxes for both himself and his ex-wife. With so much to lose, he has every incentive to get a DRO one way or another. Meanwhile HR lady told us that the reason she sent us his marital settlement agreement was that she had recently been through a divorce and she recognized the document as a boilerplate, do it yourself divorce document. She knew that the part about the retirement plan couldn't possibly be "right". She had also tried unsuccessfully to persuade the participant that he should not be paying his ex-spouse's taxes for her, but he didn't understand her. We have advised the participant that he can take his full distribution, pay all of the taxes for himself and his spouse, or, he can come up with a DRO and avoid paying her taxes. It's his choice and we will do whatever he decides he wants. It's been an interesting day! Thank you to everyone who helped with the topic.

RatherBeGolfing, right now I'd rather be golfing too and I don't even play! Seriously, we are a tiny, tiny shop. We don't have the luxury of sending something down the hall to the correct "department". Like it or not, ready or not, 100% up to speed or not, we have handle everything our clients throw at us. Occasionally, the scornful, snide responses we get on this forum make us feel like the rest of the pension world works in a 50 story building with a "distribution floor", a "QDRO floor", a "loan floor", etc. where each floor has 25-30 minions running around at the behest of the department head, etc. We do all the normal things that responsible, caring people do. We attend the ASPPA convention and take ASPPA credentialed courses. We read Sal's Bible faithfully. We bounce things off each other, call former colleagues, Google things, and look things up in the Answer Books put out by Aspen Publishers. We consult the ERISA attorney on call if necessary, but first, we have to know that it is necessary! It's a simple fact that no one human being (except maybe Sal Tripodi) has ALL of the knowledge about ALL of the topics in his brain and at his fingertips. We would like to be able to ask questions on here without coming under attack for what we don't know. After all, if we knew, and we knew that we knew, we wouldn't need this forum, would we? I do honestly believe that our tiny band gives it their all, every day, to do the best job they can for the clients and the participants with the tools and the information we have. QDROs come up maybe 4-5 times a year. As such, reviewing them is a negligible part of our overall duties.None of us have ever been presented with a case that was not attached to a DRO or a QDRO. This was something new, something we did not know could happen since we had never seen it before. We acted in good faith as we knew it at the time. The HR department of the client sent the marital settlement agreement because they thought it was important. We all were under the impression that once you knew, no matter how you knew, that an alternate payee had a right to part of a participant's account, the account was supposed to be frozen lest the participant run off with the alternate payee's balance. We now know better, but that doesn't make us stupid, ignorant, or bad administrators. We are darned good administrators who seldom process QDROs and never pretended to be attorneys. All this is to say that it's time to give anyone who asks a question on here the benefit of the doubt. They are at least TRYING. If they didn't care they wouldn't ask questions in the first place. Why not try to foster an environment where anyone from rookies to old fogies can ask questions without fear of repercussions?

RatherBeGolfing, I believe you, but we still have a call in to the ERISA attorney just to see what her take on all this is. I will post her reply if it turns out any differently than what has been discussed so far.