Practical Problem

[austin3515]

Small plan, where owner has $500K with a financial advisor, and the employees have their money with a recordkeeper (perhaps Asensus). Because the money is actually held by someone other than asensus, they are subject to the small plan audit waiver disclosures.

1) Does everyone agree with me so far?

2) Let's say the SAR says plan assets are $1Million. You disclose that trust company ABC is holding $500K. How are people handling the fact that a little simple math can be revealing regarding the owner's balances? OR perhaps people will question, "where is the rest of my money?".

We've done two things in the past:

1) We've added the two pockets of money together and said "ABC Trust Company and Pershing" and then put the total investmetns held, toghether.

2) Concluded that getting a statement from Asensus is so close to being an individual account plan that it's probably OK and skipped the disclosure (as I'm sure thousands of plans do simply because they haven't put as much thought into this as I have!

[QDROphile]

Please explain how the Trust does not hold all the money. Even if accounts are managed by a financial advisor, the arrangement should at least be a custodial arrangement with the trustee, and it is an invitation to trouble even to have custodial arrangements where transactions are not run through the trustee.

[Nate X]

Have you ever read the SAR notice from your own employer? That to me, that is the problem solver. A participant would have to:

1. Actually read the SAR

2. Do the math, and

3. Understand what the math means

Even then, it's an assumption that it all belongs to one owner.

[Bird]

So, is the owner's account essentially self-directed, and does(n't) he get statements directly from the investment provider at least once per year? And the other participants have individual accounts*? If so, then I think all of the assets are assets of individual accounts and no SAR disclosure is required. Maybe I'm missing something as I am confused by the first response.

*Qualifying plan assets include:

In the case of an individual account plan, any assets in the individual account of a participant or beneficiary over which the participant or beneficiary has the opportunity to exercise control, and with respect to which the participant or beneficiary is furnished with, at least annually, a statement from a regulated financial institution describing the assets held (or issued) by such institution and the amount of such assets.

..maybe I get it; Ascensus is not a regulated financial institution, so they could be Madoff-ing the statements? Mmmm. Well, I don't think it is ok to add the two together. I guess I would just do it as required and tell the client "it is what it is."

[austin3515]

Bird, you do get it... As for the people doing the math, often times the owner is the one to do the math before handing it out. The employees know there is just one owner. And I don't think it's too cavalier to add them together as we are at least addressign the requirement, without providing any insight at all into the disparity in the accounts.

[Bird]

I still don't think it's ok to combine; the FAQs read "...the name of each regulated financial institution holding or issuing “qualifying plan assets” and the amount of such assets reported by the institution as of the end of the plan year..."

But you raise a great question, and getting back to the original options, I'd guess that most people are treating these as individual account plans that don't require the disclosure of the institution and amount.

[austin3515]

But you raise a great question, and getting back to the original options, I'd guess that most people are treating these as individual account plans that don't require the disclosure of the institution and amount.

As "mistakes" go, this to me seems to be one of the most potentialy dangerous since the consequence of failure to comply is a $10K audit, not to mention all of the client's time involved.

[masteff]

So then, which is the lesser evil... to combine or to treat as individual account plans and not disclose?

And why not move the money/recordkeeping/whatever is required so that they really are individual account plan and would it then be moot for future years? If I was the owner and didn't want disclosure, I'd at least give this serious consideration.

Oh, and if 1/2 the money is at one place and 1/2 at another... do the employees really know which place their money is at (especially if it's not an individual account plan)? Sure the owner knows which half is his but do the employees have actual cause to know where their money is invested?

(I'm about 90% on this topic so if I'm taking it off course by lack of knowledge please feel free to dope slap me and move on)

[rcline46]

Duh! Do one plan for owner, another for staff, file EZ for owner, no problems.