Info that old TPA is obligated to supply for a takeover?

[mming]

We are the new TPA for an 80-life plan that requires cross testing. As the switch is happening in the middle of an admin cycle, we are to prepare the tax return and val showing contributions that were calculated by the old TPA and have already been deposited and allocated into self-directed accounts (we have the breakdown by participant). The problem is, the old TPA will not provide a copy of their cross testing analysis, saying that the client never receives this and it's not part of the admin work that is being paid for. The client also said that the testing has never been provided in past years and always just gets the tax return and the account valuation, and that there is nothing in writing that defines what the TPA must produce in such a situation.

I described this situation to a fellow TPA who also said that her firm doesn't provide the cross testing analysis. This is a first for us, so we're curious as to whether this is the norm. Would most firms use the numbers generated by the old TPA and just caveat that they're not responsible for their validity if an audit occurs (since it would be difficult to key into the exact numbers by doing the calcs from scratch)?

[Mike Preston]

I can do an 80-life crosstesting analysis in less than an hour if the census and HCE determination is ripe for the plucking so I don't understand some of what you say. I'd say the standard in the industry is to provide a client with, at the least, a representation that the allocation satisfies 401(a)(4). If the client has that, why is that any different from a representation that the allocations satisfy 410(b), 415, 416, etc., or that the definition of compensation satisfies 414(s)? Some firms might present formal reports for such representations, others might not. Some firms might present formal reports for one or more, but not all. Note that the 416 regs have a specific reference to the fact that a formal report isn't necessary to establish whether a plan is top-heavy. All that is necessary is to provide, in essence, a mathematical proof.

If somebody familiar with the allocation can determine that the plan satisfies 401(a)(4) by inspection, and makes such representation to the client, what else do you think needs to be provided?

[Mike Preston]

Oh, to get to your question, yes, we ask for a hold harmless whenever we rely on or re-publish work done by the prior firm if we aren't engaged to independently determine compliance.

[Bird]

We don't usually provide that type of analysis to the client but I suppose if someone asked we would. I don't know that there's an industry standard.

It sounds like the other firm did all of the testing but you are preparing the tax return? That seems odd, but in that situation I think I would do a hold harmless or at the very least caveat that we didn't do the testing.

Here's a question for you; not to be snarky but what's the difference between having their test results, if you're not going to re-do the test, and having no test results? What confidence or protection does that test give you?

[Tom Poje]

Interesting.

for a 401k plan do you provide a copy of the ADP test?

that is nondiscrimination testing for deferrals (and match).

if you provide that, why wouldn't you provide nondiscrim testing for the nonelective portion?

[Mike Preston]

I can see various reasons a firm might provide a report that displays the ADP/ACP testing. Most revolve around the fact that ADP/ACP testing is, relatively speaking, understandable. Also, it may be used to display required refunds or QNEC's. None of that applies to cross-testing. I'm sure others can think of other reasons.

[Bill Presson]

We generally just provide a summary of the test results (ADP/ACP, 416, 415, a(4), etc) and don't provide the backup. In the rare situation where a client wants to see it, we've provided it, but it's not a standard.

[Tom Poje]

ha ha ha
Mike, you should have posted this under the humor section
"the fact that ADP/ACP testing is, relatively speaking, understandable"

[Peter Gulia]

mming, if anyone in your TPA shop is a “practitioner”, consider the implications of the Treasury department’s rules for practice before the Internal Revenue Service, including this one:

31 C.F.R. § 10.34(d) Relying on information furnished by clients.
A practitioner advising a client to take a position on a tax return, document, affidavit{,} or other paper submitted to the Internal Revenue Service, or preparing or signing a tax return as a preparer, generally may rely in good faith without verification upon information furnished by the client. The practitioner may not, however, ignore the implications of information furnished to, or actually known by, the practitioner, and must make reasonable inquiries if the information as furnished appears to be incorrect, inconsistent with an important fact or another factual assumption, or incomplete.

While engagement terms or a client’s “hold harmless” might excuse or relieve a TPA’s liability to its client, neither of those writings can excuse a practitioner from its conduct duties under the tax-practice rules.

[david rigby]

If that "practioner" is an actuary, then the Code of Professional Conduct might be relevant

Adherence is not optional for any actuary who is a member of one of the US-based actuarial organizations, but I'm not suggesting any violation from the facts presented aabove.