rollover incorrectly titled

[thepensionmaven]

I have a takeover DB, the client , a sole prop., recently changed brokers. 

The rollover was done a few years ago, from a previous DB plan, but previous broker incorrectly titled the account "401(k)".  The rollover was approximately $1M.  The broker was from another brokerage firm

I am working with the new broker and we want to straighten this out. This is not a 401K, she does not want a 401(k) and will never contribute to a 401(k); in fact she had always been under the impression this was an IRA rollover; upon further digging, I discovered this was indeed a rollover.

Questions is, since the account was titled incorrectly, and has just been re-titled "IRA' with the new broker, would form 5500 need to be filed, or could the client claim "ignorance", "stupidity" or whatever, and if she were to be audited, explain what happened.

The DB has less than $250K.

[justanotheradmin]

I'm a bit confused. 

Do she have an active DB plan?

Are these trustee to trustee transfers? I would use the term rollover to refer to a distribution from the DB plan to an actual IRA. 

If the only change was the investments then I would typically call that a transfer since the money is staying within the trust, just changing accounts or investments. 

I suppose part of it depends on how clean the paper trail is. Has the DB money been co-mingled with other IRA money? Can she clearly demonstrate or have documentation that the money is part of the DB plan all along? What information has the actuary been using for the calculations? Brokerage accounts are registered / titled incorrectly all the time (which is one of the reasons I don't like them), but that in an of itself doesn't necessarily mean the money isn't part of the plan. 

As for the form 5500 - I'm not sure why one might think it is required. If the plan is less than $250,000 and means the requirements, it doesn't have to file. This is true for both 401(k) plans and DB plans. Even if somehow this account was considered a 401(k) Plan (highly doubtful) the $250,000 filing threshold is the same. 

Was she intending to terminate the DB plan and do an IRA rollover? If that is the case, then yes, a Form 5500 is required because it is a plan termination.  Did she do the rollover a few years ago? Are you asking if she can consider the plan closed as of the original asset transfer date? Treating that date as the rollover date even though the receiving account wasn't an IRA?

What are you taking over exactly? If the plan is terminated and long paid out, are you just helping / advising about a possible final Form 5500 filing? 

[Bird]

23 minutes ago, thepensionmaven said:

There have never been any 5500s filed for the 401K" which is titled "IRA".

I think you meant "IRA" which was titled "401k."  

But whatever.  I would not worry at all about the IRS looking for a 5500 based on assets, and if they did, just show them the paper trail (which of course you hope is clear, with accurate 1099-R reporting showing a rollover).

The new brokerage firm will almost certainly send a 5498 to the IRS indicating they received monies in a rollover.  Whether that will trigger a mismatch (the other way, showing a rollover but not an acknowledgement of receipt on a 5498, will almost certainly generate an inquiry) I'm not sure.  But this was broken and not fixable with any kind of corrective reporting so I think I'd just wait and explain if necessary.

[CuseFan]

Agree - just get the account properly titled, retain all the paper trail and move on. In no way could it be construed as a 401(k) account (rollover or otherwise) as there isn't currently and never was a plan document for such a plan.

[thepensionmaven]

According to the client, the previous TPA filed form 5500-Sf as a 1 participant plan for 2017.

Should this be amended to $0 beginning of year and $0 end of year??

[thepensionmaven]

Client has just forwarded an ERISA account application (not a plan document) dated in 2014 for a 401(k) account; apparently this client will sign anything put in front of her, and ask questions later.

Client insists this was supposed to be an IRA rollover, and apparently never checked the title of the account.

[Larry Starr]

3 hours ago, thepensionmaven said:

OK, I guess my question needs a bit more explanation.

Client previously had a DB, which was terminated a few years ago.  Her intent was to roll the DB into an IRA.

The original broker screwed up and rolled (transferred) to a new account and titled it 401(k).

The money in this 401(k) account is all rollover from the terminated plan and should have been titled "IRA" or "IRA Rollover".

Client adopted a new defined benefit 2 years ago; money in this account is strictly DB money, new DB money. This account has less than $250K, so there would be no 5500s due.

There have never been any 5500s filed for the 401K" which is titled "IRA".  Since the IRA account (which has over $1M) is titled "401(k)", don't we combine them for the $250K filing.

The account has been transferred in 2018 and is correctly titled "IRA Rollover."

Or just forget about it and if IRS questions, produce the paper trail.

Hope this is a bit more succinct.

 

Am I the only one who has a real problem with this? The money was supposed to be rolled into an IRA to avoid taxation.  IT WAS NOT.  It was rolled into some sort of account (I assume, a regular brokerage account) but titled it 401(k).  That does NOT make it a 401(k).  It is a non-plan account; it's  most likely a personally owned account.  In other words, it was a failure to rollover and should have been taxable that year!!!!! The broker screwed up big time.   It's not just "titling" the account IRA rollover that makes it a rollover; an actual IRA must be established with a real custodian.  Doesn't look like this happened.  I'd say she needs some real legal assistance.

Now you say the account has been transferred; how?  Was an IRA now set up?  Well, it's waaaay too late.  You need to confirm exactly what these accounts are for us to make sense of this situation.

[Luke Bailey]

If the money has not been in an IRA, i.e., not deposited into an account governed by an IRA agreement entered into between broker and client, I think you would need to go through the waiver rules to see if a waiver of 60-day rollover period would apply. https://www.irs.gov/retirement-plans/retirement-plans-faqs-relating-to-waivers-of-the-60-day-rollover-requirement#2

 

 

[jpod]

Will there be any tax reporting associated with the proposed fix of retitling the account?  I hope not.  I would not recommend taking any corrective action vis a vis IRS, at least not yet.  What I would recommend is (a) she should hire a lawyer, and (b) the lawyer should contact the broker and the broker's firm and explain that they are going to be held responsible for any adverse tax consequences and try to get a tolling agreement or otherwise file a lawsuit, unless the limitations period has expired.  If the limitations period has expired then Luke Bailey's idea is excellent.         

[thepensionmaven]

Larry,

I certainly have a problem with this - taking it over.  The account that holds the money from the terminated plan was rolled over to a 401(k) account, is titled as a Qualified Plan Account - Type 401(k).

I came to the conclusion in October prior to filing the 2017 5500s that the 401(k) should have been filed previously, along with the new DB.

Apparently the prior TPA new nothing about this 401K plan, and since the asset value of the new DB plan was less than $250K, did nothing.

I assume I need to calculate her RMDs from both accounts.

What a xxxxing mess.

[Bird]

19 hours ago, thepensionmaven said:

According to the client, the previous TPA filed form 5500-Sf as a 1 participant plan for 2017.

Should this be amended to $0 beginning of year and $0 end of year??

Wait a sec, is this new info?  Frankly it's hard to follow.  Later you say "Apparently the prior TPA new [sic] nothing about this 401K plan, and since the asset value of the new DB plan was less than $250K, did nothing."

I might be inclined to say "OK there was in fact a plan" but then that raises Qs about documents, etc.  Without having my hands on statements and documents etc I am not able to figure out what is going on from your descriptions, which are inconsistent and confusing, sorry.

[Roycal]

I agree with the others who say the situation as you describe it is confusing.  As another contributor (maybe more than one) has said, what's important is the legal document actually adopted to establish whatever "account" was established.  Was it an IRA legal document ("plan" document) or a 401(k) plan document?  Or maybe only a brokerage account document?  If in fact an IRA document was adopted, I don't believe it should matter that the "account" was "named" a "401(k)".  If a different (non-IRA) document was adopted, then as you understand your client has a mess on his or her hands.  The client apparently signed some sort of "account" application.  That application should have clearly identified the legal document that governed the "account," and the client should have been given a copy of the legal document.  Note that an IRA document will contain the specific legal requirements, words, necessary to have an IRA.  You should get copies of the application(s) and related documents the client signed and go from there.  This link may be useful: https://www.irs.gov/retirement-plans/retirement-plans-faqs-relating-to-waivers-of-the-60-day-rollover-requirement

[thepensionmaven]

Confusing to say the least.  Client established a new DB in 2014.  Less than $250K, so no 5500s.  She tells him the following year "oh, yes, I have a 401K account I rolled over from another financial institution, consisting solely of funds from a pension plan we recently terminated.  Apparently new broker took the assets and rolled into a "401K" account with no additions/subtractions.

It is apparent to me, at this time, and after consulting with my ERISA attorney, that the broker who set up the account messed up (to put it gently) and opened up a 401K account and not a IRA Rollover.  Obviously this person does not know what he is doing. This being said, I should speak with IRS and rescind the filing, or amend the filing showing everything as $0.

[Larry Starr]

53 minutes ago, thepensionmaven said:

Confusing to say the least.  Client established a new DB in 2014.  Less than $250K, so no 5500s.  She tells him the following year "oh, yes, I have a 401K account I rolled over from another financial institution, consisting solely of funds from a pension plan we recently terminated.  Apparently new broker took the assets and rolled into a "401K" account with no additions/subtractions.

It is apparent to me, at this time, and after consulting with my ERISA attorney, that the broker who set up the account messed up (to put it gently) and opened up a 401K account and not a IRA Rollover.  Obviously this person does not know what he is doing. This being said, I should speak with IRS and rescind the filing, or amend the filing showing everything as $0.

YOU'VE GOT TO STOP SAYING THE BROKER OPENED UP A 401(K) ACCOUNT!  THERE IS NO SUCH THING.  THERE EITHER IS A 401(K) PLAN OR THERE IS NOT AND THROUGH ALL THESE POSTINGS YOU HAVE NOT TOLD US WHETHER A PLAN WAS ACTUALLY SET UP. AN "ACCOUNT" MEANS NOTHING.  WAS THERE A 401(K) PLAN ADOPTED?  THAT'S WHERE THIS HAS TO START AND AFTER ALL THESE MESSAGES, WE STILL DON'T KNOW IF THERE WAS A 401(K) PLAN OR NOT!