Death of Partner

[Mr Bagwell]

I need some direction and thoughts.....

A Partner passed away in May 2019 and, evidently, ceased to be a Partner per the partnership agreement.

Fast forward to year end and previous Partner is owed the 3% SH and Profit Sharing per the plan document.

Who pays the 3% SH and PS for 2019?  The other partners? The previous partner's estate?  I lean to the other partners, but I just don't know.  Where do I go from here?  What do I ask?

Thanks

[Bird]

In a perfect world, the partnership would owe him some money for time while he was a partner and it could be taken out of that.  Otherwise, I think the estate owes it.

[Mr Bagwell]

I just had them check the Partnership Agreement.  No luck on any verbiage about the 401k plan.  They said the agreement was very old and just had amendments added to it.

The partnership payments were completed earlier in the year.  Yes, would have been nice if they held back some funds for the allocations

I have been asked multiple times if we can just exclude the ex-Partner from the PS.  I've thought about this, but don't know if I want to go there yet.

[Bird]

I wouldn't expect the partnership agreement to shed any light on this.  I would at least talk to the estate representative to see if there is a problem with getting the money; it's going back to the beneficiary anyway.  If not then it's easy.  If they don't cooperate then you have a tougher decision.

[Larry Starr]

4 hours ago, Mr Bagwell said:

I just had them check the Partnership Agreement.  No luck on any verbiage about the 401k plan.  They said the agreement was very old and just had amendments added to it.

The partnership payments were completed earlier in the year.  Yes, would have been nice if they held back some funds for the allocations

I have been asked multiple times if we can just exclude the ex-Partner from the PS.  I've thought about this, but don't know if I want to go there yet.

Assuming that the plan does not exempt HCEs from the 3% SH contribution and that the PS contributions are not by utilizing groups with each partner in his/her own group, then the partnership owes the money to the plan.  If they screwed up by paying out all the money that the partnership owed the deceased partner without holding the amounts for the plan, then they have a problem.  I assume the K-1s were not done, so they can now do them properly.  I would hope they could get the estate to give back the necessary amount, since the estate was overpaid.  Obviously an example of why plan sponsors need to talk to their admin firm before doing things like this, but then again.......

[Mr Bagwell]

21 minutes ago, Larry Starr said:

Assuming that the plan does not exempt HCEs from the 3% SH contribution and that the PS contributions are not by utilizing groups with each partner in his/her own group, then the partnership owes the money to the plan.  If they screwed up by paying out all the money that the partnership owed the deceased partner without holding the amounts for the plan, then they have a problem.  I assume the K-1s were not done, so they can now do them properly.  I would hope they could get the estate to give back the necessary amount, since the estate was overpaid.  Obviously an example of why plan sponsors need to talk to their admin firm before doing things like this, but then again.......

It's an attorney group... lol.

[Larry Starr]

Just now, Mr Bagwell said:

It's an attorney group... lol.

You know what, I was going to say that in my response, but then went back an re-read the original posting and it did not say that they were.  But of course, it made perfect sense!!!! ? 

[Mr Bagwell]

No exemption for HCE's from the 3% SH.  PS is an integrated formula.

I get the impression the employer contact is not opposed to getting money back from the estate.

We will see.

Thanks Bird and Larry!

[Mike Preston]

55 minutes ago, Larry Starr said:

 Obviously an example of why plan sponsors need to talk to their admin firm before doing things like this, but then again.......

Dying?

[Luke Bailey]

3 hours ago, Larry Starr said:

I would hope they could get the estate to give back the necessary amount, since the estate was overpaid. 

My guess is that even under a fairly basic partnership agreement and state partnership law, the result is that he has a negative capital account and estate probably has an obligation to repay.

[Larry Starr]

2 hours ago, Mike Preston said:

Dying?

Paying out the dead partner!  Of course, it would be nice if they consulted before the death as well (and, seriously, sometimes possible).

[Larry Starr]

46 minutes ago, Luke Bailey said:

My guess is that even under a fairly basic partnership agreement and state partnership law, the result is that he has a negative capital account and estate probably has an obligation to repay.

That would be my guess; hopefully the estate willingly complies. Better to avoid the problem in the first place of course.

[Mike Preston]

1 hour ago, Larry Starr said:

Paying out the dead partner!  Of course, it would be nice if they consulted before the death as well (and, seriously, sometimes possible).

Paying out partnership values is not one of those things that Plan Sponsors think of discussing with their qualified plan advisors. For any plan with accrued obligations they obviously should!

[Larry Starr]

19 hours ago, Mike Preston said:

Paying out partnership values is not one of those things that Plan Sponsors think of discussing with their qualified plan advisors. For any plan with accrued obligations they obviously should!

Maybe not, but they do often say "what do we need to do for the dead partner for his partial year of participation up until his death? It's nice when they do that early.  Sometimes.....