Investment Companies demanding plan contribution checks have exact same name as Plan Name

[RayJJohnsonJr]

This is new. Financial service companies are being held to a higher anti-money laundering standard and are demanding that a check representing a plan contribution to be deposited into a  new investment account have the same name on the check as the name of The Plan.

I have numerous clients with one participant plans who have numerous companies. They may have a plan with a name based on the company they own that was quite active 20 years ago but not very active today. That shouldn't matter since they could have named the plan anything they wanted. At least to my knowledge, they could name their planned SpongeBob if they wanted.

If an individual owns three or four companies, however, and company A started the plan 20 years ago with it's name on The Plan, that plan covers all the employees of all the companies he owns, he just happens to be the only employee so any of the companies could make the planned contribution, at least from what I've learned over the years. The CPA's never have a problem with this. I work with them closely.

This is causing a huge inconvenience from my clients who may be forced to run money through a company that's been dormant for some time. Or, I suppose the only alternative is to change the name of the plan to the name of the company writing the check. Witch is stupid, because no such thing is required in qual plan rules.

Or, what I'm going to try first, is adding the name of the company writing the check as a cosponsor of the plan (which it is a de-facto Co-sponsor by virtue of 100% common ownership anyway) and send the investment company the corporate resolutions and adoption agreement effectuating the Co-sponsorship of the plan with company A's name by the company B who is writing the check.

Anyone have any thoughts on this?

[Bird]

I haven't seen this. Generally some additional documentation/gentle persuasion ("we can take the money somewhere else") should take care of it but some people think their job is to say "no."

[CuseFan]

4 hours ago, RayJJohnsonJr said:

they could name their planned SpongeBob if they wanted

I went to school with SpongeBob and I don't think he would like that, but I can ask him at class reunion in three weeks.

I understand your frustration but financial institutions are required by law to know and verify their customers. I would think the important matching up would be the name of the plan sponsor (not the plan name) with the name on the check/bank account. If I'm holding the assets for a plan sponsored by XYZ company, or John Smith, but accept deposits of funds coming from an account for MAGA company or Osama Been There, can't you see where that could be an issue unless such entity or person is also listed as a sponsor to the plan? And if the check writing account does not belong to a party to the plan then contributions shouldn't be coming from that account either. Some CPAs might play loose with those rules but they are not the ones forced to comply with all the government regulations designed to combat terrorism and money laundering.

Change the plan sponsor or add participating sponsor to match the source of funds and move on. Moving to another financial institution should still see the same requirements. 

 

[david rigby]

As CuseFan implies, no one wants to be left holding the bag (or a bad check) for someone else's sloppy records or handwriting.  Consider when a sponsor has two plans (say, hourly and salaried); it's very important to correctly document every transaction, in both directions.  Look for ways to accommodate both the sponsor and the financial institution.

 

[hr for me]

My last employer was name the same as a company in the same industry in a different state that happened to use the same recordkeeper. The other company sent in a check without their plan name and the recordkeeper sent it to us asking where they should deposit it for us.....  Lots of reasons to match!

[Luke Bailey]

On 11/3/2022 at 10:55 AM, RayJJohnsonJr said:

they could name their planned SpongeBob if they wanted

Please, yes. Do that!

 

On 11/3/2022 at 10:55 AM, RayJJohnsonJr said:

If an individual owns three or four companies, however, and company A started the plan 20 years ago with it's name on The Plan, that plan covers all the employees of all the companies he owns, he just happens to be the only employee so any of the companies could make the planned contribution, at least from what I've learned over the years.

As  you indicate further in your post, RayJJohnsonJr, the company would have to be a sponsoring employer of the plan.

On 11/3/2022 at 10:55 AM, RayJJohnsonJr said:

Or, what I'm going to try first, is adding the name of the company writing the check as a cosponsor of the plan (which it is a de-facto Co-sponsor by virtue of 100% common ownership anyway) and send the investment company the corporate resolutions and adoption agreement effectuating the Co-sponsorship of the plan with company A's name by the company B who is writing the check.

That would be the direct fix, assuming the companies are in a controlled group under 414(b) and/or (c) so that the exclusive benefit rule is satisfied. But note that the company that takes the deduction should be the company for whom the services were performed that resulted in the compensation. If Company A is inactive but has cash, and the individual worked for company B but its cash is tied up so that A makes the contribution for B, then A may be treated as having made a payment to the owner, which could have unwanted tax consequences, and then the owner has contributed the cash to the capital of B. A better alternative might be an intercompany loan with B writing the check to the plan, which would satisfy the financial institution. I'm just throwing out some issues to think about. Don't know your actual facts, of course.

[RayJJohnsonJr]

Thank you, Luke Baily.  Brainstorming ideas often leads two optimal solutions. 

Picture this: company A originated in year 2000 and installed a defined benefit plan in 2002. At the time there were six covered employees, including the owner, who earned more than maximum covered compensation every year. In 2006, the owner conducted an asset sale, and all the non-owner employees/participants were terminated and paid out with 100% vesting. The owner was not paid out, and the plan was continued. The owner had numerous other businesses, such as commercial real estate sales, and hands on apartment complex acquisition, renovation, management, and resale, but none of his other business activities ever included having employees other than himself. So, when his other businesses became Participating Employers of the original plan, the plan document allowed recognition of predecessor employers years of service and compensation. Therefore, the DB can recognize all years of service with any of the companies since 2002 and all years of compensation since 2002 for purposes of averaging compensation and determining the defined benefit. It would seem the tax deduction for contributions would be available to whichever company made the contribution in the year they made it.

Going back to the original subject though, I wasn’t planning to bring this up, but these new disclosure requirements coming into effect, promulgated by “The Corporate Transparency Act,” is something everyone should know about. I have attached 2 articles describing the new requirements, but suffice it to say, the federal government is reaching inside the small business to find out who’s benefiting and other historically private information. Some will say, “so what,” but those with a healthy skeptisim may be shocked. Every business will be required to report (other than those on the excepted list, which is curious  to say the least) business information that has been historically private.

These requirements have also led to investment companies requiring highly detailed private information when a Pension Plan is opening a new investment account. A new required form entitled: “Entity Customer Information Form,” which demands “Identifying information for all controlling individual(s) and/or beneficial owner(s)” including: Beneficial Owner Name, % ownership, controlling %, DOB, SS#, copy of Driver’s License, The organizing documents of the Entity are required also. If a Plan has 10 Trustees, all this must be provided for each Trustee.

This is a whole new level of invasiveness.

 

ARTICLE The Corporate Transparency Act is about to matter OCR.pdf ARTICLE The Corporate Transparency Act (CTA) is Coming, The Creation of a U.S. National Beneficial Ownership Database...pdf