Summary Annual Report

So I have a plan that is terminating only because they have to give out an SAR. It is a 2 person plan and the participant is upset that the owner got more of a profit sharing contribution than they did.  It's a 401k PS Plan and  the client doesn't want this info out there.  Then the broker chimes in and says that he has a lot of large 401k plan that don't give out a SAR so why are we. It got worse from there....

One very good reason to provide a SAR is a person who willfully refuses to provide it could face a fine up to $100,000 and up to 10 years in prison.  (I don't think the maximum penalty has ever been assessed.)

If things deteriorated to the point where the participant is looking for vengeance, then after a call to the DOL or IRS things would not go well for the owner.

58 minutes ago, Paul I said:

One very good reason to provide a SAR is a person who willfully refuses to provide it could face a fine up to $100,000 and up to 10 years in prison.  (I don't think the maximum penalty has ever been assessed.)

If things deteriorated to the point where the participant is looking for vengeance, then after a call to the DOL or IRS things would not go well for the owner.

I explained the fines - the broker suggested we tell the participant to search for the 5500 online rather than give them the SAR...Really?   So they are going to terminate the plan rather than have to give the SAR. Just when you think you've heard it all. 

No comment on the story.

For a much different plan sponsor, and one that thinks through implications of reporting and disclosure:

Consider creating two plans. One plan covers employees. The other plan covers only self-employed individuals—for example, a partnership’s partners.

If the plan for self-employed individuals never covers an employee, the plan is not ERISA-governed.

Employees would get disclosures only for their ERISA-governed plan.

This is not advice to anyone.

5 hours ago, ratherbereading said:

...the participant is upset that the owner got more of a profit sharing contribution than they did...

And now they are going to get no profit sharing.  Talk about a Pyrrhic victory.

How does the employee know the owner is getting a larger profit sharing allocation? If the allocation formula is a percent of compensation and the owner makes more than the employee, the owner would receive a larger allocation.

Peter’s suggestion is sound.

Amend the existing plan to exclude the owner. Provide the SMM to the employee. The employee only plan files 5500-SF and provides SAR.

Start a new owner only plan for the owner written identically as the first plan, except it excludes all employees other than the owner. Same investment options. Files 5500EZ which is not publicly available.

Test the two plans together for coverage and nondiscrimination.

i recall the “Larry Starr” special which I think takes it even further and does this with 13 plans for one ASG with 12 Form 5500EZ filings (one for each S Corp) and one 5500-SF (for the staff). Plus, to avoid even more disclosures, all the plans are trustee-directed investments. You can guess who the trustees are for each of the 12 S Corp plans that each file Form 5500EZ.

The employee knows how much the owner is receiving since the SAR shows the beginning and end of year asset values.  Since it is a two-person plan, the participant can easily figure out how much the owner is getting.