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  • litovskyassetmanagement
    replied




    Thank you everyone for your responses and advice.

    Our initial medical consultant was a noob and has since been fired. Our lawyer unfortunately was not knowledgeable about retirement accounts and missed it. We are a small group in this multi-group merger so we were kind of just taken for a ride and didn’t do much due diligence on our own just relying on what the larger groups were telling us. No one thought to look at the retirement plans during the merger.

    The problem was found after we hired another consulting group and they said that our retirement plans should be looked at to make sure they were all under compliance. This is when they uncovered the problem. Apparently our profit sharing plans are fine even though each group has its own. They advised us to try and consolidate them all for future ease of paper work but that it is not necessary. The cash balance plan though is a problem because only three small groups have them and therefore we don’t meet the minimum number to have such a plan. It is not that we can just contribute for more employees, we are all partners per say and would need another 30 people to participate in order for this thing to be ok. The plan was not insured in anyway.

    I am not sure if we told the actuary that we had merged and it is possible that we didn’t let him know or we weren’t asked. The merger was done just to get a single contract with a large hospital system but nothing else was changed in terms of our day to day work flow or finances. So it felt like nothing had changed.

    The IRS is not involved and the advice we got was not to inform them. We were told just to terminate the plan, roll over the money into an IRA, leave it in there and continue on as nothing happened. No one has suggested to do a voluntary compliance filling. We did get an ERISA firm to confirm the ASG determination and apparently we are stuck there. So the professional help is saying that terminating the plan is the clean up, but they are saying in case anything ever comes of this not to mix the money into any other accounts. The mess would essentially never be cleaned up and thus I don’t know if it would be wise to put this money into my profit sharing 401K. If I can’t put this money into my 401K then am I stuck not being able to do the roth conversion because of my sizable IRA amount. Is there a way to create another 401K that has nothing to do with my profit sharing account?

    This stuff is way over my head. We have contacted an ERISA firm, but between them and the consultants we aren’t getting too much information except that the best coarse of action is just to terminate, roll over and forget about it. Should we look for other experts, any referrals?

    Thanks again everyone for their thoughts.

     

     
    Click to expand...


    You got a problem right there.  Profit sharing plans are not necessarily fine.  They have to be tested together.  This is a big mistake to assume that they are fine just because you have the same plans. They might be, or they might not be, and this has to be examined by a competent TPA.  Also, it depends on how long you ran your CB plan for, and whether other groups want to do a CB plan as well.  So depending on the timeline you might or might not be able to terminate CB plan without doing anything substantial like a voluntary compliance filing.

    Yes, you should definitely consider consolidating your plans. So all 401k plans should be cleaned up at the same time as you are consolidating, just like CB plan.  ASG means all plans have to be tested together, which is a very expensive exercise (not to mention time consuming).  So whoever you hire to provide services/advice to the ASG groups should know how to go about doing this, from start to finish. I can't believe you are not getting good advice from two different entities who are supposed to be specialists in this field.

    And the advice not to inform IRS and terminate the plan should be based on facts and numbers, same as advice about 'all 401k with profit sharing are OK'.  Do you have a written determination that you have an ASG?  If so, the next steps would be as follows:

    1) You shouldn't terminate anything without cleaning up or at least determining whether you need to clean up or not. This just pushes the barrel down the road.  Either they are not telling you the truth, or they are just telling you what you want to hear.  In either case, they are not acting in your best interest.

    2) Have someone qualified examine both plans and recommend how to wind down the Cash Balance plan, as well as how to fix the 401k plan issues.  A single plan for all will save everyone time and money, in my opinion.  And it will simplify your plan management big time.  Unless there is a reason why groups want to keep all plans separate, in which case they would have to contend with the TPA doing annual testing on all plans together, which might be OK if they are willing to hire a provider to do it (and willing to pay for it).

    I think at this point you want someone independent looking at your situation and recommend a solution.  Last thing you want to do is to shop for solutions that sounds good and seem painless vs. those that will actually address your problem.  I think that if your current providers are unable to figure this out, you should hire those who can do everything from A to Z and tell you exactly what to do.  Good consultants should explain their advice in writing, and help you understand the pitfalls of doing nothing.

    Leave a comment:


  • jshah9
    replied
    Thank you everyone for your responses and advice.

    Our initial medical consultant was a noob and has since been fired. Our lawyer unfortunately was not knowledgeable about retirement accounts and missed it. We are a small group in this multi-group merger so we were kind of just taken for a ride and didn't do much due diligence on our own just relying on what the larger groups were telling us. No one thought to look at the retirement plans during the merger.

    The problem was found after we hired another consulting group and they said that our retirement plans should be looked at to make sure they were all under compliance. This is when they uncovered the problem. Apparently our profit sharing plans are fine even though each group has its own. They advised us to try and consolidate them all for future ease of paper work but that it is not necessary. The cash balance plan though is a problem because only three small groups have them and therefore we don't meet the minimum number to have such a plan. It is not that we can just contribute for more employees, we are all partners per say and would need another 30 people to participate in order for this thing to be ok. The plan was not insured in anyway.

    I am not sure if we told the actuary that we had merged and it is possible that we didn't let him know or we weren't asked. The merger was done just to get a single contract with a large hospital system but nothing else was changed in terms of our day to day work flow or finances. So it felt like nothing had changed.

    The IRS is not involved and the advice we got was not to inform them. We were told just to terminate the plan, roll over the money into an IRA, leave it in there and continue on as nothing happened. No one has suggested to do a voluntary compliance filling. We did get an ERISA firm to confirm the ASG determination and apparently we are stuck there. So the professional help is saying that terminating the plan is the clean up, but they are saying in case anything ever comes of this not to mix the money into any other accounts. The mess would essentially never be cleaned up and thus I don't know if it would be wise to put this money into my profit sharing 401K. If I can't put this money into my 401K then am I stuck not being able to do the roth conversion because of my sizable IRA amount. Is there a way to create another 401K that has nothing to do with my profit sharing account?

    This stuff is way over my head. We have contacted an ERISA firm, but between them and the consultants we aren't getting too much information except that the best coarse of action is just to terminate, roll over and forget about it. Should we look for other experts, any referrals?

    Thanks again everyone for their thoughts.

     

     

    Leave a comment:


  • The White Coat Investor
    replied










    Regarding WCIs post

     

    ^^^ clearly I’m just a novice but problem with above plan is the what if scenario where you never get to step 5. But rather the funds are deemed taxable. Or some portion is. So then you’re going to have to remove from the IRA. And whether or not CBP rollover funds and nondeductibe contributions are in separate IRA accounts at separate brokerages, really you only have one IRA. The funds are aggregated as far as the IRS is concerned. So in the case of a necessary removal from the IRA where the CBP funds are deemed taxable, can you segregate the rollover funds from the nondeductibe contributions? I have no clue. Just my thoughts.
    Click to expand…


    While that’s true for Form 8606, I don’t know that it is true in this situation.


    I don’t know either. That’s why I would err on the side of doing nothing until someone with expertise in the precise matter told me what to do. I’m not yet sure the OP has such a person advising them.
    Click to expand...


    Excellent advice. I guess my main point is that the OP can probably still do Backdoor Roth IRAs because this IRA is likely eventually going to be able to go into a 401(k).

    Leave a comment:


  • jacoavlu
    replied







    Regarding WCIs post

     

    ^^^ clearly I’m just a novice but problem with above plan is the what if scenario where you never get to step 5. But rather the funds are deemed taxable. Or some portion is. So then you’re going to have to remove from the IRA. And whether or not CBP rollover funds and nondeductibe contributions are in separate IRA accounts at separate brokerages, really you only have one IRA. The funds are aggregated as far as the IRS is concerned. So in the case of a necessary removal from the IRA where the CBP funds are deemed taxable, can you segregate the rollover funds from the nondeductibe contributions? I have no clue. Just my thoughts.
    Click to expand…


    While that’s true for Form 8606, I don’t know that it is true in this situation.


    I don’t know either. That’s why I would err on the side of doing nothing until someone with expertise in the precise matter told me what to do. I’m not yet sure the OP has such a person advising them.

    Leave a comment:


  • DMFA
    replied
    IDK about how to go about cleaning this whole thing up.  Excess employer contributions to qualified plans can be very difficult, and an employer can't simply return the contribution or distribute the contribution to the participant (you).


    It was recommended to us to terminate the plan and to roll the money over into an IRA. We were told to keep that IRA separate from all other investments as it is “tainted” money.  My issue is I do a back door roth every year and now if I roll the 200K I have in this plan into an IRA I won’t be able to continue my back door contributions.
    Click to expand...


    I don't see how you can do this.  You don't get to terminate the plan, the employer does, and it's got excess contributions in it that need to be carried over on taxes and either have excise tax paid and either be brought to meet qualification or whatever the IRS decides...this is not nearly as simple as what is being proposed.  DBPs are not just a big IRA or even a 401(k), although excess employer contributions to 401(k) are a major headache as well.

    At any rate, continuing to do Backdoor Roth IRA is kind of the least of your worries at this point, but I don't see why you couldn't continue to do so.  Should this DBP money ever end up in a Traditional IRA for you in a sanctioned manner, then just rollover that to a 401(k) or stop doing backdoor Roth (not the end of the world).  If you want to continue to make non-deductible contributions, and not convert them while you have a Traditional IRA balance you can't rollover, that's fine, too.

    Leave a comment:


  • The White Coat Investor
    replied




    Regarding WCIs post

     

    ^^^ clearly I’m just a novice but problem with above plan is the what if scenario where you never get to step 5. But rather the funds are deemed taxable. Or some portion is. So then you’re going to have to remove from the IRA. And whether or not CBP rollover funds and nondeductibe contributions are in separate IRA accounts at separate brokerages, really you only have one IRA. The funds are aggregated as far as the IRS is concerned. So in the case of a necessary removal from the IRA where the CBP funds are deemed taxable, can you segregate the rollover funds from the nondeductibe contributions? I have no clue. Just my thoughts.
    Click to expand...


    While that's true for Form 8606, I don't know that it is true in this situation.

    Leave a comment:


  • litovskyassetmanagement
    replied




    Regarding WCIs post

     

    ^^^ clearly I’m just a novice but problem with above plan is the what if scenario where you never get to step 5. But rather the funds are deemed taxable. Or some portion is. So then you’re going to have to remove from the IRA. And whether or not CBP rollover funds and nondeductibe contributions are in separate IRA accounts at separate brokerages, really you only have one IRA. The funds are aggregated as far as the IRS is concerned. So in the case of a necessary removal from the IRA where the CBP funds are deemed taxable, can you segregate the rollover funds from the nondeductibe contributions? I have no clue. Just my thoughts.
    Click to expand...


    That's right, before there is a final determination, you don't do anything.  If CB is taxable, you have to undo a lot of things.  Ideally though you just make an employer contribution to the staff that was eligible, but this can get costly, so I'm not sure what to do.  I bet that in most cases people just pretend that nothing happened and go about doing everything assuming they won't get caught.  The right thing to do is nothing until the plan gets a determination from the IRS.

    Also, I would get affiliated service group determination in writing as well.  People can be wrong about things either way.  Some situations are very tricky, so facts do matter.

    Leave a comment:


  • jacoavlu
    replied
    Regarding WCIs post

     

    ^^^ clearly I’m just a novice but problem with above plan is the what if scenario where you never get to step 5. But rather the funds are deemed taxable. Or some portion is. So then you’re going to have to remove from the IRA. And whether or not CBP rollover funds and nondeductibe contributions are in separate IRA accounts at separate brokerages, really you only have one IRA. The funds are aggregated as far as the IRS is concerned. So in the case of a necessary removal from the IRA where the CBP funds are deemed taxable, can you segregate the rollover funds from the nondeductibe contributions? I have no clue. Just my thoughts.

    Leave a comment:


  • litovskyassetmanagement
    replied







    I am a radiologist in an 11 partner group that began a cash balance plan 4 years ago. Everything was going well until earlier this year when we found out we weren’t in compliance and have to terminate the plan. Now I need help and advice in what to do with the money that is in the plan.

    Without getting into to much detail two years after we started the plan we merged with 8 other hospital groups in the same hospital system to increase our bargaining power and formed a mega group. In doing that we inadvertently became an affiliated service group and apparently all benefits and plans have to meet compliance testing over all the groups. This was discovered just recently and because the other hospital groups don’t have cash balance plans we don’t meet the numbers and have not been in compliance for the last two years.

    It was recommended to us to terminate the plan and to roll the money over into an IRA. We were told to keep that IRA separate from all other investments as it is “tainted” money.  My issue is I do a back door roth every year and now if I roll the 200K I have in this plan into an IRA I won’t be able to continue my back door contributions.

    So what do people think of this situation? Would you consider rolling the money into my 401K profit sharing account realizing it is tainted? Should I roll it into an IRA and just stop doing the back door roth? Should I roll it into an IRA and then pay taxes on the amount to convert it into a roth? Not sure if I can even do that.  Any other thoughts on how to deal with this money while still being able to continue with the back door roth. I am 38 and still have many years of contributing ahead of me.

    Thanks in advance for your help and advice.
    Click to expand…


    The solution here doesn’t seem so complicated to me.

    # 1 Terminate the plan

    # 2 Roll money into a separate IRA and leave it there.

    # 3 Get mess cleaned up with professional help.

    # 4 Continue making contribution step of Backdoor Roth IRA into a separate IRA. Don’t do any conversions. Maybe this adds up to $10-20K by the time the mess is cleaned up.

    # 5 When mess is cleaned up, roll IRA from CBP into a 401(k).

    # 6 Convert the mostly non-deductible IRA to a Roth IRA paying taxes on any gains.
    Click to expand...


    You can't terminate the plan until it is cleaned up.  That would really mess things up.  It also takes a while to terminate it, so in any case the termination timing and procedure would depend on what the voluntary compliance filing results are.  So you wouldn't begin the termination process until there is a final word from the IRS as far as what should be done with the plan as far as contributions.

    Leave a comment:


  • The White Coat Investor
    replied




    I am a radiologist in an 11 partner group that began a cash balance plan 4 years ago. Everything was going well until earlier this year when we found out we weren’t in compliance and have to terminate the plan. Now I need help and advice in what to do with the money that is in the plan.

    Without getting into to much detail two years after we started the plan we merged with 8 other hospital groups in the same hospital system to increase our bargaining power and formed a mega group. In doing that we inadvertently became an affiliated service group and apparently all benefits and plans have to meet compliance testing over all the groups. This was discovered just recently and because the other hospital groups don’t have cash balance plans we don’t meet the numbers and have not been in compliance for the last two years.

    It was recommended to us to terminate the plan and to roll the money over into an IRA. We were told to keep that IRA separate from all other investments as it is “tainted” money.  My issue is I do a back door roth every year and now if I roll the 200K I have in this plan into an IRA I won’t be able to continue my back door contributions.

    So what do people think of this situation? Would you consider rolling the money into my 401K profit sharing account realizing it is tainted? Should I roll it into an IRA and just stop doing the back door roth? Should I roll it into an IRA and then pay taxes on the amount to convert it into a roth? Not sure if I can even do that.  Any other thoughts on how to deal with this money while still being able to continue with the back door roth. I am 38 and still have many years of contributing ahead of me.

    Thanks in advance for your help and advice.
    Click to expand...


    The solution here doesn't seem so complicated to me.

    # 1 Terminate the plan

    # 2 Roll money into a separate IRA and leave it there.

    # 3 Get mess cleaned up with professional help.

    # 4 Continue making contribution step of Backdoor Roth IRA into a separate IRA. Don't do any conversions. Maybe this adds up to $10-20K by the time the mess is cleaned up.

    # 5 When mess is cleaned up, roll IRA from CBP into a 401(k).

    # 6 Convert the mostly non-deductible IRA to a Roth IRA paying taxes on any gains.

    Leave a comment:


  • jacoavlu
    replied
    Our small group 401k-PS plan uses a regional TPA and we don’t have a fiduciary. Each year we get a questionnaire from our TPA after the plan year closes, but before plan testing and valuation. There are questions about any business changes, acquisitions, mergers. Among other things. I would wonder if such occurred with OPs plan and if so, it would be interesting to review for content, and to see who completed it.

    With regards to the OP and what to do next, I would not move any money until specifically instructed to do so by a competent legal professional as part of a greater plan. No point in getting ones IRA wrapped up in a mess unnecessarily.

    Leave a comment:


  • litovskyassetmanagement
    replied




    I am a radiologist in an 11 partner group that began a cash balance plan 4 years ago. Everything was going well until earlier this year when we found out we weren’t in compliance and have to terminate the plan. Now I need help and advice in what to do with the money that is in the plan.

    Without getting into to much detail two years after we started the plan we merged with 8 other hospital groups in the same hospital system to increase our bargaining power and formed a mega group. In doing that we inadvertently became an affiliated service group and apparently all benefits and plans have to meet compliance testing over all the groups. This was discovered just recently and because the other hospital groups don’t have cash balance plans we don’t meet the numbers and have not been in compliance for the last two years.

    It was recommended to us to terminate the plan and to roll the money over into an IRA. We were told to keep that IRA separate from all other investments as it is “tainted” money.  My issue is I do a back door roth every year and now if I roll the 200K I have in this plan into an IRA I won’t be able to continue my back door contributions.

    So what do people think of this situation? Would you consider rolling the money into my 401K profit sharing account realizing it is tainted? Should I roll it into an IRA and just stop doing the back door roth? Should I roll it into an IRA and then pay taxes on the amount to convert it into a roth? Not sure if I can even do that.  Any other thoughts on how to deal with this money while still being able to continue with the back door roth. I am 38 and still have many years of contributing ahead of me.

    Thanks in advance for your help and advice.
    Click to expand...


    Yes indeed, retirement plan is the first thing that has to be looked at during any merger, that's why groups should hire ERISA 3(38) fiduciaries to manage their plans, because this is really basic stuff that can cost you money and effort to correct if not done properly.  Terminating is not going to solve your issues. You will of course need to terminate the CB plan, but not before some cleanup is done. Just like with a tax return, filing and forgetting is a strategy, but I wouldn't want to play that game if the plan has errors on its books. The group is on the hook, and so are the other groups that are part of the affiliated service group, most likely.  What has to be done is a voluntary compliance filing by a competent compliance expert/TPA. What might happen is you would have to pay taxes on the money contributed into a CB plan, among other things, possibly penalties, or provide a corrective employer contribution to all of the staff that was eligible. So you can't just close this plan and hope for the best without doing some type of correction. And whoever is providing advice to you at this point, or whoever your adviser was for the plan that did not tell you about affiliated service group - I would think they are liable for breach of fiduciary duty because controlled/affiliated service groups is probably the most basic thing that an ERISA fiduciary working with doctors and dentists should know about, unless of course they are not a fiduciary in the first place. And the same goes for the TPA/actuary providing services to the plan.  Any competent TPA/actuary would see this a mile away, so I'm assuming the plan is serviced by a big company (possibly with high fees and very little service).  Another reason why any group practice plan should have an independent TPA/actuary and independent ERISA 3(38) at the very least, so that issues like this can be avoided in the first place.

    Leave a comment:


  • VagabondMD
    replied
    The biggest problem is not that you won't be able to do a backdoor Roth next year. The biggest problem is that you might owe a lot of money in taxes and penalties. You need real professional help for this, not some curbsides from wisecrackers on an Internet forum.

    Leave a comment:


  • caprivenky
    replied
    Jshah

    ‘roll over this money and wait for the irs to give you a final decision

    this situation does need  an expert benefits manager advice .

    you will have to pay taxes on this amount

    but what about a fine from irs ?

    did the plan have an insurance policy ?

    keep us posted about the outcome

    I hope they dont force you to fund all the new partners retroactively for the last two years they were eligible and did not know about the plan

    Leave a comment:


  • ZZZ
    replied
    Who advised on your merger? I'd go after whatever clowns made a bunch of money of you guys for the merger but didn't clue you in on this.

    Leave a comment:

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