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Terminating ESOP while under Audit?


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Group:

I have a potential client who owns a company that has sponsored an ESOP some years ago.

This has become costly to the client and too many regulatory hurdles in their opinion.  They'd like to terminate at end of this year (12/31/18).  The client is under a TEGE audit.  Can the client terminate the plan while under audit?

The audit years in question do not relate to 2018.

Thoughts and comments appreciated.

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Yes, but any potential corrections, additional contributions, etc. that may be required as a result of the audit findings would still need to happen through the plan/trust and what gets adjusted in a prior year could change something in a current year. However, if you terminate effective 12/31/2018 but don't distribute until sometime later in 2019, hopefully the audit will have been resolved and necessary adjustments made to be able to do that.

Kenneth M. Prell, CEBS, ERPA

Vice President, BPAS Actuarial & Pension Services

kprell@bpas.com

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Thank you! I've been advised by the TPA handling this particular S-ESOP that once a plan terminates, there is a "reasonable" time to distribute plan benefits.  And I note from another Q and A on this message board that the audit itself may provide for the reasonable basis to wait for final distributions. ie. if audit concludes in april 2019 and plan assets not distributed until June 2019.                                       

My question:  I can't find the Dept. of Labor/IRS language that says "plan asset must be distributed within a reasonable time".  I know it's a term of art but wanted to see if someone had a cite.  Are you a TPA for ESOP's?  S-ESOP's? Thank you again for your help.

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4 hours ago, Joe Dadich said:

 My question:  I can't find the Dept. of Labor/IRS language that says "plan asset must be distributed within a reasonable time".  I know it's a term of art but wanted to see if someone had a cite.  Are you a TPA for ESOP's?  S-ESOP's? Thank you again for your help.

A bit of an odd question as I don't see anything in this conversation that is really unique to ESOPs. 

I have experienced what you are talking about however.  We have had ESOPs that terminated and were under audit.  The audit put the D Letter process on hold.  In fact in one case that happened just a few years ago it took around 2 years to get the ESOP closed.  It took that long to get the audit resolved and than get the D Letter.  Kind of a pain as the company was sold was the reason the ESOP ended.  People were not happy it took so long but there really was nothing that could be done.  The audit did find issues and correction has to be made.  So it was good the trust was still around. 

Although if you are looking for ESOP TPAs I believe this webpage has a professional list and so do organizations like the NCEO.  

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