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The whole purpose of a wrap document is to take different plans and wrap them into one plan, with one plan year, one plan number, one plan document, one SPD, etc. It seems to defeat the purpose to have benefits with different plan years bundled up into one wrap document. This is true even if different component benefits have different contract years. The contract year under the insurance policy is not the same as the plan year. In other words, if you only file one 5500, then you only have one plan, and there should be only one plan year. Many (though not necessarily all) wrap documents have a cafeteria plan. The plan year of the wrap document will often be the same as the plan year for the cafeteria plan. I've seen it both ways, but usually I see the cafeteria plan and wrap plan have the same plan year. You need to go back to whomever wrote the wrap document and have them fix it. The answer, of course, is what did they do last year.

Thanks. In this particular case, the authorizing statute is silent on the ability to establish a retirement plan--doesn't say they can or they cannot. Other similarly situated boards with similarly silent authorizing statutes have established 401(k) plans as well. Our client is reluctant to press them on what their advisors have told them (if anything) in connection with establishing those as they don't want to open up can of worms although that may be most helpful or illuminating. In our case, the plan has already been created so the audit thing is not really a driver at this stage. Nobody from the state has undertaken an audit or suggested that is required apart from what might be required if it were to have over 100 participants. I agree what our particular state says or does with respect to this particular entity and others like it may be pretty determinative but would still be interested in knowing if other states' boards typically are treated as governmental or not for such purposes if others have experience with this just to have that perspective. Thanks.

Leveraged repurchase by the plan?

This points to why repurchase liability studies are so important and having a plan to pay the benefits. You go to an ESOP conference and there are multiple breakout sessions on this topic at EVERY conference. it doesn't matter if the conference is small or large this is one of the big topics. If you think about it an ESOP will most likely in a 15 to 20 year period require most of the outstanding stock to be purchased. I know that doesn't help them now but I thought it was worth mentioning. You don't really define very large. However, have them check the document to see if it has the rule that allows the payment to go as long as 10 years if all the conditions are correct. Currently, the break point is if the balance is over $1,105,000 you can add 1 year and than another year for every $220,000 over that up to 10 years. So if this person has say a $3M balance it could be more than 5 years. I would have to do the math when it hits 10 years with these break points. These amounts adj for the CPI each year. These rules are typically some place in the distribution section of the plan document. If the person isn't retiring for a few years they could put in an in-service provision for people this person's age group (I am thinking he is like 62 to 65 or older for this to work) and allow him to start taking payments now to help stretch things out. So if he is a few years from retirement and they allow him to take a few hundred grand out a year now it should help get the balance down when the installments start. Of course if they have a bunch of people in this age group and they all start taking payments it might be worse. They would have to look at the facts. I would add it isn't uncommon for a person with these kinds of balances to be a long term employee who has a fair amount of loyalty to the company. A conversation of the situation and setting something where he chooses to take something less than a full payment (might require some kind of amendment once again) has happened before. it isn't really in his best interest to cripple the company with his first few payments either. In the extreme there are stories of ESOP companies that have to sell themselves because they can't fund the repurchase obligation.

ESOPs typically pay large distributions in installments. If this one doesn't, ESOPs do have an exception in the 411(d)(6) rules about changes in forms of payment. That can help spread out the cash requirements, but they still need to start saving what they can. Have they made any cash contributions to the ESOP in the past that were not used to purchase stock? Paying the distribution with a note requires adequate security. See 54.4975-7(b)(12)(iv). Our ESOP clients have company accounts dedicated to accumulating funds to cover their future repurchase liability. The best time to start planning for the eventual distributions is when the ESOP is set up. If not, then better to start late than never.

Cash flow is always an issue. Distribute the stock, give him the put, and pay with the note. When his claim is ripe, tell him to get in line with the other company creditors. That's the best you can do, isn't it?