Leaderboard

I believe for self correction, under these facts and circumstances and assuming a 12/31 PYE, the plan must be corrected by 12/31/2022.

Since the restatement is required to maintain the Plan's tax-qualified status, which benefits the participants, it's administrative and may be charged to the Plan.

I would run 409p testing prior to making any distributions in either cash or stock. You may have to convert to a C-corporation prior to distribution in order to pass testing. I have worked a few ESOP companies that have failed to run the test and failed 409p.

I wouldn't venture this far into the ASG waters without sending the client to legal counsel.

Many (but not all) restatements are simple and inexpensive, and involve little change beyond what’s needed to tax-qualify. Likewise, many are done with the plan sponsor engaging no professional beyond the recordkeeper or TPA. But what if the expenses for a restatement were $500 for the recordkeeper’s processing fee, and $3,500 for the plan sponsor’s lawyers to review and edit the adoption agreement and its attachments? And what if about half the lawyers’ work was about helping the employer thoughtfully reconsider plan-design points? (Some plan sponsors use a restatement as an efficient time to state or consider changes. One might prefer to focus attention once, rather than wait. And a plan sponsor might prefer to get more done within one processing fee.) In those circumstances, would charging the whole $4,000 against the plan’s assets meet a fiduciary’s responsibility to act “for the exclusive purpose of: (i) providing benefits to participants and their beneficiaries; and (ii) defraying [no more than] reasonable expenses of administering the plan”? I see that often it’s not easy to distinguish which work is beyond what’s needed to tax-qualify and administer the plan. And in many situations the whole expense is so small that a fiduciary might put little or even no effort in trying to sort out or estimate a portion that’s not for administering the plan. But I think it’s wise for a fiduciary to be mindful of the general principle.

The position expressed by Nate S is, in my experience, the most common position among practitioners. However, some practitioners may choose to incorporate discretionary plan design changes into their restatement; for example they may choose to change the plan's eligibility requirements or vesting schedule at the same time they are restating the document. If those changes are included in the fee for the restatement - or even if no changes are made, but if the TPA consults with the plan sponsor on possible plan design changes, and the charge for the consulting is included in the fee for the restatement - then you should think carefully about whether or not some part of the restatement fee might not actually be a settlor expense that may not be paid from plan assets.

Some years ago we had a plan with this situation and decided that, because it was a required contribution, it could be self-corrected by depositing the money now with earnings. I don't recall if there was a clear example like this in EPCRS or if it was a stretch.

I agree that you would look for any affiliation among the three recipient organizations first. Note that this determination is based on a separate set of affiliation/attribution rules (under Sections 267 and 707(b)) not used elsewhere in the controlled group/ASG rules. If any recipient organizations are affiliated, you would look at the combined management services performed for all the affiliated organizations. If, as the original post notes, there is no affiliation among the three recipient organizations, and the services to each are split roughly evenly, there should be no problem. Also, the two-year 50% test Nate mentions was part of the proposed regulations, which I don't believe ever offered reliance and were withdrawn entirely in 1993. It's probably still a good rule of thumb, but I don't think you're necessarily bound by the two-year 50% average. That said, in the end, Bill Presson's advice is the best you'll get.

There is no Labor department rule. In ERISA Advisory Opinions, PWBA (now EBSA) has suggested some distinctions between an amendment for a provision a plan sponsor adds or changes as an element of one’s plan design, and an amendment made to state provisions needed to meet conditions for Internal Revenue Code § 401(a) or § 403(b) treatment. https://www.dol.gov/agencies/ebsa/about-ebsa/our-activities/resource-center/advisory-opinions/2001-01a https://www.dol.gov/agencies/ebsa/about-ebsa/our-activities/resource-center/advisory-opinions/settlor-expense-guidance An ERISA Advisory Opinion may be relied on only by the particular requester, and only to the extent of the facts the requester specified. Some fiduciaries endeavor to estimate the portion of a restatement fee one treats as attributable to plan administration (which so might be paid or reimbursed from plan assets). If the only expense is a recordkeeper’s or TPA’s fixed fee that does not vary with the user’s choices for the plan’s provisions, a fiduciary likely must estimate the relative portions between settlor expense and plan-administration expense. Or if a plan sponsor asks for nothing new and merely adopts a restatement solely as needed to maintain tax-qualified treatment, a fiduciary might reason that a whole fee, if reasonable and prudently incurred, is plan-administration expense. Further, consider that some service providers by contract set restrictions on what expenses may be paid from a plan-expenses account the service provider controls or processes. Some do not allow a payment or reimbursement of a plan-documents fee from a plan-expenses account. As always, a plan fiduciary should get its lawyer’s advice.

They can do all of this. They can distribute the shares and have the company repurchase them. They can in effect put in dividends/S corp earnings distributions. The hard part with a plan with small with both of those ideas is making sure you don't run into 409(p) testing issues. Remember 409(p) testing is an every day of the year test. You have to pass this test every day of the year. So if you distribute shares and months later they contribute some of them back you have to show you passed on the test on the day the shares were distributed and when the new shares were put into the plan. In fact with a plan that small 409(p) tends to be a problem. With only 17 people with balances 409(p) testing has to be a bear with that ESOP. To answer the original question if I understand it correctly "yes" they have a deductability problem. Even though an S Corp ESOP doesn't deduct they have to stay under that limit and not deducting the contribution does NOT solve the issue has been my understanding. So I believe they owe the excise tax on the excess contribution. We never allow your clients go over that limit if they are asking us how much they can put in based on that understanding at the firm I am working at.

I think the QRP rules are fairly specific and detailed, that any remaining excess not allocated after the earlier of the 7th year or termination of the QRP (due to 415 limits, otherwise you must allocate to remaining participants at such time) must be reverted and is subject to taxes. If a QRP to a QRP were allowed, an employer could simply run a string of QRPs that used excess assets indefinitely into the future. https://www.law.cornell.edu/definitions/uscode.php?width=840&height=800&iframe=true&def_id=26-USC-276939643-615333267&term_occur=999&term_src=title:26:subtitle:D:chapter:43:section:4980

I don't think so. Furthermore, I don't think that person is statutorily excludable from coverage and discrimination testing (assuming Martha is US citizen) as none of the listed exclusions apply. She simply goes from an eligible class of employee to non-eligible class of employee, and still earns vesting service for employment with XYZ UK.

You would use the last valuation date on or before 12/31. So if that's 3/31 without any daily val language or interim valuations, then that's what you use. (Although any contributions/distributions allocated "by" 12/31 could adjust that dollar figure.) And any 2023 RMD age updates won't affect 2022's calculations.