JRN

I agree with TPSreports regarding the question raised by ESOP Guy about different dividend rights: The ESOP is the shareholder, not the individual participants. I think the Plan document can spell out how to allocate dividends and, similarly, S corp distributions. On that last point, we have a unique situation where the S corp is required under shareholder agreements to distribute earnings. S corp earnings distribution to ESOP is significant. The Company does not, therefore, make an ESOP contribution. If it did, benefit levels in the ESOP would be unsustainable. The Plan document provides that distribution of S corp earnings are allocated in proportion to compensation. I appreciate that this allocation formula is not "standard", but I can't come up with a reason why it is not okay to do this.

Mike, Please come down off your high horse. I get your point. But, it's a small business with $100K in plan assets.

I don't think it is "fraud" if they undo their 401(k) contributions based on mistake. The owners re-do their W-2s and include the returned 401(k) contributions (adjusted for earnings) in their taxable income for 2016. I don't think that is "fraud". I think it's a practical solution to a problem that comes up more often than it should.

If you and the other owner only make 1% contributions, then you should be okay making only the 1% contribution for the "non-keys" -- UNLESS, you have other employees in the Plan that are considered "key employees" (not likely is my guess) and they made 401(k) deferrals of more than 1%. Other possible way to get out of this: Lean on Paychex to refund to you and the other owner the 1% contributions you made during 2016. In other words, undo your 401(k) contribution. If you and the other owner don't contribute to the plan for 2016, then you don't have to make the TH minimum contribution. Good luck.

If the former participant is rehired after incurring five consecutive one-year breaks-in-service, then the forfeiture is not required to be restored.

The reference to "$18K" makes me think you are referring to a "401(k) contribution"? I thought that 401(k) contributions by partners had to be contributed within 30 days of the tax year end (i.e., on or before Jan 30th). I don't think the partner's 401(k) contribution can be deposited on or before the partnership tax return due date.

Mike, here is the thinking on this: If the employee is paying zero federal income taxes, why would he/she want to make 401(k) contributions as traditional "pre-tax"? The income tax deduction that generally accrues to the participant does the participant no good. If I am a lower wage employee and my current income tax rate is -0- today, shouldn't I make my contributions as Roth contributions? That's the rationale.

401(k) Plan provides for automatic enrollment. The idea is to automatically enroll participants in either a Roth or traditional (pre-tax) 401(k) account depending on the participant's wages. If the participant earns less than $45K annually, the participant will be automatically enrolled in Roth. If the participant earns more than $45K, the participant will be automatically enrolled in a traditional (pre-tax) 401(k) account. The reasoning here is that employees who earn $45K or less do not generally pay any Federal income tax (e.g.,after taking into account the Retirement Savings Contributions Credit), so enrolling them in a Roth 401(k) makes more sense for them. Seems interesting. Any thoughts on this idea?

I think it's good advice to use the corporate trustee. The corporate trustee generally charges either -0- or something nominal, such as $500 per year. As a practical matter, the corporate trustee is 'directed', so this does not absolve the other plan "decision-makers" from fiduciary responsibility. But, it does -- in your case -- keep the CEO's name out of the Plan's SPD (in other words, the SPD will identify the Trustee as being the corporate trustee and not the individual CEO) -- and I've always thought there is practical value in that.

I would clarify your question: You can't have a conversion to an LLC without having a shareholder vote. But, the shareholder is the ESOP trustee(s), not the ESOP participants. I would be willing to bet that as part of the LLC conversion, there was a shareholder vote and the "shareholder", i.e., the ESOP trustee(s) approved the conversion. What you're really asking is whether the ESOP participants should have been permitted to direct the voting rights of shares allocated to their individual accounts. And, in order to answer this question, we'd need to know more about how the conversion was actually structured. Many states offer a relatively streamlined conversion process where the shareholder(s) of the corporation by operation of law exchange stock for LLC membership interests. I suppose one could argue that, similar to a sale of stock, this is an "investment decision" by the ESOP trustee(s) and voting pass-through is not required. But, having said all this, I think it'd be hard to make the case that voting pass-through was not required here.

The short answer is "yes" . . . you can do a trustee-to-trustee transfer of assets from one plan to the other. But, the better answer is "why do you want to do this?" It's usually a good thing to have some cash in the ESOP, for example, to fund distributions. You'll need to prudently invest the cash assets, but typically this cash has a very short investment horizon (depending on your ESOP distribution policy) so it's okay to invest very conservatively.

Why are you working on such a nice day?

Thanks QDROphile and ESOP Guy. My focus in asking the question was to get thoughts on how much "employer discretion" could be baked into the plan document without running afoul of the anti-cutback rule. I very much appreciate your insight.

I've been struggling with the following issue for some time now; what do others think about this? Can an Employer reserve in the ESOP plan document discretion to change, from year-to-year, the form of benefit from lump sum to installment? For example, could the Plan document be drafted to provide that benefits will be distributed in either a lump sum or in installment payments over a period not to exceed 5 years, and further provide that the Employer reserves the discretion to decide both (1) lump sum or installment, and (2) if installment, over how many years. I don't think so. I know it's okay for the Plan document to reserve to the Employer the discretion to eliminate the lump sum option (i.e., formally amend the Plan document to eliminate the lump sum option), but I understand from a few TPAs that ESOP plan documents are being drafted by some attorneys to reserve to the Employer discretion to decide lump sum or installment. Is this right? Thanks for your help.

No, the Company cannot avoid paying you your benefit because you now work for a competitor.

Plan A is being merged into Plan B on or before Dec 31, 2015. Plan B will be timely restated for PPA. Does Plan A also need to be restated for PPA prior to the effective date of the merger?

Why not just amend the Plan to exclude residents of Puerto Rico?

Participant is a former employee of Lockheed Martin. He will be receiving a settlement check relating to fiduciary breach (excessive fee litigation) by Lockheed Martin plan fiduciaries. Fiduciaries are paying settlement into a Qualified Settlement Fund (QSF). The check to the participant is coming from the QSF. Participant asks "Can I rollover the check into my new employer's qualified plan?" Seems to me that because the check is not coming from the Lockheed Martin plan, the distribution cannot be rolled over. I'm thinking that this check will simply be taxable income to the participant. This seems like it should be a rather common question, considering the amount of excessive fee litigation going on right now, but I can't find a definitive answer. Any thoughts? Thanks.

Employer established a new DBPP effective 1/1/2014. Employer enters into an asset sale agreement on March 15, 2015 to sell substantially all of the business assets to Buyer. Effective on close of transaction, all of the Employer's employees will become employees of the Buyer. Employer is an S corporation. Employer will be dissolved following close of the sale. Employer would like to fund the DBPP for 2014 plan year and for 2015 short plan year, and then terminate the DBPP. Reason for termination: Sale of business assets; dissolution of Employer. Would this be considered a legitimate business reason for Plan termination?

Employer is suffering real financial hardship. They cannot fund the 2013 3% safe harbor contribution. What do we do here? My thinking is that this is an Operational Failure and the Plan should file under EPCRS. Proposed correction would be to retoractively amend the Plan to remove Safe Harbor provisions. I'm questioning whether IRS would approve this proposed correction because this would clearly not put participants "back where they would have been had the operational failure not occurred". Is there any solution here? Thanks.

As long as the RIA is receiving level compensation, e.g., a flat dollar amount or a level basis point fee on plan assets, there is not a prohibited transaction. The key point is that the RIA can't be in a position where he/she can impact his/her fee based on the investment advice. For example, if the RIA is receiving 12b-1 fees and the fee for equity funds is 25 bps and the fee for fixed income is 15 bps, etc., that would be a fidicuary self-dealing PT. But, if the comp to the RIA is, say, levelized 25 bps regardless of what funds plan assets are invested in, then no PT.

ADP safe harbor contribution requirement is being satisfied through the 3% nonelective contribution. Plan also allows for ACP safe harbor match - fixed formula, $1-for-$1 up to first 3%, $.50-on-the-$1 on next 3%. Employer wants to amend the match formula to reduce the formula to just $1-for-$1 up to first 3%. The ACP safe harbor match is subject to a vesting schedule (not 100% vested). It seems to me that this type of amendment is expressly allows under Treas. Reg. Section 1.401(m)-3(h), which provides that a Section 401(m)(11) safe harbor match may be reduced or amended during the Plan Year. But, Sal's book states that an ACP safe harbor matching formula may not be modified during the plan year. This just seems to me to be contrary to the express language in the Treas. Reg. Any thoughts, help on this is appreciated. Thanks.

Thank you for comments. All appreciated.

Employer would like to amend its safe harbor 401(k) plan to allow for in-service withdrawals from the Plan of non-safe harbor funds, i.e., profit sharing and employer matching contributions. (The safe harbor contibution is 3% non-elective.) Seems to me that this type of amendment should be permitted, reasoning that because it does not affect any of the Plan's safe harbor provisions the proposed amendment does not run afoul of Treas. Reg. 1.401(k)-1(e)(3). But, general thinking seems to be that this type of amendment is not permitted during the plan year -- only at the beginning of the plan year. Thoughts? Thanks.

I am struggling with deciding whether an employer should correct an insignificant violation. Here's what happend: Employer paid holiday bonuses. Plan docment does not exclude bonuses from definition of Compensation. Employer did not apply employees' 401(k) elections to holiday bonuses. Correction would be for employer to contribute 50% of missed deferral amount plus employer match (also 50%). Employer's intent (despite plan docment language) was not to withhold 401(k) on holiday bonus. And, one could argue that employees' intent was same, because no employees came forth and complained. Error was picked up by CPA auditor. I am pretty comfortable that this violation is insignificant. So, why should employer voluntarily make corrective contribution now under SCP? Why not wait and correct only if IRS later raises this issue on audit? Because this is an insignificant violation, employer could presumably self-correct then. I guess the risk is that the IRS could on audit take position that violation is significant - in which case (assuming 2 years has passed by then) employer could not self-correct and would be stuck with negotiating IRS compliance fee. I will appreciate any thoughts. Thank you.