A Shot in the Dark

B: Many, many ESOP's offer a participant directed distribution of the elgible diversified funds. More than likely, participants elected to rollover their diversified distribution to their employer sponsored 401(k) Plan. ESOP's offer the distribution option in lieu of operating alternative investments (investments other than Employer Securities) within the ESOP.

I think your best bet is to visit The National Center for Employee Ownership (NCEO) website. They have excellent materials on the subject. www.nceo.org Look under their publications.

Tom: Are you unretired, or just visiting?🙂

Looking at CuseFan timeline it looks like ESOP's and pensions seem to be going about the same time frame. Submitted ESOP 5310 package Septembetr 2021 - Received Determination Letter May 2022 - Questions Responses 60 days before determination letter received Submitted ESOP 5310 Package December 2021 - Received Determination Letter August 2022 - Questions Responses 45 days before determination letter received

Defined Contribution Plan is in termination stage. IRS Form 5310 has been submitted and the Plan is waiting for IRS determination letter. The Plan Administrator wants to wait for the favorable determination letter prior to processing distributions. However, the Plan Administrator would like to mail out distribution election forms for the Participants to complete sooner than later. How long can the administrator hold the completed distribution election forms on file prior to processing? Is it 180 days? For example, if the Plan Administrator receives completed distribution election forms and maintains them on file and the IRS determination letter arrives 7 months after receipt of the forms, would that require new election forms to be obtained.

Typically, you might find the plan sponsor of the ESOP to provide for a portion of the terminated ESOP vested account balances to be distributed (perhaps 50% to 70%) with the remaining vested account balances to be distributed following the receipt of the determination letter approving the termination. Yes, check the transaction documents to see if there are any escrows or retention funds being held for some time period.

Our office uses FT William as our software of choice for plan documents and 5500 services. With FT William's Post PPA documents, the last day of employment and an employee that separates service on the last day is now an option that an employer can elect. 19a. If the Plan has a last day requirement, an Employee who terminates on the last day of the applicable period is treated as being employed for purposes of satisfying allocation conditions Yes / No https://www.ftwilliam.com/images/icons/minus-12-11.png

Does the Plan have default investment language?

Our firm generally has the same mix of plans as yours, although we are probably ESOP heavy. We use ASC, because they have a very good "unitized" or share accounting built in their software. I do wish they were a little more user friendly. -------------- We have elected to use FT William for documents, 5500, 1099 processing. We would consider changing to their compliance software but they have yet to add share accounting.

FT William offers a 409a document as part of its services.

Treasury Regulation section 1.414c-3c(2) provides as follows: An interest which is an interest in or stock of such organization held by an employees' trust described in section 401(a) which is exempt from tax under section 501(a) shall be excluded if such trust is for the benefit of the employees of such organization.

When calculating ownership attribution under code section 318 and 1563 stock held in an ESOP and any other qualified retirement plan is excluded from said calcs.

I though the 402(g) limit was the lesser of 100% of compensation or the hard dollar limit. 100% of zero is zero, thus the violation of the 402(g) limit.

Like you Austin, our office has been and is extremely pleased with FT William Software. I think they are terrific.

Tax Cowboy: I don't understand your statement "These are funds that were just paid into account and going to be used as loans for business purpose.." Regardless, let me share with you my understanding of how an appraisal firm will value cash when completing an ESOP valaution/appraisal. The appraiser will determine the amount of cash needed to fund routine/normal business operations. They will take into consideration Cap X expenditures, etc. . Any amount of cash held by the business that is in excess of said amount will be defined as "excess cash". Generally, excess cash is added dollar for dollar to the valuation after determining the enterprise value. I think the question then becomes, will the 400k described in your post be defined as excess cash by the ESOP appraiser. Why don't you ask them?

Within the ESOP hemisphere, there are primarily two associations, the NCEO (National Center for Employee Ownership) and the ESOP Association. Both have excellent materials for its members. In my opinion, the ESOP Association has more materials for practicing professionals, versus employers that sponsor ESOP's.

It is my understanding that coronavirus-related distributions under the CARES Act are not eligible rollover distributions.

Our state has deemed Human Resources and professional entities that provides HR services as essential. As a TPA firm, we believe we do provide HR services and thus have elected to remain open. Some of our staff have elected to work from home. Some of our staff have elected to work from the office.

B: My guess is the employer is offering the other benefits through a Section 125 Plan that offers FSA accounts. If that is case then said deferrals would be on a pre tax basis.

You do not mention the type of ESOP Loan in your Post, i.e., "inside" loan between ESOP and Employer, or a loan directly to a seller(s). I would not take into consideration the forthcoming audit and move to correct the missed payment as required. The steps that I would take would be: Immediately contact ESOP legal counsel and seek their legal advice Review the language in Stock Purchase and Redemption Agreement as well as any Loan Agreements to determine: Any cure method for missed payment stipulated in the agreements Loan Default Provisions Other things to consider: Tax Deduction Issues ESOP allocation issues

Like ESOP Guy states, you are leaving many facts out of your post. Appraisal/Valuation Companies don't change amortization schedules and loan note terms. They report them, as they have substantial impact on the valuation of the company. If you are the TPA, check with your client (or the other advisors to the ESOP transaction) to determine if perhaps the loan note terms were changed or amended thus altering the payment schedule. If there was a mistake made, then follow ESOP Guy's advice.

This topic has been discussed at several ESOP Association Meetings as well as NCEO meetings. You should access the ESOP Association website and the NCEO website.

B: You are correct. Dividends declared for payment to an ESOP are not counted as Employer contributions (although they may be allocated in the same manner). Many times you may not even know that a dividend will need to be declared for a given year. On behalf of an employer, using their census data received, you will compute the maximum 404 contribution, making sure allocation of said contribution does not create a 415 limit issue. Then you will determine the necessary cash required for ESOP loan payments, participant distribution payments made for the given year and maybe even diversification payments. Compare the two calculations and perhaps a dividend may need to be declared in addition to the employer contribution to fund all of the various cash outlays.

B: ESOP Guy has all of the correct answers. Regarding your last sentence in the 2nd paragraph, a dividend payment is not considered an ESOP contribution for 404 or 415 limits. Perhaps you meant ESOP deposit and not contribution. Unless there is some sort of provisions set for specific timing of dividends in the corporate bylaws, "S" Dividends or "S" distributions are declared for a given year but can be deposited to the ESOP prior to the filing date of the corporate tax return showing the declared dividend. This is true unless the Dividend or distribution is to be issued in cash to the Plan Participants, then the dividend has to be paid not later than 90 days after the end of the year in which the dividend is declared.

The set up of 403(b) plan to hold employee deferrals and 401(a) plan (qualified plan) to hold employer contributions for non profits has been around for as long as ERISA has been around. The 403(b) Plan is not required to pass the standard compliance testing (adp testing, etc). Plus, there is not 5500 filing and other administration tasks required for the 403(b) Plan.