A Shot in the Dark

We use FT William and when we complete the SAR checklist, you update the copying costs as part of the checklist. I thought the "standard" for setting costs was defined as "reasonable".

Our office sees many variations of these types of provisions in Taft Hartley Plans.

fasbproposal_sharebasedpayment_8june2015.pdfAttached.

When electing "S" Corp status, the 2 1/2 month retro election would not be made. A short tax year filing for the C corp would be made and perhaps a short tax year filing for the "S" corp would be made depending upon the timing of the election. The timing of the transaction can certainly coincide with the fiscal year year of the C corporation. And of course, hopefully someone has reviewed the timing of the transaction as it may relate to the accounting issues of LIFO versus FIFO (if applicable), inventory accounting, etc.

Charles: Fee sensitivity is arguably a good trait for ESOP Trustees, as long as quality is not compromised. However, shopping for an appraisal based solely on fees is a a dangerous endeavor and I would not take part in it. As an ESOP consultant, I truly believe there is no such thing as a reasonable fee in the appraisal world anymore. As a result of the vast amounts of litigation and the scrutiny given ESOP appraisals, appraisal fees have sky rocketed over the last few years. Your client in looking for an appraisal firm should also make sure they retain the an appraisal firm that believes in the valuation methods used by the prior appraiser or be able to justify why it is willing to change the valuation methods. In a few ESOP audits, the Department of Labor has scrutinized the changing of appraisers. Your clients best bet may very well be to an internet search for ESOP appraisers and seek proposals from two or three.

My firm works with and receives referrals from a few Edward Jones Advisors. The information you are being told by the Edward Jones advisors is not a legal issue, but an internal decision made by the Edward Jones as an institution. Our office has been informed that Edward Jones has made a number of internal decisions regarding 401(k) Plans and Edward Jones Advisors. We have been told that Edward Jones advisors can no longer work with clients that have self directed brokerage accounts and that all 401(k) plans must now use an institutional platform. It seems that Edward Jones has decided that the American Funds Recordkeeper Direct and John Hancock are their preferred platforms. For the last few months we have converted a few self directed brokerage account plans to both platforms. And of course Edward Jones advisors have lost a few plan whereby the client decided they liked self directed accounts and found another advisory firm to work with.

I thought the grace period for submitting claims was limited to 2 1/2 months after the end of the plan year. This has nothing to do with the carry over. Perhaps I misinterpreted IRS notice 2013-71.

If the respective 125 Plan adopted the provided grace period, then a participant would have 2 1/2 months to submit any claims after the plan year end. The respective plan could also have some other built in date, perhaps earlier than the maximum grace period.

If the employer is a non publicly traded company, there are a variety of issues that need to be reviewed, Some of them are: Valuation/Appraisal of the non publicly traded stock Terms, agreements, timing of acquiring stock Terms, agreements, timing of selling the stock Share Accounting Etc. Etc. Etc. If it is a non publicly traded company, it will be nearly impossible for the participant to be able to transfer (buy/sell) at any time.

I concur with ESOP Guy. We have a few ESOP clients that have elected to extend the diversification period. Make sure the Plan is amended to provide for the extension so that you are not operating the Plan in violation of the Plan Provisions.

B: I did not realize ASPA was providing ESOP education and supporting this publication (hence, the first edition I guess). While the firm I work for is a member of ASPA and uses ASPA publications in our traditional TPA environment, for our ESOP department we tend to rely on materials published by the NCEO and the ESOP Association.

I concur with Bird's assessment of FT William. We have used their 5500 software for years and I would recommend them highly.

I concur with both replies. To follow up with QDROphile's reply (assuming the employer is a non publicly traded entity), the employer is going to essentially acquire the securites held in the ESOP. Once the exchange of cash for securities occurs, you would then follow the plan termination procedures of any qualified retirement plan. Before the plan termination process, the following is a short and incomplete list of things for discussion: Assuming the employer is a non publicly traded company you then have a Valuation/Appraisal issue: The securities will have to be valued before the employer acquires them. Plan Trustee Issue: The Plan Trustee will have to work with the valuation/appraisal of the Securities. Is the Plan self trusteed in that some make up of the employees of the company are serving as the Plan Trustees. The issue of an outside trustee needs to be explored. Documentation of the securities acquisition needs to be addressed. As ESOP Guy noted: The employer needs to retain competent ERISA counsel that is knowledgeable about ESOP's.

B: The Reg you note governs the share release formula. The reg requires that each plan year during the duration of the loan, the number of securities released must equal the number of encumbered securities held immediately before release for the current plan year multiplied by a fraction. The reg does not stipulate for which plan year those released shares must be allocated. As noted in the examples that Marcus and I gave you the Share Release is happening on a plan year basis. However, the allocation of those shares may be allocated in a different plan year. As it relates to the Principal Only Share Release Method the regulation stipulates Rule One; "The first rule is that the loan must provide for annual payments of principal and interest at a cumulative rate that is not less rapid at any time than level annual payments of such amounts for 10 years." I have bolded and underlined the important wording "cummulative rate".

B: The share release formula is not pertinent to the discussion of the timing of contributions, payments and timing of allocations. Or, the example of timing of contributions payments and allocations discussed above can be done regardless of the share release formula elected to be used. You will have to enlighten me on the regulations you are referencing. My guess is you are perhaps not understanding or misinterpreting whatever regs. you have referenced..

B: I concur with Marcus. And here are a couple of other scenario's as well: The Stock Purchase Agreement and note state that a pre payment of the note in any given year can be used to offset future stated annual payments. Thus, perhaps due to prior pre payments the employer chooses to skip a payment until the proceeds of the pre payment are used up. Alternatively, The loan payment date is set so that in a given year payments on the loan note/contribution is accrued, allocated and the shares are released for a prior plan year. As an example the Stock Purchase Agreement and loan note sets the loan date of 9/1. Client has a plan year/fiscal year of 12/31. For fye/pye 12/31/2013 the employer files an extension for the corporate tax return to 9/15. The 9/1/2014 payment is accrued, allocated and shares are released for the 12/312013 plan year For 2014 fye/pye the corporation files its return by 3/15/2015 with not contribution/deduction. The 9/1/2015 payment is picked up for the 2015 fye/pye and the contribution/payment is deducted. In essence the payments are on time, the deductions and contributions are in compliance and for the plan year end 2014 there were no payments/contributions and no share release.

Yep. I just did a google search "creditor protection qualified plans versus IRAs" and it popped up.

Austin: I am not aware of a chart, but the AICPA did an excellent article about this subject in their January 2014, Tax Advisor publication. The article discusses qualified plans versus IRA's versus Inherited IRA's.

I think the plan year should switch with with fiscal year change, if for no other reason than future appraisal and valuation issues. I could see a lot of complexities with completing corporate financials and said reporting for a an appraisal not tied to the fiscal year end. I think all of the plan accounting would be easier. The negatives would be the "one time" appraisal issue say you have a C corp with a June 30th fye and the "S" corp with a calendar year end as an example for the 2014 year, an appraisal would be required for the valuation date June 30, 2014 and then another appraisal would be due as of December 31, 2014 the administrative and recordkeeping costs for the short plan year You did not mention If the plan requires a plan audit which would add costs. For the most part, I think it is worth the additional costs attributable to the short plan year relative to future burden of reporting, etc.

Bill: using the calender year as the plan year scenario and assuming the corporate tax return is on extension, any contribution received by the ESOP by September 15th of the year following the respective plan year that is used to service the debt can be used for the share release of the respective year. Adding all of the caveats, the corporate tax return is not filed until the contribution is made, all of the regulations (415 and 404) are followed and of course the seller note and stock purchase agreement are being followed. In the scenario that the OP was discussing, shares are not being purchased with contributions. All of the shares were purchased at the transaction date. Contributions are being used to satisfy the debt that was used to purchase the shares on the transaction date. As the debt is paid down shares are released for allocation.

I started in the business of plan administration and consulting in 1981. it was not planned and I simply answered a job ad for a trust accountant after graduating college. It was for an actuarial firm. The only thing I knew about an actuary was that was the person you called to get the pension deduction for the tax return. The day I was hired I found my mentor in this business. He still sometimes posts on these boards. When DB plans went away in the 80's my world changed to DC Plans. He still remained my mentor.

This is not a wrinke, but sounds like a pretty typical set of events. I am assuming your have a calendar year end (December 31st) as the fiscal year end and plan year end and that the 2013 corporate tax return is on extension. If I understand your question, the following occurred: Contribution is declared for 2013 year amounting to "X". Transaction occurs 1/3/2014 April of 2014, the declared 2013 contribution is made to the ESOP. That contribution is deductible for 2013. The contribution amount is then paid from the ESOP as debt service. If those facts are correct and the stock purchase agreement and seller notes provide for the the above, then yes you would complete the share release for the 2013 contribution/payment for the 2013 year.

My guess is, the IRS is stating your client did not file the 5500 for 2004. Hopefully, your client has records showing they filed the return. The letter format you received seems to be the replacement for the old failure to file letter.

Thank you Tom.

B: Sorry, I guess I am dense. I get your question now. So, using my same example but addressing your question. On April 22, 2014, the Stock Transaction takes place with the same set of documentation. Except the stock purchase agreement and seller loan note might state something like this: The ESOT shall make a payment of $250,000 on or before July 31, 2014 and another payment of $__________ on or before October 31, 2014. The principal balance remaining after those two payments shall then be amortized over a 10 year period with the first installment due on January 1, 2015 and remaining payments shall be equal annual installments of principal and interest. To satisfy the payment requirements of the seller note, the company must deposit contributions at least equal to the payment requirements. The share price on which to compute the release of shares is based upon the initial appraisal. But remember the share release may very well be based upon a different computed release price depending if the share release is principal only or principal and interest. An appraisal is not required each time a contribution or opposing payment is made. In my example, for the Plan Year End December 31, 2014 all of the payments (contributions if the same) would be added up to compute the share release on the plan year end date, which is the valuation date for most ESOP's. In most ESOP's, the share release calculation and allocation occurs one time a year at the plan year end regardless of the number of payments (contributions) made.