A Shot in the Dark

Spock: There are signficant and very complex issues that must be dealt with. The issues are far to many and would require to much detail for this post. This is especially true if the acquistion target is privately held. The valuation isssues are very complex. You should ensure that you have competent ERISA Counsel with specific expertise in dealing with ESOPS. If in fact it is a stock purchase versus asset purchase, that may simplify things a little.

Peggy: I presume that you are speaking of a Section 125 Plan, that allows for the payment of the medicl insurance premium on a pre tax basis. If that is the case then the Section 125 plan does not have to file an IRS Form 5500. However, it is likely that the medical plan will need to. You will have to review all of the facts, number of participants prior year, etc.

I really would like to thank everyone who posted. As an update to this issue, on Friday May 8, 2009 the Plan Trustees were notified that the public works project received its funding. This morning, the State Department of Transportation contacted the Plan Trustees and made a revised offer of 2.2 millon dollars. This amount is higher than the last independently appraised value. The Trustees are speaking with ERISA counsel. If all goes well they will sign documents later this week.

John: I don't know about the appraisal that was completed for the year in which the offer was made. Obviously, the appraisals since then have reflected the issues noted.

Pixie is a collegue of mine. Perhaps a further explanation may shed some light. The land was purchased for less than $10,000.00. Until 2004, or so the appraised value of the land generally represented less than 10%of the total assets held in the Plan. The land has been for sale for a number of years at the indepently appraised value. An appraisal has been completed on an annual basis. As luck (good or bad) would have it, this piece of land is directly in the middle of a public works project. An offer to buy the land was made in 2004. As the offer was being made, the State came through and froze all sales of real estate with in this public works project area. Through 2004 or so the appraisal of the land was near or around 300k. Then the state made a ridiculous offer on the land ($3,000,000 or so) and froze all transactions unitl the project was funded. Natuarally the appraisal came in near the offer price. The written offer of purchae for $3,000,000.00 from the State is still valid subject to the project being funded. In the meantime, the state has released the area for transactions. Combine that with a loss of 30% on the other assets held in the Plan (mutual funds and bonds), now you have a map as to how we have arrived at this issue.

I would have a few more questions. Does the vineyard have anything to do with the business that sponsors the 401(k) Plan? Is the Vineyard a separate employer? How is the $50,000.00 being reported, W2, 1099?

Perhaps this a much more simplistic view of the situation. In almost all Participant Loan Policies that I have seen, the outstanidng partiicpant loan becomes due and payable at the termination of employmnent of the Participant. The death of the Participant would certainly cause the termination of employment. Failing to repay the required loan payment (in this case the balance in full) would create a default, thus creating a taxable event. The taxable event would zero the asset. There is no asset to transfer.

A few years ago, we had a "broad based" audit by the DOL on an ESOP. As Sieve indicated, there is a statue of limiations, however the auditor requested that we waive the statute and asked for records for a number of years. After many discussions with ERISA counsel, the client agreed to the waiver and we supplied all of the records ( an in the spirit of cooperation motive). There were no "skeletons" sort of speak and we (including ERISA counsel and the client) thought everything was in order. What I found interesting was after several weeks of audit and review, including interviews with the trustees, etc. we never really received a "closure letter". All we received was a one paragraph letter from the DOL stating that the DOL has received all of the requested information and documentation. And I received a phone call from the auditor that no futher action was contetmplated. I/we have never heard from the DOL since then.

There is no reason why the insurance can not be a plan asset as long as: The Plan Document allows for it The insurance policy is titled correctly The rules regarding contributions/premiums are being followed Only the cost of insurance (PS 58 Costs) need to be reported as taxable income for the participant. Thay may or not be equal to the term premium. Reporting the PS 58 costs as taxable income is done so that the proceeds of the death benefit receive the best tax advantage.

I don't believe that is correct, if: cash is being contributed to the plan to purchase the shares of those participants who are receiving distributions. Contributions are being allocated to all eligible participants. I would think your participant allocation report would be cash contribution to the account, with a transfer of cash for stock prorata among all of the participants who are eligible for the contribution.

Lori: You are correct.

MLP: In reading your post, I gather: The corporations are not part of a controlled group. The sale of corporation A to corporation B was not really a sale of the corporation via a stock sale, but a sale of assets from entity a to entity b. Following or coincicent with the asset sale, the employees of corporation A had a legal date of separtion of service. Some or all of those employees had a date of hire with corporation B. n Following the sale of assets and separation of service of the employees, corporation A now wants to terminate the plan, although a partial plan termination may have occurred with the separaton of service of the employees (depending upon how many were plan participants). If all written above is a correct assumption, then the participants would be due a distribution from Corporation Plan A. At the Participants election and depending upon the plan provions of Corporate B plan they may choose to rollover their distribution from Corporate Plan A to Corporation Plan B. What ever decision the Corporate Plan A participants make regarding distribution options, nothing regarding those decisions would prelcude them from particpating in Corporate Plan B pursuant to Corporate Plan B Plan provisons. If "what I gather" is incorrect then I would need more details.

Austin: I chalk this up to being perhaps over conservative. I am going to calculate the final match due as of the the payroll period ending following the 30 day effective date. So in your example, I would calculate the match through the April 22, 2009 pay period.

You all must enjoy the show, "The Big Bang Theory". Not that there is anything wrong with that.

BG: Perhaps it is time to take a break and head to the Sand Dunes. A good dune trip clears my head and gives me a new lease on life.

As an owner and lead marketer of our firm, all I can say is choose wisely who you conduct business with. 90 Percent of our clients are referrals from investment advisors. So much different than "back in the day" when referrals came from CPA's. Our firm will never be the largest and I can tell you our revenue stream is signficantly lower than it would be because of the amount of business and referrals that we turned away from investment adivsors who refuse to ("folow the rules") legal and otherwise. We spend (I spend) an inordinate amount of time educating the investment advsiors that work with us. It doesn't take long to weed out the ones we don't want to work with. Likewise, depending upoon my relationship with the client, I would have no problem discussing the issue of an advisor giving bad advice. BG - That doesn't answer your question or give you a solution, other than to say our solution is not to work or limit our work with those types of folks in the first place.

Thank you very much for the information. I will pass this along.

Thank you for your response. Thankfully for me, not for the plan sponsor, this question is not for a client of mine. However, the investment advisor who asked me the question is a good referral source and I would like to assist him with finding a correct answer. Let me state your response into a question if I may. Is it prohibited for a qualifed retierement plan (trust) to purchase/acquire a publicly traded foreign stock on a foreign stock exchange? Clearly this question is of far greater importance than the foreign tax withholding issue. This advisor works for a very large brokerage house. It would amaze me if the institution would allow for this transaction to take place if it is prohibitive. But it seems I am amazed on a daily basis. Thanks for the help.

Owner Only or Solo 401(k) Plan. Large amount of assets. Uses individually directed Brokerage Account. Purchases a Canadian mining stock via the Toronto stock exchange. The stock issues a dividend. There is a 20% withholding on the dividend. Is there a procedure or method to have the withholding returned to the trust? Or Quote - Unquote Is it a cost of owning the stock?

As part of the plan termination process, at some point you will receive a distribution election package. Generally, included in that pacakge will be: A. Distribution Election Form B. Special Tax Notice The Special Tax Notice will answer most of your questions. You will also be advised to speak with a professional tax advisor. I would encourage you to do so. In most cases: You will be given an option to withhold more than the 20% (federal income tax) at your election. If you live in a state that has anincome tax, you will likely be given an election to withhold a percentage for state income tax. Generally, the distribution you receive should you not elect a rollover, will be taxed as ordinary income.

Tom: Your post was awesome. I had no idea of the history. Janet's post aside, where do you come up with this stuff?

I had always wanted to ask Andy about the picture, but was to afraid to ask; being in the politically correct era, etc.

I think the answer to that question would depend upon the size of the Plan.

I used to not think much about these kind of bulletins, etc. Now, I begin to wonder if someday something like this will happen. Please see the attached document. House_Democrats_Contemplate...pdf

AMck: What sort of business was the sole prop? Is the business still in existence? Is someone still running the business? Are their assets in the business?