stephen

Also, don't forget to exclude the balances of former Key Employees.

Another option would be to set up segregated accounts through the Profit Sharing Plan broker using the same funds that are offered in the other plan if "the PS plan meets the investment standards."

PAX- Please note, Jefferson founded THE University of Virgina.

No distributions until 30 year note is paid off concerns me. However, 5 year cliff with no credit for prior service is ok along with a 5% fixed interest rate. I have heard of ESOPs using LIBOR rate as the rate for the internal loan (currently 20 year LIBOR is under 5%). I would also be concerned if the S-corp ESOP is being set up in a way to avoid taxation without providing broad based ownership.

It is an S-corp.

Thus, the minimum interest rate they should use would be the going market rate for a 20 year loan?

Where can I find proof of the above? An attorney does not feel the article from the August 2002 ESOP Report is proof enough and they asked for more. Perhaps, the actual instrcutions from Form 2553 spell it out?

Is it ok to set up a 20 year internal loan (loan between the ESOP and the company) with a 0% interest rate? The issue is 404 deduction limit and having no interest would be helpful. I was also wondering if it is ok because the net result of a 20 year loan with 0% interest would be a principal only release method.

jquazza- please note my original post was dated 11/00 (in pre EGTRRA time)

The plan has bifurcated eligibility requirments- 1 year of service for 401(k) purposes; 2 years of service for employer's discretionary contribution. The plan provides for a 3% nonelective safe harbor contribution. The discretionary contribution is cross-tested. Do we have to give the 5% minimum contribution to satisfy the gateway test to participants, who receive the safe harbor contribution, even though they have not met the 2 years of service requirement to share in the employer's discretionary contribution?

DF@APC See Larry Starr's comments from earlier in this thread. I am certain the ASPA GAC will welcome a contribution via personal check or credit card. Also, check the ASPA website I imagine they will have something soon so you can contact your congressman and senators regarding this proposal.

Currently this is a proposal by the President. I believe: The next step is for someone in the House of Representatives to propose a bill that would would need to pass a vote in the house. Meanwhile, the same will have to happen in the senate. Then the senate and congress have to agree on a final version. Then the President can sign the bill into law. The timetable set forth in the proposal is for this to be in effect for 2004. Which is an extremely short timetable. Although, with a Republican House, a Republican Senate, and a Republican President it may be possible. Expect ASPA to fight this proposal: The ASPA ASAP yesterday included "Small Business Workers Will Lose Retirement Benefits if Proposal is Enacted", "No issue is more central to ASPA's core mission of protecting and enhancing the private retirment system than this one. We must and shall prevail." and "But, it will be a very real catastrophe indeed to the millions of America's small business workers who loose their retirement benefits if this proposal is enacted."

If the plan goes through, where will the tax revenue come from in 20 years? Will the government change the rules again so your tax free withdrawals are not tax free?

If it passes as is I think it will simplify things greatly for a large (think huge) number of small business qualified plans. The owners will be told by their CPA's that they are spending $XX,XXX.XX per year to their consultant, ERISA attorney, TPA (and any other advisor they have for their plan) to get a similar benefit to what they can do via the proposal for free. Thus, it is my advice to terminate your qualified plan. If this happens there will be thousands of employees who will no longer save for retirement as they probably won't save on their own.

The ESOP Association sponsors a conference in May in Washington DC that has a technical track that may provide the types of sessions you are interested in. At this conference there are also other sessions that relate to business owners, employees, communicaiton, valuators, etc. The ESOP Association also sponsors a conference in November in Las Vegas that is a two day technical conference. There are also regional one day seminars- for example the Mid Atlantic Chapter of the ESOP Association sponsors a seminar with a technical track in October.

I have a client whose 1996 5500 filing showed plan number 003 (Money Purchase Plan). The plan was amended to an ESOP and the prior recordkeeper files the 1997 5500 as plan number 005. The 005 plan number has been used since 1997. BOTH determination letters issued 6/23/1997 and 2/11/2000 reflect the 004 plan number. The plan was audited by the IRS (they said nothing). What should we do? (Perhaps make the change on the 5500 question #4?)

Have you considered using open book management so the employees can see how the company is doing along with setting target goals for filling a bonus pool that will be split up at the end of the year? The bonus could be deposited into a qualified plan as a profit sharing contribution or paid to the employees in cash or a combination of the two. A pizza party in conjunction with a quarterly meeting giving everyone an update on the state of the comanpy is a nice perk. The staff meets together builds a little comradery and gets a free meal. Time off of work is always a great incentive.

Reywal, if you have a QWERTY keyboard you will notice the letter "U" is next to the letter "I"

Does Rev. Proc. 2002-38 basically require all S-Corp ESOP's (regardless of ownership percentage in the ESOP) switch to calendar year fiscal year? Cory Rosen posted the following comments on September 9, 2002. Update for September 9, 2002 By Corey Rosen IRS Revenue Procedure Limits Most S Corporations to Calendar Year On May 10, 2002, the IRS issued Revenue Procedure 2002-38, in which it clarified that under Section 1378 of the Internal Revenue Code, an S corporation’s taxable year must normally be its calendar year. There are exceptions for fiscal years other than calendar years if approved by the IRS, one of which appeared to provide an automatic approval for plans adopting the fiscal year of the sole owner (such as an ESOP). Many S corporation ESOPs retained the fiscal years they used when they were in C corporations, relying on this automatic approval process. The new revenue ruling, however, requires that these companies now switch to a calendar year. Only plans that had specifically requested IRS approval for non-calendar years would be grandfathered. It is not clear if the IRS will allow companies who will have to pay double taxes in a year due to the change in their fiscal years to spread the payments over a longer period of time.

LWilson are you taking the C2-DB exam this fall? If you are you will find that it is all on the computer thus no writers cramp. The exam window is the month of November. Thus by preregistering early you can pick the day in November you would like to take the exam. You will also know if you passed or failed when you complete the exam.

There is an error with the calculations. An ERRATA sheet is being prepared.

Doesn't the plan require you to match their compensation for the entire year? (Not just from when the employee reaches 1,000 hours)

Do the employees not using the program realize the benefit they are giving up? Are they afraid of coming back to work only to find they no longer have a position? Perhaps they are planning on taking their sabbatacal later. It may be they want to use their time in conjunction with their spouse and are waiting for the spouse to earn enough time off so they can go together. Other than teachers and ministers I did not know sabbatacal programs existed. It sounds like a great benefit to me.

Do they still sell the teacher's guide? If yes, there were 4 prior exams included.

If you know someone who is a memebr they could look it up in the membership directory. Otherwise have you contacted "CEBS" to ask them. I imagine they have a nice website...