stephen

Barbara, If your 2004 filing is on FreeERISA.com then perhaps this would provide the "proof" you need that you filed as you said you did. Stephen

Just curious- on what basis will you distribute the money from the plan? Mistake of fact?

The Grinch Song You're a mean one, Mr. Grinch You really are a heel, You're as cuddly as a cactus, you're as charming as an eel, Mr. Grinch, You're a bad banana with a greasy black peel! You're a monster, Mr. Grinch, Your heart's an empty hole, Your brain is full of spiders, you have garlic in your soul, Mr. Grinch, I wouldn't touch you with a thirty-nine-and-a-half foot pole! You're a foul one, Mr. Grinch, You have termites in your smile, You have all the tender sweetness of a seasick crocodile, Mr. Grinch, Given a choice between the two of you I'd take the seasick crocodile! You're a rotter, Mr. Grinch, You're the king of sinful sots, Your heart's a dead tomato splotched with moldy purple spots, Mr. Grinch, You're a three decker sauerkraut and toadstool sandwich with arsenic sauce! You nauseate me, Mr. Grinch, With a nauseous super "naus"!, You're a crooked dirty jockey and you drive a crooked hoss, Mr. Grinch, Your soul is an appalling dump heap overflowing with the most disgraceful assortment of rubbish imaginable mangled up in tangled up knots! You're a foul one, Mr. Grinch, You're a nasty wasty skunk, Your heart is full of unwashed socks, your soul is full of gunk, Mr. Grinch, The three words that best describe you are as follows, and I quote, "Stink, stank, stunk"!

Perhaps you can amend the plan for 2008 to be 3% nonelective?

The Technical Answer Group has a very nice spreadsheet for such a purpose. Perhaps you are a subscriber?

Tom, Yes. In future years since there are no loan payments the 1/3 rule does not apply since there are no payments being made. The information below may assist you with your 415 issues. Stephen Allocation Limits (IRC §415©) 1. Plan years beginning after December 31, 2001, the limit on annual additions is the lesser of 100% of gross compensation or $40,000 (indexed). 2. Annual additions consist of contributions and forfeitures (under EGTRRA, elective deferrals to a 401(k) plan are still included as annual additions). 3. All plans of the employer must be aggregated. 4. In C Corporation ESOPs, if no more than one-third of the employer contributions applied to principal and interest payments on an exempt loan are allocated to the highly compensated employees, the 415 limit shall not apply to either forfeitures of employer securities acquired with the proceeds of the loan or employer contributions applied to interest payments on such loan. Example: C Corporation with 401(k) plan providing match equal to 100% up to 6% of the deferral and ESOP contribution of 25% of eligible compensation. Participant age 45 earning $100,000 in 2005 Deferral $14,000 Match $6,000 ESOP Lev Stock Forfeiture $1,000 ESOP Contribution $25,000 including $8,333.33 interest Total Annual Addition $46,000 This fails 415. If the plan passes the 1/3 test, you do not have to include interest or forfeitures of leveraged stock. Deferral $14,000.00 Match $6,000.00 ESOP Lev Stock Forfeiture $0.00 exclude leverage stock forfeiture ESOP Contribution $16,666.67 excluding $8,333.33 interest Total Annual Addition $36,666.67 This allows the participant to pass 415. 5. If the plan allows, current fair market value of stock allocated from the loan suspense account rather than actual contribution dollars used to release such stock may be used to determine the annual addition. What if plan fails 1/3 test? Or ESOP is not leveraged? You may be able to use the current fair market value approach for 415. Example: C-Corporation with 401(k) plan providing match equal to 100% up to 6% of the deferral and ESOP contribution of 25% of eligible compensation. Participant age 45 earning $100,000 in 2005 Deferral $14,000 Match $6,000 ESOP Lev Stock Forfeiture $1,000 ESOP Contribution $25,000 release 200 shares at $100.00/sh. Total Annual Addition $46,000 This fails 415. If the plan document allows you may use the fair market value approach. Deferral $14,000 Match $6,000 ESOP Lev Stock Forfeiture $1,000 ESOP Contribution $20,000 ( = 200 x $100) Total Annual Addition $41,000 This allows the participant to pass 415. 6. To reduce any excess annual additions, the plan document may allow for deferrals to be returned to the participants, reduce the participant’s share of the ESOP contribution and reallocate to other participants, or allocate the excess amount to a suspense account to be allocated in the next plan year. 7. No deduction is allowed with respect to any contribution amounts that result in excess annual additions.

Thanks Gary!

The ESOP contribution can be designated as a match and used to meet the alternative safe harbor test. I do not know why the client would be advised otherwise.

For some companies S-Corp ESOPs are awesome! Think about this, if the company is 100% owned by an ESOP and the company is an S-Corporation the corporation pays taxes based on the tax status of it's shareholders. In this case an ESOP which is a tax free entity. pays no taxes. Taxes will be paid as shares are distributed to participants. Also keep in mind the S Corporation ESOP “Anti-Abuse” Rules (IRC §409(p)). I have included a summary of these rules below. 1. EGTRRA imposes an income tax and/or an excise tax if the tax benefits of the S Corporation ESOP disproportionately benefits a group of shareholders that control the S Corporation either directly or indirectly. 2. Section 409(p) imposes an income tax on Disqualified Persons for the value of amounts allocated by the ESOP to such individuals if such allocations are made during a Non-allocation Year. 3. In addition, Section 4979A was amended to impose an excise tax on the S Corporation equal to 50% of a) the total prohibited allocations (includes current and prior year allocations) made to Disqualified Persons; and b) the total value of shares on which the Synthetic Equity owned by Disqualified Persons during the year is based. 4. These rules are generally effective for plan years beginning after December 31, 2004. However, for S Corporation ESOPs established after March 14, 2001 or for an ESOP established before such date by an employer who became an S Corporation after March 14, 2001 or for an ESOP that held no shares prior to March 14, 2001, these rules are effective immediately. 5. Definitions: a. “Non-Allocation year” is defined as any plan year of an S Corporation ESOP in which disqualified persons own 50% or more of the number of shares of stock in the S Corporation, including Deemed-Owned shares. b. Deemed-Owned shares include shares allocated to that person within the ESOP, as well as a pro-rata share of the unallocated shares held by the ESOP. Deemed-owned shares also include any synthetic equity held by the individual, but only if this treatment would result in his being a disqualified person or cause any year to be a Non-Allocation year. c. A “disqualified person” is any individual who owns 1) at least 10% of the Deemed-Owned shares of the corporation or 2) at least 20% of the Deemed-Owned shares of the corporation, including shares owned by family members.

It's better than being a Yankee's fan. The Yankees spent even more money to see their team, lose in the first round to these same Indians. After all watching the Yankees lose is almost as fun as watching the Red Sox win.

David, The Braves can't be in the playoffs every year. Stephen

Happily the Indians beat the Yankees last night!

Thus, for ADP refunds beginning in 2009 (for the 2008 plan year) they will be taxable in the year refunded.

We are getting them as well...

She should be able to get a copy of the Summary Plan Description for the ESOP. This summary of the plan should let her know when distributions are allowed from a plan. Most plans will allow for QDRO's to be a distributable event but not always. Once the QDRO is ratified by the sponsor the money should be segregated from her husbands account as described in the QDRO and if the plan allows can then be distributed per the plan's distribution policy.

ESOP Distributions: The Cash-Out Dilemma Perhaps this article can get you started in the right direction.

Becky, I don't think RLL will disagree with you on this one. If he does we are both all wet as I agree with your comments. Stephen

One such firm discloses the difference and refunds the excess 12b-1 fees to the plan as earnings.

I find it funny that Mike and mjb agree!

Assuming you are rreferring to "disqualified person" with regards to 409(p) I provide the informaiton below: S Corporation ESOP “Anti-Abuse” Rules (IRC §409(p)) 1. EGTRRA imposes an income tax and/or an excise tax if the tax benefits of the S Corporation ESOP disproportionately benefits a group of shareholders that control the S Corporation either directly or indirectly. 2. Section 409(p) imposes an income tax on Disqualified Persons for the value of amounts allocated by the ESOP to such individuals if such allocations are made during a Non-allocation Year. 3. In addition, Section 4979A was amended to impose an excise tax on the S Corporation equal to 50% of a) the total prohibited allocations (includes current and prior year allocations) made to Disqualified Persons; and b) the total value of shares on which the Synthetic Equity owned by Disqualified Persons during the year is based. 4. These rules are generally effective for plan years beginning after December 31, 2004. However, for S Corporation ESOPs established after March 14, 2001 or for an ESOP established before such date by an employer who became an S Corporation after March 14, 2001 or for an ESOP that held no shares prior to March 14, 2001, these rules are effective immediately. 5. Definitions: a.“Non-Allocation year” is defined as any plan year of an S Corporation ESOP in which disqualified persons own 50% or more of the number of shares of stock in the S Corporation, including Deemed-Owned shares. b. Deemed-Owned shares include shares allocated to that person within the ESOP, as well as a pro-rata share of the unallocated shares held by the ESOP. Deemed-owned shares also include any synthetic equity held by the individual, but only if this treatment would result in his being a disqualified person or cause any year to be a Non-Allocation year. c. A “disqualified person” is any individual who owns 1) at least 10% of the Deemed-Owned shares of the corporation or 2) at least 20% of the Deemed-Owned shares of the corporation, including shares owned by family members.

"Yeah Baby!" Behave Audio Clip - from Austin Powers

If there were other contributions to the plan the plan could lose it's safe harbor status for the year in question. However, it does not seem that this would apply based on the information provided in the original post.

Perhaps it refers to: Cape Gazettes Fredman the Great or Studio Fredman or Fredman.org or one of the other 663,000 google hits for "fredman"

Typo corrected! No more loose Yankees now they are losing!

The Yankee's Lose! The Yankee's Lose! The Yankee's Lose! The Yankee's Lose! The Yankee's Lose! That is music to my ears. As of last night the Yankees have lost of five in a row; are 8 1/2 games out of the wildcard spot and 14 1/2 games behind Boston for the division ... the only light on the horizon for yankee fans is Roger Clemens coming to "save" their season on Monday. By then they will have 108 games which is at most 22 starts. My prediction even Roger can't lead them to the division title and probably not even to the wildcard. Let's hear some more music!