GMK

Geez, Tom. I totally missed that it's pi day, and then I'm supposed to hit the timing on my posts? I'll try to do better next year. edit: pretty close tho', eh?

Didn't we do this last year? ... what? ... every year about this time? OK pi are not square pi are round cake are square

Not to be contrary, but it seems to me that a reasonable rate of interest can be determined by finding "a rate similar to what a participant would have been able to obtain had a similar loan been taken from a financial institution." Examples in this thread show that the interest rate on "similar loans" varies from place to place and from time to time. As pointed out, above, such loans can even be at prime sometimes. In other cases, State law may require a rate for a plan loan that is unreasonably higher than the going rates from financial institutions. IMO, what cannot be determined under the current regulations is a bright line Safe Harbor rate of interest that the pension experts can simply plug into the plan. It looks like interest rates on loans are a function of too many variables for there to be a simple answer. (Which, on re-reading, is I think in agreement with what Mr. Bozek is saying.)

In the OP, employees and the plan can own stock. My example was based on a situation where no one but the ESOP can own stock (which I should have said). If the plan doc says that the company MUST automatically and immediately buy any stock the ESOP distributes, that would take away the option for current employees to own stock distributed from the ESOP (which I don't think they want). So, I suggested that the auto and immediate buy back only apply to shares distributed to non-employees.

With an S corp owned by the ESOP, the Plan Doc can specify that the ESOP can distribute shares of stock if that distributed stock is automatically and immediately purchased by the company. The distributee (participant, beneficiary, rollover account) never has possession of the stock. The check is ready when the stock certificate is created and immediately cancelled. A similar arrangement might work for a C corp where the automatic and immediate buy back applies only to distributions to non-employees. Employees receiving distributions in stock would still have the choice to keep it or use a put option to get cash. You would need to get your ESOP attorney's advice on all of this.

I continue to be impressed that there are non-bank plan sponsors who are willing to take on the role of a bank. Maybe they actually do have the skills to prudently and knowledgeably administer loans. Some probably do, but ... (I am not a banker, and no, we do not offer plan loans.)

I'd suggest sending a simple note, signed by an officer of the firm, that states something like, "Our only fee is the flat annual fee that we charge to the plan/plan sponsor ($nnn in 2012). We do not receive revenue sharing or other income from other sources in connection with our services to the plan." Then you have a document to point to if, down the road, anyone asks if you disclosed your fees, whether you really have to disclose or not. And part of the purpose of the disclosure notices is to reveal hidden fees, which you do not have. The plan sponsor will (should) be happy to have a document to that effect. Instead of having to say, "they told me ...," the plan sponsor can now show that "they documented ..." that there are no hidden fees.

PMC - Posts #4 and #6 here may also help: http://benefitslink.com/boards/index.php?showtopic=47952

not answered here? http://benefitslink.com/boards/index.php?showtopic=50805

They call it a recordkeeping credit, so I imagine it goes to Ascensus, whom they identify as the recordkeeper for these plans. I don't know if Vanguard would allow one to chose a different recordkeeper with their small-plan package.

Can't say I fully understand it, but from the proposals we've seen, I think there is a slight overall advantage for the plan to use the lower-cost shares. Vanguard charges a base fee that depends on the number of participants. If you use Vanguard investor funds, Vanguard gets 0.1% of the expense ratio for record keeping. They subtract this from the base fee that the plan pays. I assume that the lower-cost shares don't pay the record keeping fee credit, so the plan pays the total base fee, and the participants get the lower expense ratios. I haven't run the numbers, but generally the expense ratios for Signal or Admiral funds are less than for Investor funds by more than 0.1%, like 0.06% vs. 0.18% for Total Stock Market Index. So, the lower-cost funds give a lower all-in cost. A sponsor might look at using investor funds to save a little money by putting more of the cost on the participants, but this is not the best fiduciary choice for the plan when a lower total cost approach is available for the same investments and services.

In any case, it's still up to the plan sponsor/administrator to justify that fees being charged are reasonable for the plan. So, we get to do the RFP thing, which is not fun, but is informative. I also think the fee disclosures will be a wake up call to plans that have not paid close attention to fees, with good results for participants in most cases.

Agreed. I did not consider that the diversifications were going into other investment options within the ESOP. I assumed they were going out of the ESOP to another plan (like a 401(k)) or an IRA, as ESOP Guy described. You need to send the participant fee notices, not because of diversification, but because you have participant-directed investments in the ESOP. And also seriously consider ESOP Guy's advice about changing the plan.

I'd say no. My understanding is that the purpose of the fee disclosures to participants is to give them sufficient information to make informed decisions regarding their participant-directed investment elections within the plan.

Not I, but maybe this helps (you've probably already seen this, but anyway ...) http://www.employeebenefitscounsel.com/201...ualified-plans/

For what it's worth, I think this answers the 'Is it equitable?' question. Generally, spousal beneficiaries get the options the participant would have had. And as I read the posts, I came to ETK's conclusion (post #21) that one could look at it with the point of view that a retirement/pension plan is established to provide a stream of income at retirement to the participant or beneficiary, not a life insurance benefit.

according to post #1.So, the question appears to be whether a retirement plan should have the right to delay the start of a surviving spouse's stream of income until some date later than the date of death of the participant. REA says that the start of the stream of income cannot be delayed until the participant would have reached normal retirement age but must start no less than 10 years earlier than NRA, leaving to the retirement plans the option to start it even earlier. I read angelf as saying that retirement plans should be required to allow the surviving spouse immediate access to the income stream upon the death of the participant, and angelf says that this was the original intent (though not the one stated in writing in the law). On the one hand, this is a law for retirement plans, where the benefits are meant to be retirement benefits. Is it reasonable to delay the start of such benefits until a defined "retirement" age is reached? On the other hand, poverty hits a lot of surviving spouses and their children. So, who is harmed by allowing the surviving spouse immediate access to the benefit? And on the third hand, if the law required plans to allow the surviving spouse immediate access, would that be excessive government intrusion or government doing the right thing? Interesting.

And if you run a plan and have someone file 8955-SSA's for you, check what's been filed. The ones just filed for us for 2009 and 2010 were both very wrong. They're computer generated and need to be reviewed by someone who actually knows what's going on. Or let it go, and in a few years start digging through ancient records to explain to someone why they can't have a balance that's already been paid out.

One of the requirements for a domestic relations order (DRO) to be Qualified (QDRO) is that the Order does not require the Plan to provide any type or form of benefit, or any option, not otherwise provided under the Plan. The Plan rules.

I hope you have the best new year ever! And thanks for all your posts in 2011.

Yah, I thought about that too, Tom, but the OP indicated that forfeitures would not be restored until the whole distribution was paid back.

Maybe she's thinking she can get a better return in the plan for her piece by piece savings compared to near-zero in a passbook account or CD. Not that plan earnings would help with her pay back, but ... In any case, after tax contributions could be the deal breaker, unless you already have the record keeping procedures in place for them.

And even if you have the money, you (the employer/plan sponsor) can't buy your way out of your overall fiduciary duties with regard to the Plan, including with regard to picking proper trustees. You still end up being responsible for monitoring and in effect approving the decisions and actions of your chosen trustees. So, one answer is that if you want to offer your employees a plan, you have to become a trustee or (equivalently for the purposes of being sued) take responsibility for the decisions of the trustees you choose. Else, there ain't no plan. ESOP Guy - Your point is correct. If appraisers were considered fiduciaries for their appraisals only and were categorically not fiduciaries for anything else (unless they agreed to be), then we could probably move on. But without clear limits on the fiduciary responsibilities of appraisers, it's likely that some court could improperly drag an appraiser into the mix for something as far fetched as not conducting a detailed review to independently confirm the financial and business data provided by the company. What a crock. (I am not an appraiser. We have an ESOP.) edit: minor wording change

That's a rhetorical question, right? I'm not sure how I got here, but it's too disconcerting to think about. In any case, to everyone, Happy Holidays.

What comes to mind is, "How does the Plan Document define compensation?" which likely leads to support for ETK's recommendation to correct.