ESOP Guy

Slow reply but no you do not have to do an RMD. The shares in the ESOP do not count for ownership and if they sold before they turned 70.5/73..... there is no RMD.

We use FT Williams. We tried to help a client file a 5330 to pay the excise tax for an over contribution. FT Williams tells us the filing rejected because the form was late and money was due. They however don't give us any insight how to get the payment and filing done in the correct order. If anyone has done this successfully we could use some insights on how to do this. This was so much easier with the old paper forms.

There is nothing stopping them from using the 12/31/2024 stock price as long as it all happens on or before 12/30/2025. (Edit date from 12/20/2025 to 12/30/2025) There is nothing you can do. This is common and done all the time in this industry. The plan is on very solid ground. If you hire a lawyer you will be spending money to only lose. I would add it seems hard to know the value will 3x. But this is the reason ESOPs do what is happening. Management doesn't want to compensate former employees but want the increase to go to current employees who they see as being the primary contributors to the increase at this point.

Darrin you are the one and only person who has ever done singing continuing education classes that I have been in. You bring up your name in this industry and the conversation turns to the signing instructor. You also taught all of us a lot in those classes. Enjoy retirement.

Despite the list of authorized providers we just filed a 5330 electronically using FT Williams (although I guess it could have been via the government's system) a couple of weeks ago. I just made sure I liked the numbers and passed it on to someone here who knew how to do it but I am sure it was electronic. I believe it was agreed we could have done paper but we did file electronically. It was for a PYE 2024 ESOP.

There has to be a bona fide separation however. If there is an agreement the person will be brought back you can't pay them a benefit. The classic example is a person who is terminated with the understanding once they get their benefit paid they will be rehired. This isn't exactly the same but if there is some kind of commitment to bring this person back after a given period of time I have my doubts. If this is a layoff and it is simply if things turn around we will take you back there would be a bona fide separation. I think you need more data regarding this.

Number nerds hanging around here? I doubt that.

The question of when a person enters or re-enters a plan and if they get a contribution are two separate questions. I am constantly telling clients to stop mixing the two together. You first decide if the person is a participant. If not, they can't get a contribution. If so, you see if they meet the requirements to get a contribution allocation. So yes a person can re-enter and if they work too few hours not get a PSP contribution.

The other topics/questions seem pretty well covered so I am going to reply to just this part. This comes up in the ESOP world a lot. I have 4 12/31/2024 ESOPs that are audited plans and still don't have their 12/31/2024 stock price yet. Obviously they aren't going to be ready to file a complete 5500 by the 15th. Up until a few years ago we wouldn't hardly bat an eye at the idea of put a pdf letter saying the auditor's is ready we will file an amended return once it is ready. Not anymore, our firm's rule is a hard we will only file with that attachment if the client or auditor writes that attachment and gives us written instructions to file that way. Our only recommendation is file late an DFVCP. Management is very clear on this. Why? It hasn't happened a lot but it has happened a few times the government has taken the position a 5500 without an audit report is an incomplete return and said the amended return wasn't an amended return but the first legit, and late, filing. They have sent a penalty notice with a very large number on it. So far we have gotten them to waive the penalty by writing a letter. The simple fact is while the odds of that happening seems very low the cost is very high. The DOL penalty is a few grand/day with no cap! On the other hand the worst you pay under the DFVCP is $4,000. The risk of getting hit with that DOL penalty is just not worth it regardless how small you think the odds are. Our management will not allow us to put our firm at risk of having to pay that kind of money by a client saying, "but xyz firm told us it was ok". Just thought I would add that to this discussion. See https://www.newfront.com/blog/form-5500-updates-participant-count-win-and-large-plan-filer-warning I quote: There have been rumblings in the retirement plan industry of informal DOL comments suggesting that the ability to “negotiate” the penalty is going to be much more difficult going forward. Apparently, the DOL intends to crack down on the “file without the audit” approach unless the amended return is filed with the complete IQPA attached before the Rejection Letter is issued (for those keeping track – that is before the 30th day after the extended filing deadline). If the employer is not 100% certain that the IQPA is going to be completed by the end of October or first week of November (for calendar year filers), be aware that this approach may start costing significantly more than Option 2 and there will be little room to negotiate down the initial assessment.

And doing them all at once is the least costly option as the max amount is based upon filing with the DOL not forms.

A few quick questions: 1) How sure are you these are shares in a 401(k) plan and not a KSOP (A KSOP is an ESOP with a 401(k) component)? It makes a big difference. A KSOP would have the same rules as an ESOP about distributions. 2) It sounds like these shares aren't publicly traded. If that is correct how are they setting the price? 3) If a 401(k) plan and these are just a choice of investments I guess they could allow in-service distributions for people who want to move the shares to a SD IRA. This is so unusual I would want an ERISA attorney look at it also. I really do understand your concerns.

I think the 2-4 BIS situation was addressed in the Ferenczy article linked and in the rule itself, and most likely the base document description of the Rule of Parity. It says: Another optional election that can be made is the Rule of Parity. If a plan has this rule, it applies only to individuals who were not vested in any benefit when they terminated employment. Under the Rule of Parity, a rehired employee’s prior service is disregarded if the employee’s breaks-in-service exceed either the number of years of service s/he had prior to the breaks, or five years—whichever is greater. If the employee’s breaks-in-service do not exceed the greater of those two periods, the service prior to termination must be counted for eligibility purposes. I can't imagine your plan document doesn't repeat that rule some place. I just think it is hard for a person to have 2-4 years of service in any kind of plan that is making any kind of contribution to have no vested benefit. But since a 4k plan employee deferrals count as a vested benefit that makes it all the rarer. For this reason I prefer once a participant always a participant plans. Attempts to use the rule of parity adds a lot of work and complexity to keep out what is typically a pretty small percentage of all rehires.

There is no way to do what the client wants if the former employee even had $1 of employee deferrals in the 401(k) plan. The Rule of Parity says it only applies if they never had a vested balance with the old service. See the older discussion of the topic. Hope that helps.

When did you do the filing? If today it can take some time to show up on EFAST2. Did you pay the fine? That now takes time for the DOL website that computed the fine to acknowledge the filing.

No, as in does the document say they can be different or not?