ESOP Guy

You are correct the term "W-2 contractor" is a contradiction. Independent contractors have their income reported via a 1099 and employees have their income reported via a W-2. Also, this isn't something that is negotiated or decided or agreed upon. There are objective tests to determine if a person is an employee or independent contractor. The tests can be as clear as mud at times but hard to determine isn't the same thing as people get to just pick. My guess if these people had their income reported via a W-2 the company is stuck treating them as employees at this point but wcc is correct first the company needs to figure out if these people are employees or not. That determination isn't the TPA's job.

Don't forget to look at the promissory note. Back when I did 401(k) work and ESOP work our standard promissory note we gave clients to use this trigger for payment upon termination was in the note. It was a matter of contract law not Qualified Plan law that it happened. The participant agreed to the term when they signed the note.

Are you willing to share the industry you work in? If they are holding the cash after you have been segregated out of the stock it typically means they want to slow down your ability to use your ESOP funds to open your own business that competes with them. You see this with certain types of engineering and IT firms mostly as the primary asset in those business is really the skill of the people. So if you leave, and your in this kind of field, you take your knowledge with you and only need enough funds to pay your bills until you have built your company up. You can see how slowing your ability to get the funds can put a damper on this. Harsh but true at time that is why companies show down the payment. I once helped a company that was a lawn service that included landscape design and its own small farm to raise trees.... They put a 5 year delay even if the person was put into cash because they got tired of guys leaving in the fall, cashing out and by the following spring had taken the money to buy a truck a few lawn mowers and trimmers. The guy was calling up the clients he used to service offering to cut their grass for less than his old employer. Management said "enough of funding out competition every fall". They put a 5 year hold on the distributions. Like I noted before the other reason can be if the stock price has done very well slowing down the payment can slow down the number of ESOP millionaires in their 50s to early 60s deciding they can retire early. Once again a bit cold but true. The above are the two biggest reasons for holding a person's all cash account in an ESOP. It is more philosophical than anything else. It will be hard to get those answers from them for obvious reasons. It will most likely be said a different way. Your problem is holding the fund for years like you describe is all legal choices on the company's part. You can ask and pester them but there is no fighting and winning on this topic.

Add me to the voice your firm is doing too much work and opining on things it shouldn't. We do not normally get and wouldn't look at if we got the divorce degree. Our job is to determine if the DRO is a QDRO. We are not domestic relationship lawyer and we have no interest in getting between to spouses in the process of ending their marriage.

Add my voice to walk away. Some revenue isn't worth the cost of dealing with their issues and attitude of not care about small things like the law.

See my replies above in red. There are just a lot of questions and that seems easier. Hope this helps.

Just to be clear who is a W-2 employee verses a 1099 contractor isn't something that you just decide and I mean by anyone. There are objective tests to determine if a person is an employee or not. Not that is the TPA's problem but this we just decided means they are most likely ignoring the law.

I 2nd this opinion. They have the 1,000 hours while the plan was frozen and they count. This person enters upon rehire.

Yup seen this also. And this meets the rules that Peter quotes in my mind. If the return was filed after the original due date and there is an extension the contribution was made by the extended due date. The extended due date of the return does't change just because the return was filed before the last day of the extension.

A big part of the difficulty is the note has to be secured. What asset is the company willing to have a lien put on it to secure it? Would a lien on an asset violate other loan covenants the company has? They can get a bank to agree to make the note good but if the company could do that they are most likely in good enough cash position to just pay the person cash. See my prior comment for ideas I would track down before spending too much time on this idea.

I haven't seen this done in decades. It is pretty difficult to do all legally correct is part of the problem. If the company is having cash flow problems regarding paying benefits and the repurchase obligation they need to find a firm that is good at repurchase obligation studies and work on a plan. ESOPs have more flexibility to change their distribution rules and policy than most types of plans in regards to protected benefits. This is an area where a good TPA and ERISA attorney that knows ESOPs can really help with the planning. It tends to be money worth spending.

Congrats on retirement. I would assume most people on a forum like this know about this IRS table with all the limits going back 1989. chrome-extension://efaidnbmnnnibpcajpcglclefindmkaj/https://www.irs.gov/pub/irs-tege/cola-table.pdf

We do help our clients look for lost people who need an RMD as no one likes an uncashed check hanging on the books. We don't do it until very close to the RMD date or if the check really does go uncashed.

Add another voice that is objecting to the annual part of this idea. We look for or advise our clients to look for people when it is relevant. Although places like Inspira people send a lot of forced out to IRAs to them does an annual search. Not sure if it is part of the base fee they charge those IRAs or an add on What I do know is that a few hundred in an Inspira IRA needs to have an incredible rate of return to not have the balance go down annually.

The moral of this story is: Folks make sure your beneficiary elections are complete and up to date as you aren't doing your heirs any favors if you don't. I can't tell you how many times I have said that sentence to someone of the job.

Also understand if the estate is small enough in many states the beneficiaries of the estate can use a "small estate affidavit" I am NOT an expert and it isn't really the TPA's job to educate people on them. But we see them on a regular basis and it seems to allow a fair amount of skipping of the probate process. You now know close to 100% of what I know and I am not sure if I helped or not.

Your math and logic is all wrong. Read the IRS examples: https://links.us1.defend.egress.com/Warning?crId=6984f4a2c933bcd338c721dd&Domain=oneblueridge.com&Threat=eNpzrShJLcpLzAEADmkDRA%3D%3D&Lang=en&Base64Url=eNrLKCkpKLbS1y9JTcwt1svNTC7KL85PK9FLzs_Vz01NLdE3MrE0s7AwMbe0tDA3M7IvsA21zEsvrfIrzM4M8CrLyvIMzQYALWcXFw%3D%3D&@OriginalLink=teams.microsoft.com

Ok lets be dumb and set aside the oddities but they have been covered enough I won't beat the dead horse too much. I would check if this is an Affiliated Service Group. I have to admit I know enough about these to know to look as you see them infrequently. I mean what are they doing for this company as "owners" if not managing it? It might not be a service organization for example. My guess even if they think they can thread the needle on the Affiliated Service Group rules and so forth in an audit the way they are being paid becomes the issue. This seems to be set up to exclude the rank and file from benefits they want for themselves. I just try to avoid the stink of pigs in this job and this has the stink of pigs trying to get benefits for themselves they aren't willing to give the rank and file.

Does the RR plan document allow for the RR in? Are the NR union employees excluded by document and the benefit subject to good faith bargaining? If you are excluding the one group by document and they had good faith bargaining to that effect that is a statutory exclusion. They aren't in the coverage test. I am pretty sure you test the included union people separately from the non-union for 410b testing by regulation. But check me on that or someone tell me I am wrong. It has been a number of years since I had a mixed union and non-union plan. The first step is to make sure the groups are included and excluded per the document and contract and move forward from there.

Yeah, the times I have seen this error we didn't put this much thought into it. We got the money moved to the correct plan. If we thought it was material there was some earnings transferred. I have to admit I don't recall any of these plans ever getting an IRS or DOL audit also. But at times the KISS Principle works.

You may have thought of this already but there are a lot of important side issues. I have had this happen before. if the first check was paid in 2025 and you reissue can you stop the 2025 1099-R? If not, will there be a 1099-R for the original check and whoever gets the new check? it seems like there shouldn't be two 1099-Rs. I know a lot of banks don't allow even the correct person endorse and deposit a check in a dead person's name so while maybe legal my guess that check can't get deposited. However, the person had the check so it is taxable income to the deceased. If no 1099-R ends up in their name that isn't going to be an issue most likely. After that it is an asset of the estate in my mind. My guess the plan needs some advice of an attorney like mentioned.

We will ask the client to ask the attorney about that provision. Thanks for your help!

It is an ESOP so it is an ERISA governed plan.

As the title says I just came across a plan document that defines a Break in Service as any year the participant works <1,000 hours. I don't recall ever seeing the number of hours being more than the <501. I have tried looking up the code and regulations and I see nothing that allows it that high number of hours. Thanks in advance.

You're just muddying the water unnecessarily. Even you admit that all the plan has to do is distribute the shares if the company wants to buy them. Or more likely the original commentor is using nontechnical language for a very technical event. Since he mentioned the putting the money into a money market more likely the company isn't actually buying the shares but recycling them within the ESOP. To most people in the ESOP and not in the industry the ESOP and company are basically interchangeable when legally they are very different. This company would have to have the most incompetent advisors to have the company buying these shares directly from the plan when there are so many ways to avoid the issue. I stand my advice you would be wasting your money to go to an attorney. Answers to non-technical people should follow the KISS principle: Keep It Simple Stupid works well. Reality does bring up a good point you could ask if they think a money market is prudent to invest your money. Or better take your funds out of the ESOP and get a better set of investments of our choosing in an IRA if you want.