ESOP Guy

The prior thread with a spreadsheet that computes the amount. I assume you would still need to update the monthly interest rate that is based on one of the US Treasury bill/bonds. We have put numbers in this spreadsheet and what is coming off our software and get the same results.

Am I reading this right? The retirees are being paid slower than regular terminated people? If true that is odd if nothing else. I have seen plenty of plans that pay the retirees faster than normal terms and no one tests them. So I am thinking even if it is backwards it might not need testing. What makes me uncomfortable ( and maybe you) is the HCE that is getting the fastest payment is a former owner. The timing of the change looks odd if it was done the exact year that person can get paid. But if the attorney is signing off on it we would get the attorney's opinion in writing and move on. You can have class based differences like this. They just better not change is again in the near future were say everyone has to take installments after a former 5% owner got a lump sum. That would strike me as very risky.

Or as you say they don't use the terms right. They could be simply asking for you to make sure if a person gets to 1,000 cumulative in any given quarter and leave their job they get vested in the current year.

I think the fact that it is non-discriminatory is too little reason to say this is fine. You have to follow the plan's provisions. I doubt there is a plan provision that says fees can be taken from any given participant's account only. If a case can be made saying it can be done based on a plan provision fine but in all the decades I have read plan documents I have never seen a plan's allocation provision that says this can be done. This is plan admin 101 here. It has to be both legal AND in the plan document not just merely legal for a plan to do it.

To state again the key is to preserve the MP characteristics of that money. The big one is the MP money has a lot more rules on when and how distributions can be offered than a PSP. That can be a bit of a pain as you have to make sure people are trained to not just treat this money as part of the PSP. Back when I did those decades ago it was like running an MP within the PSP except no more contributions were being made to that part of the plan.

It isn't uncommon to see it in the forfeiture section. Can I suggest if you have a pdf of the document to search for the word "deem" and make sure that provision isn't hiding some place in the document? When I convert a new client in or get a client that is starting a plan that is one of the several word searches I run on the document as I write up a personal summary of the plan provision. I am a bit shocked at all the different places that provision is hidden.

Can't you just do an in-service distribution to get most if not all of their balance in the qualified plan into the IRA? Starting the next year they can have at it. The current year RMD out of the qualified plan has to be paid obviously. Sure, you might have to amend the plan to allow in-service distributions and you will have to allow anyone besides the owners who meet the requirements of the in-service. I would only open the in-service to anyone who is 65 or older if I was going to do this. Short of that I am not aware of away around it.

I have heard that before but I don't think so. If we take that logic one more step what is the value of the stock the second after the transaction closes? Isn't it the amount of cash divided by the number of shares? I capital transaction that sells shares isn't supposed to increase or decrease the value of the shares if it happens at FMV. It does lower EPS in active companies but if the new shares are bought at FMV the increase of cash on the balance sheet is supposed to offset the decrease caused by the effect of EPS going down. I would add a company with no assets or operation can have value. If the idea for the business and expected management are set up you can make a legit claim there is an expectation of future earnings the stockholders will benefit from. In the end appraisers will tell you the value of a stock is the net assets plus the present value of the future earnings. The big unknown is what is the future earnings to do the present value calc on. That is why ESOP stock appraisals always look at management projections. They use other methods to benchmark and make sure that method is grounded in markets if possible but the big driver of any ESOP appraisal is the projections of the businesses earnings.

Strictly speaking a ROBs is nothing more than a 4k or PSP with employer stock in them. The stock price is the issue. ESOPs have a clear legal requirement to get the stock appraised once a year by a professional. Other plans it is simply part of the fiduciary requirement to run the plan right. I have seen ROBs in action over the years. I have seen PSPs with employer stock in them over the years. None of them got full blown appraisals annually like ESOPs do but they all had an objective method of getting a value that was more than someone's guess. None of them blow up in people's faces. On the face of it if you can show the plan is using FMV and follow the rest of the rules the idea is legal. But the stock price is a minefield that can easily get you as others noted. So anyone setting one of these up needs to know there are real risks here. I would add all of them that I have seen and had as clients allowed all the employees to get some of the shares. That is another criticism of ROBs. They don't actually share the ownership with the employees as the initial rollover is the only cash that buys shares. I think that helped make them more acceptable to regulators.

If you have a pdf of the plan document, AA and base document, I would search the words, "Alternate Payee". Most documents make it pretty clear that the AP can be paid immediately if the QDRO calls for it. I guess I have never had anyone question what part of the law says you can write a document like that.

You would be better off asking such a plan specific question of the plan. Most state plans I am familiar with, which is a pretty small number, all have people you can call or e-mail with such questions.

My issue is I can't think of a fact pattern where a SH contribution would be in Box 1 much less in Box 1 and not 5. So either the W-2 has an error as suggested or the fact Box 14 is exactly the difference between Box 1 and Box 5 is a very odd coincidence.

I think your assuming the box 14 amount is the difference between Box1 and Box 5 is flawed. I think the better theory is that is just coincidence. There are a lot of things that can cause a difference between Box1 and Box 5 that aren't reported on the W-2. All Section 125 deductions come to mind as a common difference that aren't reported on the W-2 any place. Your plan document ought to define compensation. If it says taxable income from the W-2 or something that means that I have always understood that to be Box1. It has always been my understanding Box 14 is just an informational box.

Yup the term "1099 employee" doesn't legally exist. You are an independent contractor (IC) or an employee. As pointed out ICs are issued 1099s and employees are issued W-2s. More importantly this isn't something you get to just decide or negotiate. Either a person is an employee under the law or they aren't. If they are an employee issuing them a 1099 just means you are breaking the law by not treating them correctly not that they are ICs. So to answer your question: ASSUMING the ICs are legit there is no coverage issue as they aren't employees and most likely are excluded by the plan provision that allows IC to be excluded. The bigger problems come into existence if the assumption they are properly treated as IC is not right. As pointed out is how much are you responsible for the IC vs employee determination? Also, assuming this plan has a provision that say if the IC are later determined to be employees they are still excluded will make coverage testing a problem. So what do you and your firm need to do to make sure you are protected if this goes bad.

I would tell the auditor. Depending on the size of the plan $22k will be declared immaterial by the auditor. Besides give the size of the mess, they are still working on 20018, you are going to need the auditor's help.

I would think you need to look at the plan's definition of hours here. For example: If this is just pay for work in 2020 that didn't get paid until 2021? It seems most plans would say this the hours that go with that pay are 2021 hours. Likewise if this is vacation pay that is paid to this person in 2021 my guess is there are hours that ought to be attached to the compensation. If there are comp and hours in 2021 I find it hard to say this person didn't render service in 2021 for these purposes. I can't cite anything to go there but that is my thinking. I guess deep down what I would really do is figure out which way to do the coverage test that this person hurts the test the most and if it still passes document that fact and move on. I would only spend any time on this if this one person is the difference between passing and failing. At which time I might ask the client if they are willing to get the plan's attorney to opine on this topic. That is sort of the practical answer. I get some times working it out now helps when it matters more in the future. In the end this is just grey enough you could most likely make a good case either way.

Yeah I forgot about standardized prototypes. I haven't worked on that kind of a plan document for over 15-20 years.

As far as I know there is no exception or rule that allows for the return of the funds. I can tell you also if I were faced with this situation I would be saying and my bosses would be agreeing: we want something in writing from the counsel before we help do this. We want written direction from the plan sponsor and trustee also. We would want pieces of paper we can pull out to protect our firm if this gets bad.

I agree with the above but find the "OR" the most interesting part of this whole thing.

I assume the issue is a lack of a SSN. I get an undocumented person might not feel comfortable going to the federal government to get a number but it can be done. An undocumented alien can apply for ITIN no questions asked. https://www.irs.gov/individuals/individual-taxpayer-identification-number I quote the website: They are issued regardless of immigration status, because both resident and nonresident aliens may have a U.S. filing or reporting requirement under the Internal Revenue Code. ITINs do not serve any purpose other than federal tax reporting.

Define certified. Do you actually get them to sign something saying the census is true and complete? If so, I have never worked for a place that does that in all the decades I have been in this business.

Have you tried to simply Google 401k TPAs near you? Get a local firm which most likely does this line of business. A lot of people I know pretty much run their whole TPA business model on small plans like this.

The whole 1099 employee is typically something I mention but didn't' this time as it is clear the original questioner has no control over the determination. As an observation back in the '80s my first job was as an IRS Revenue Agent. If we saw a situation where a person's job basically didn't change but they went from employee to IC we would challenge the change the vast majority of the time. To us it was simple. If there were an employee and there was no meaningful change they are still an employee. For some reason a lot of people have gotten it in their head this is something you can decide and negotiate. The employee status determination is a legal determination. The rules aren't always the clearest but there are tests and if they say they are an employee they are. Like I said none of this is your control so I am mostly just on my soap box. I will get off now.

You have to take it away. If you read the document closely it will have a provision telling you what happens if a person is given a contribution in error and I can't imagine it says anything but take it away. Read the document closely I am sure that provision is in there and what it says. If you are using a prototype it will be in the base document. Failure to fix is a failure to follow the document which can disqualify the plan. Maybe one of the lawyers that come by here can tell you if you can do some kind of correction that allows you to amend the plan document to fix this. But my guess is if you can do this the change won't be worth it. I seem to recall it might be possible to change the eligibility for everyone to something short enough to allow this person into the plan but that would mean you would have to do it for everyone.

It sounds like they are retired per the plan document given what you said in your first comment. But double check the plan's definition of Normal Retirement Age and Date to confirm. But it sounds like they terminated after both NRA and Normal Retirement Date.