ESOP Guy

Tom to be clear my question was just a question not a chanllenge. I wish I could convince people here to use something like the Fire system to do these things electronically. I can't find quickly what gave us the idea that a signature from the client has to be had before you file using Fire or another system. But to our way of thinking IF signature is needed then you might as well send the paper form to the client and have them sign it and mail it in. So it sounds like the answer is to do more research on this topic with the IRS. To answer your 5500 question with Pension Report we can know if the client signed with a PIN and we get the feedback if the DOL accepts it as valid. So to our way of thinking that is a valild electronic signature. We do recommend they do a wet signature. If you take the position that the thinking around here is a bit inconsistent I might agree with you. Like I said at the beginning none of this is a chanllenge. I am looking for a better way to do things. And to me getting to a point were we can comfortably file all these silly forms electronically in one or two big batches sounds better then sending all these paper forms we are currently doing.

Tom: You may have answered this already, so sorry if a repeat. I did a short search to see if it is a repeat. Our understanding of the electronic filing requirement for the Form 8955-SSA is the client is suppose to still sign a paper copy even if you file for them electronically. The culture around here is one we would need proof they have signed before we file electronically. How do you know they signed the paper copy, or is the culture around your place of work one where if you merely send the paper copy to the client that was enough (you guys assume they signed the copy sent to them) to do the electronic filing?

GMK If I remember correctly you have an ESOP and I am an ESOP geek. My your New Year be filled with rising stock prices and easy repurchase obligations. ESOPGUY

It has been a very long time since I have had one of these and it was in a DC plan, not a DB plan. But decided what Q&A 8 means for you. http://law.justia.com/cfr/title26/26-5.0.1.1.1.0.2.50.html just in case the link doesn't work I am refering to §1.401(a)(9)-5, Q&A-8, If you have Sal's book it might help to start there on this question.

In most but not all cases the T.H. test is across all plans. But if somehow you could test the two plans separately I don’t see how you can just transfer the balance from one plan to another. What is the reason for the transfer? Just because one moves from an eligible class to an ineligible class doesn’t mean you lose your right to participate in the first plan. And while both plans are with the same company and in many ways it is all “one happy” family I am just not sure one can make that transfer. Do the documents allow for this kind of transfer? I have had clients with union and non-union plans. If someone moved between groups they always just had balances in both plans.

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. No its a question that is ignored in the employee benefits community. Fulfilling the duties of a plan fiduciary/trustee is time consuming and filled with unexpected risks. There are too many ways to be be blindsided or be found liable for another person's illegal activities. A few years a financial advisor was a fiduciary to a qualified plan for the purposes of investing plan assets. However the plan admin/trustee was siphoning off assets by making false entries. After the trustee took off with the assets the plan sued the financial advisor as a co fiduciary even though the advisor did not have any involvement in plan administration. The court found the advisor liable as a co fiduciary because the advisor received the monthly statements of the plan assets and did not conduct due dilligence to review their accuracy. Now why would any one want to be a trustee or fiduciary? Mbozek has a point here. This idea that a co-fiduciary can be held 100% liable for any other actions by a fiduciary is what has gotten all the stock appraisers in the ESOP world riled up. The proposed DOL rules would make anyone who appraises closely held stock a fiduciary. The DOL says it would make the appraisers more accountable for the price they are giving. While one might not object to that idea but what appraiser in their right mind is going to make themselves liable for actions of people they may not know exists. You go to some of these ESOP conferences and the appraisers are saying they will leave the business. They will just do appraisals for Estate Tax, and buy/sell purposes.

Rblum50 you are in a tricky spot. I am not trying to insult your intelligence by telling you something you may know, but I am inclined to mention this. This sounds like one of those situations where if you cooperate you may make people happy and you get out of bad place cheap and easy. However, if you cooperate and don’t filter it through a lawyer and things get worse you could find your “helpful” words coming back to haunt you in court. Like I said not trying to state the obvious or insult your intelligence, but I have been in that place before. All I can say is when in that place I have typically went with the risk of make people happy and got out of the situation cheap and easy. But we started from that point forward always reviewing anything we said, and more importantly wrote, with he lens of how will that sound in court with a hostile lawyer trying to convince people to interpret my words in the worst possible light. And we tried to write as little as possible. Honestly, I would think about stopping all e-mails about this client if you have staff working for you. People tend to write too informally in e-mails and write lots of opinion in them. One reads more and more how e-mail is what gets people in trouble in court because people forget that e-mail is forever and lawyers can and will go after them if it comes to it.

This used to come up all the time in balance forward plans when the market moved one way or another in a big way. The simple answer is "you follow the document". So use whatever weighted average the plan calls to use and use it. And I suspect that the plan says you start with beginning balance and the cont rec'ble was part of the beg bal. If this guy shared in a loss on his cont rec'ble that is how life works. If it had been a large gain he would have shared on the gain. It really is follow the document, follow the document.... in this case let the numbers fall where they fall and don't over think it. edit: typos that made my 1st answer almost unreadable.

This discusion isn't very old. But we had a small client pay a little over $1k with no withholding. It is a Dr. office is this is the first payment since the mid-2000s. As far as I can tell the client isn't at much risk as seems to be the concensus in the thread. But if someone knows of anything else we need to know about I wouldn't mind a heads up. We are planning preparing the 1099-R as the distribution was done show no tax withheld. As an aside my memory is the same as Bird's. These rules were set up to give a one year boost to gov't revenue by taking it from a future year. (Warning ideological soap box coming) One of the reasons our government is so screwed up is because that actuallymakes sense to those people. I swear one of the best changes that could happen is if someone in our political leadershop made Uncle Sam use GAAP. That kind of shift would not change the income statement, just be prepaid revenue on the balance sheet. Enough of my CPA rant.

I have a little problem with the idea of an ee choosing to default on a loan. I think one needs to go back and read the promissory note. In every TPA firm I have worked for the promissory note is clear that as a condition of the loan the person is agreeing to have the payment come from their check via payroll deduction. I have always had mixed feelings regarding one party in effect declaring the contract null and void like that. So my comment assumes in this case the promissory note has that language in it. If it doesn’t obviously my comment doesn't matter. And not being an expert in contract law maybe someone can just refuse to up hold their end of a contract and the breach in this case might be the loan become due at the point of breach. And that has the same result. I guess what I am saying is I think there may be a consideration(s) outside of mere qualified plan law one might want to look at. I think there have been threads on this issue before, some not that long ago even. But since ESOPs basically never have loans like we are talking about and it has been a while since I really worked 401(k)s etc with lots of loans I fully admit at this NOT being an area of expertise of mine.

There is no rule that keeps a child of an owner out of a 401(k) plan. Since there is so little data one can only speculate as to why the son is being kept out. The most likely reason is because he is the son of an owner he is automatically a Highly Compensated Employee (HCE). And IF this plan needs to pass the ADP/ACP tests doing this helps the plan pass. In those tests the group average rate of deferral and match for the HCEs can only be higher than the Non-highly Compensated Employees (NHCEs) by a small amount. So if the son isn’t allowed to defer he is a zero and that helps keep the HCE group average down. In short the father is using the son’s inability to defer to allow him (the father) to defer more. Simple example: If the father is putting in 10% of compensation and the son is required to put in 0% of compensation the group average is 5%. Once again I am GUESSING at this point with the above. One would need to know more facts to stop guessing. This seems like one of the more common reasons one sees what you are seeing. If the company uses a TPA to help them run the plan they should talk to them. They should be able to spell out a number of strategies that allows the father and son to meet their goals while working within the constraints of what everyone can afford. But only someone like the TPA working with the company will have enough facts to help you more. edit: minor typo

Thanks guys I just missed it. There it is in the document and code. I have been doing ESOPs for almost 18 years now and if I ever had someone push this idea before now I don't recall it.

Does anyone have anything more up to date? I found a Q&A from 2006 at an American Bar Assoc meeting. We have an ESOP participant that was rehired before the 5 year wait to start distributions was over. So we are taking the position that now he is in employement he can not take a distribution. He is saying it is 5 years after he terminated so give him his money. Any thing good cites will help. This is one of those things that happens all the time that the authorities seem to refuse to give good guidence on how to deal with the situation. Thanks.

Here is the offical IRS website announcement regarding your question and the answer given by Acox. http://www.irs.gov/retirement/article/0,,id=238943,00.html edit fix to give correct credit.

TPApril The other way of putting it the method you have historically used is the more (maybe most) conservative method—and thus most safe from being challenged by the government. The prior TPA appears to be using one of the more (maybe most) aggressive methods that could be more open to challenge. This method will tend to show the test as passing more often than the method you used. At this point the question becomes how much risk are you willing to lead your client towards? Good one GMK

I would add when this question first came up I looked at the base document for most of our prototype plans it seems rather clear you have to pay back everything that was paid out regardless of source. So I would check one's document also. However, none of us have given a good answer to the actual question. I am guilty also.

This Relius tech update takes the position that for a DC plan a combination of the PPA statement and the distribution form should do it. A DB plan is different. Relius also offers for people who use their service a draft of a statement one could use. http://www.relius.net/News/TechnicalUpdates.aspx?ID=578

This isn’t a 100% direct response to your question, but I believe the following warning is relevant. Sorry if this is a little long, but the best way I know to explain the concept is to tell the story. I am assuming this is a traded stock as it wouldn’t seem likely one is going to get an appraisal of a closely held stock every few months. However, if this was a widely traded stock I don’t see the issue of a daily limit. I did once work with a client that had a publically traded stock on one of the smaller NASDAQ type of listings. So while traded it was a very thinly traded stock. A buy/sell of 5000+ shares could move the market for a day or two. One of the employees in the KSOP slowly moved all his money into the stock fund. The fund would buy or sell for internal accounting purposes at the closing price of the day the request was made. After this employee had accumulated a large balance in the stock found he started a scam. This employee would sell 100% of the stock in his account on day 1. His stock was sold from his account and put into cash at that day’s closing price. His account was so large that the stock fund had to actually sell shares to get the cash needed to have enough cash in the cash fund. In fact it would be a large enough of a sale it would move the market down on day 2. The employee would put in a request to buy stock on day 2. His account was credited with the stock purchase with the ending day 2 price. He got the price his own sale had just suppressed. The next day however, the stock fund would have to buy stock to have as much stock as the sum of everyone’s accounts said they had. So on day 3 the fund would buy stock and the buy was often large enough to move the market up. He typically wasn’t so bold as to sell on day 3. The employee would wait a while and start the process over. The general effect of this was he was stealing his fellow employees’ money. The employee got caught, fired and they even got him to disgorge his ill gotten gains. But if this is a thinly traded stock think through people trying to game the price if you allow a buy/sell daily.

In this thread I wasn't sure Recline's answer was correct for those facts. (Although in that thread I was willing to be told he was right so no offence attended towards you Recline) But I believe his answer is relevant for your facts. But VCP is NOT my strongest area of knowlege. http://benefitslink.com/boards/index.php?s...l=lost+earnings

My first suggestion is to make sure your fee agreement with the client is very clear what is out of scope. There is an excellent chance they are going to have to pay you a lot of money to help them get out of this problem. They may have to pay their attorney a bunch of money also. This is a classic case of someone being penny wise to end up a dollar foolish. His not coming to you guys up front is going to hurt. For an answer along the lines you were expecting and needing. 1) Whoever gave this loan and thought they had shares securing the loan is most likely wrong. The anti-alienation rules are going to stop them from ever getting those shares if the loan goes into default. Although if the loan goes into default that may mean the company isn’t worth anything anyway. http://www.ecrllc.com/safequalifiedplans.asp 2) A problem I see here this is a prohibited transaction. http://www.irs.gov/retirement/participant/...=211437,00.html This seems like a self dealing that violates these rules. 3) Maybe a violation of the exclusive benefit rule is bigger than the PT. I believe they have disqualified the plan. By the way in case it isn’t obvious since the securing of the loan was for the benefit of the sponsor and not the plan that is the violation. http://www.clausen.com/index.cfm/fa/firm_p...iary_Duties.cfm I think they have little choice but VCP to fix the problems with the IRS and I think there is a similar program with the DOL to fix the FT problems. I don’t see how they get out of that radical fix. This seems too big to be a self correction.

Convince the nim nut(s) who decided to put over 100 investment choices in a plan to get a grip on reality? Be honest that is what you want to tell them even if you aren’t going to do so.

Yes we do constantly say logic and the rules for qualified plan do not go together often. So far the firm I am working for appears to be willing to take the risk of not sending a statement to someone who is a "D".

I suspect I am breaking one of my own rules with this question. I suspect the rule I am breaking is am over thinking this problem but….. With most DC plans it seems to be the conventional wisdom is coming down to the idea if you send a participant a PPA statement with their balance and a set of distribution forms you have met the statement notice requirements referred to with question 8 of the 8955-SSA. But many ESOPs require a wait from the time of termination to payment—wait 5 years, wait until the loan is paid etc. So one does not send a set of distribution paperwork to them before you have to report them on the 8955-SSA. We have a copy of Relius’ notice format that they say meets the requirements. So we were going to send one of those notices to people who have to wait for their payment. However, for this notice one needs to report something that reflects what you put in Part III column (d) & (e). For most DC plans you put an A and A—Single Sum and Lump Sum. And historically that is what I have put and no one has questioned it as what most DC plans do. But it is rather common for an ESOP to pay over 5 years. So should one have been answering this questions B and B—Annuity payable over fixed number of years and Annually? You normally think of those answers only in the context of a DB plan. And for one thing the amount paid each of the 5 years isn’t going to be the same so what amount would you put for the answer in either 9(f) or 9(g)? Just double checking.

It would seem to be unclear, but everyone seems to agree what would the point of giving a statement to "D" people. Here is Relius' take on it, see 3rd question. http://www.relius.net/News/TechnicalUpdates.aspx?ID=578

Back in 2010 I took a Sungard Form 5500 class lead by Derrin. He mentioned you could split a plan say into one plan that had everyone with last names A-N and the next plan with last names M-Z to avoid the large plan threshold. I went back and looked they were even willing to mention splitting the plans into two plans in the handouts. If you have a relationship with Sungard you might want to see if you can get the reasoning behind their thinking. To me this seems like a very risky choice.