ESOP Guy

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.

Are the shares publiclly traded? If not, I have never seen unitized accounting for a closely held corps stock in an ESOP.

Not my strongest point of knowlege but Rev rule 2006-38 requires one in this case to use the DOL rate. The ERISA book seems to be saying the same thing. http://www.irs.gov/pub/irs-drop/rr-06-38.pdf Edit: Like always willing to be told I am wrong, but like I said the ERISA book cites above Rev Rule on the interest rate.

I would add if you read a plan document it requires the plan administrator to determine the fair value of assets so he can allocate all earnings including unrealized gain/losses. I don’t see how they will do this. Maybe it doesn’t matter as he isn’t affecting anyone’s balance but his own. But I think a case can be made he isn’t following the document without a rational way to value the assets from year to year. If this is a 5500-SF or 5500 one would have to mark the question on the assets portion of the form that the plan has assets that are not being valued by an independent appraiser or a market. You might want to mention that is an audit risk. Ok, maybe not a large risk, but you are looking for a way to discourage this idea—so don’t mention size of risk. Lastly, if one doesn’t have a good value of the assets how does one determine loan limits, if plan allows loans? What if a QDRO comes along? What if he dies and the heirs want the money? There are those practical issues.

I agree also, forf makes no sense based on your facts. That is why I didn't talk about that method.

oh the questions one could ask about how this could happen...... If the amount doesn't appear to be material I would go with #3. Don't get me wrong I am not saying I can prove that is the correct answer, I am saying it is the simple answer and if the amount isn't material to the total assets and earnings go with simple. If the amount is material I would try and see if I can allocate to the people who had balances in 2003 as earnings. Then for people this would create balances I would determine if the newly created amout is material. If it creates a $1 balance for someone for example I would not give that person the allocation and reallocate to everyone else from 2003. I would SUSPECT that is more like the right answer. It seems like most corrections the idea is to get people back to where they would be if the error hadn't happened. My general rule is if not material go with simple and cheap solution. If material try and get people back to where they would have been if the error hadn't happend if there isn't an IRS given fix out there, and I doubt there is a IRS defined fix. Once again only opinion, I can not cite anything other than those guiding principles as to why I would do what I would do. And in all cases I would tell the client what I think is the right answer-- get them back to where they would have been-- an idea of the cost to do that. Then if not material give the first answer as an option, and the much lower cost of doing that. I would then recommend to them if they are uncomfortable with it all go talk to their lawyer. In the end I would make them tell me as the plan admin what they want to do after I think I have given them the tools to make an informed decision. Not sure if that helped or not.

Curious.... Why does the TPA have to report his client to the DOL?

The simple answer is the rules for an ESOP and any other DC plan for this form are the same. On a practical level you haven’t given enough information to determine if what you are seeing is a result of the correct application of the rules or a mistake. The important thing to remember is you are not required to report someone who is in payment status. So look and see are the people who were not reported are they getting a series of payments? If so, that would most likely be correct. Likewise, are the people who have been reported still waiting for their first payment? The next question is when to give a person who was reported as an “A” and then starts payment should be made a “D”. I think a strict reading of the instructions would say the year of first payment. However, people around this firm like to wait until the full balance has been paid. I have a somewhat related question for the group. We have a number of ESOPs that require one to wait 5 years before payment starts. The distribution form and the participant statement appear to meet the requirements for the notice you need to give a person as part of form 8955-SSA question 8. In this case one isn’t going to give a distribution form to the person for 5 years. What is the statement, letter, form you are giving out to meet this requirement look like?

Are the software vendors going to be able to get new software out if we have to start using the 2010 now? The due date is still 1/17/2012 and it can take Penison Reporter a month or more to get an update with a new form out to us. The IRS doesn't appear to have thought this one through on the practical side very much.

Three years-- Doesn't that mean you need to start gathering the information for the next submission? You slacker

I guess I am curious why you don't think password protecting will not cut it any more? I ask because we use that alot.

For what it is worth I once worked for a company that had a requirement that one had to be deferring on Dec 31 to get the match. Every few years someone would get mad when they figured out that they had stopped their deferral in Nov/Dec time and was not going to get any match. So I suspect this can be done. Just not sure it should be done. Have they thought through the following facts? What if someone sets to def on Dec 31st of the prior year and on Jan 2nd set it back to zero. Unless a pay day happened to fall exactly right nothing comes from a person’s check, but they were deferring on the 1st day. They do that to preserve their right to a match if they decide to defer latter in the year. This is just one of several wrinkles one could come up with to make this idea a pain. I guess to preserve your right and make it more clear you one could defer for the 1st pay check and then stop. I am just editorializing here, but this is yet another example of a plan sponsor making a provision that could make the plan too complex. Sometimes keeping it simple stupid works.

Google can ruin everything, even a good riddle http://answers.yahoo.com/question/index?qid=1006052402489

I have found these guys charts on this topic a real help. http://www.keeblerandassociates.com/files/...down%202011.pdf

And while there isn’t an explicit requirement to get the assets appraised by an INDEPENDENT appraiser in this case it isn’t true that the assets don’t have to be valued. Only ESOPs are required to have the INDEPENDENT appraiser, all plans are required to know the value of their assets. Knowing the value of the assets is the job of the trustee and fiduciaries. I will grant if there are no distributions/loans etc going on there might not be an meaningful impact on the plan. Some of the Fiduciary experts (like Peter Gulia) might be able to give us better insight in how serious of a Fiduciary violation this is. Come on Peter you like giving quizzes can you help answer this quiz? But if they want a loan how do you know what 50% of the account value is without a recent appraisal? You will need to know the value to compute a correct RMD also. This sounds a lot like a ROBS, link below talks about them. The IRS has just announced recently that they are giving ROBS even more attention. Also, without the independent appraiser you have to answer the question on the 5500 admitting that you did not get the independent appraiser. Every client I have, very small number, who we put answer that way gets a letter from the IRS asking about it. And they ask a ton of questions on how the value is being set. They will not like the answer we are not valuing it. I strongly recommend they come up with a rational way to set this investments value every year and change it to reflect those fluctuations. link about ROBS http://www.irs.gov/retirement/article/0,,id=231594,00.html Edit: I believe all document would require the trustee to know the value of the assets in the plan so gains/losses can be allocated properly. So failing to value assets could be a failure to operate per the terms of the document.

The best rule back then was the carry forward of the unused deductable limit. I saved more than one client from huge excise taxes after they put more than 15% of compensation into a plan. If the company had been around for a while there was almost always a year they hadn’t put the 15% in so they had a carry forward. So they got to deduct the excess and not pay the excise tax for taking too large of a deduction.

Even the IRS only goes back to 1989 http://www.irs.gov/pub/irs-tege/cola_table.pdf

Did you talk to the DOL before you had the client reset their PIN? The EFAST2 help phone line is very helpful. Although I have never called on a day like 10/17 (10/15). They might have been able to help explain what it would have taken to fix the process stop error with less frustration. But with our clients the more common fact set that caused what you said happen was as follows. The client set up a Userid, they got the PIN and stopped the process. They had their PIN. But the next step in the process is set up a password. Without a password the PIN is useless. So if they then go out and go through the process to reset the password it gets them a valid password and now the PIN will work. So we now emphasize to our clients to make sure they have a valid Userid, PIN and password. The best way to do that is to have the client logon to the EFAST2 website under their userid. If they can do that they have a valid userid, PIN and password. We also encourage them to print their user profile page as it has their userid and PIN on it. So that gives them a hard copy of the PIN they can file and reference next year.

I am not sure that a profit sharing contribution can’t be put into the plan before it is allocated. I handle more balance forward PSP than daily. But you see a pre-paid PS cont on a regular basis. They can’t take it out of the plan once put in. I don’t understand in a daily environment putting it in a fund that can lose money either. I am not aware of a rule that stops a PS cont from being put into the plan throughout the year. In ESOPs this happens all the time. The ESOP loan is paid monthly for example, but the allocation of the contribution to fund the loan payment is made as of the last day of the plan year. I am not aware of a special rule that makes ESOPs different than any other DC plan’s ER contribution. As an alternative idea for the client that no longer wants to fund a contribution. Does the document allow for the plan to pay expenses? Does the employer normally pay the expenses not the plan? If “yes” to both of those questions you could allocate the contribution and allocate the expenses to the people. The two won’t match up perfectly as the allocation methods are most likely different for the two types of allocations. But it would allow the client to reduce their future out going cash flow for the plan and be within the law. Not a perfect solution but an idea.

GMK I don't think the 80-120 rule can apply here. The rule has two parts: 1) they have to have between 80-120 at the beginning of the year 2) AND filed as a small plan in the prior year This plan did not file as a small plan in the prior year. It didn't file at all in the prior year because it didn't exist. So it starts as a large plan. So Tom's comments are applicable.

We use Pension Reporter, but we are not having that problem. Once submited we can find them on the EFAST2 website within min. Not trying to ask the stupid question.... Have you double checked you didn't get a fatal error on the filing?

I don't think the document needs to say anything about this situation. If on the day the payment is made if the person is rehired the payment can not be made. So depending on how long it takes for the payment to be made will drive how long the person has to stay unemployed. I have seen this before. Not saying it is right.

We use Datair's Pension reporter and starting about yesterday the system is clearly be stressed by the last min. filers. So I feel your pain if nothing else.

TPApril I would agree with your numbers. As an aside remember it is fully corrected. Around here since we often times don't know about the late deposits for 2010 until 2011 no earnings correction is made until 2011. And fully corrected means not just def deposited but earnings also. So with our clients it seems like a number is reported for a min of two years.

I prefer having them coded as earnings. I agree contributions is a bad answer. For John Hancock and Nationwide it requires a special process request. I believe there is a fee to have the special process request processed.