ESOP Guy

8/31 and 11/15

My understanding is "no" that is not a special extension so do NOT check that box. See this link. The Jan 2012 date is now the normal due date because they got the forms out. Although deep down I can't imagine they will do anything if you check that box. http://www.irs.gov/retirement/article/0,,id=117588,00.html edit: Even that link doesn't make it 100% clear. But I do think it makes it more clear the Jan 2012 date is the normal due date for those forms.

To me even if the money is put into the forfeiture account it ISN’T a forfeiture so you shouldn’t treat as such. It is a pre-paid contribution to me. You don’t see them as much in daily recordkeeping, but they are more common in balance forward. So to me you could simply short a future deposit take the missing money from the forfeiture account (as long as we are talking about the same amount). Example: If you were suppose to put $10,000 in deposit one, but put $11,000 into the plan. Put the extra amount into the forfeiture account for now. Suppose a few weeks later you are suppose to put $13,000 into the plan for deposit two. I would have the employer put $12,000 into the plan and take $1,000 from the forfeiture account to make everyone’s accounts whole. The problem is now solved and you don’t have to worry about returning money to the employer.

I believe you should check the promissory note also. If you are using one of the ones from a service often times they are written with the payroll deduction is part of the note. The note is a contract so a person may not always be able to stop the payment. Some are written such the only way to stop the payment is to stop being paid, i.e. terminate. I feel for this person. However, sometimes the law just isn’t kind. However, the plan has to follow the law anyway.

This has been hashed out a few times already. http://benefitslink.com/boards/index.php?s...amp;hl=8955-ssa http://benefitslink.com/boards/index.php?s...amp;hl=8955-ssa http://benefitslink.com/boards/index.php?s...5-ssa&st=15

You might want to check the document. Most document also tell you what to do if you have a lost participant. In many cases you can forf the money, but have to restore the account and pay the benefit if the person comes back. The hard part will be without a good SSN this person can't be reported on the SSA so how they will ever get notice to come collect seems remote. By the way before you declare the person lost you need to be able to document you searched for the person to a level that meets the DOL rules.

I am a little unsure of the timeline, but this might help. When you restate a document you are SUPPOSED to document the effective dates of all prior changes that affect the current plan back to the restatement date. Simple example: The most recent restatement signed in spring of 2010 was for a restatement that could be effective all the way back to 2002. So if one amended the old plan in 2005 when you write the restated document you are suppose to note in the plan the provision in effect from 2002 to 2005 and then the provision from 2005 forward. I have an ESOP document that was recently restated that in the eligibility section has three different provisions that depend on what years in the past you were hired. Those changes match up to the amendments to the old document. So I guess the question is did the restated document show the effective dates of the old provision and the new provision? If it does than that would seem to be how one should answer the question. By the way if this is a prototype you might want to search in the plan provision appendixes for the noting of the effective dates. We use the Relius document and there is an appendix dedicated to just those effective date changes. If it doesn’t note the effective dates of the provision changes it might turn out you have a poorly drafted restatement. In fact I have always understood it if you don’t note all those effective date changes in a restatement you have a serious document problem. But I suspect there are people who read and comment on this board that can speak more to that than I can.

Jim: It has been a few years since I used the Fire system. It was for submitting my client's 1099-Rs. The employer switched to out sourcing the printing of the 1099-rs and filing. But it is a very easy system to use and it wasn't that hard to get set up. I found the number to call for help useful. Obviously, starting late Jan through March everything gets busy as it is used for 1099s and other information returns. Here is a link to the IRS it gives links to the relevant Pubs. http://www.irs.gov/efile/article/0,,id=165534,00.html So far we at this firm have decided to just mail them to the client and have them mail it to the IRS since it seems like you need to get some kind of varification the client signed a copy. At that point is it really that much harder to have them put it in a pre-addressed envelope?

If by chance you are using Omni+ it wouldn't be too bad after you learn how to set up an Omni+ plan for web and VRU. I have no knowlege of other recordkeeping software and easy of getting it to communicate to a website/VRU. Have you talked to your software vendor. It might have a system to allow you to set up a website that is tied to your recordkeeping system.

I jsut say I am a "specialized tax accountant". They hear the words "tax" and "accountant" we get to move on to a different conversation. Since I have been happily married for 25 years I no longer have to impress her with my job. It just has to pay the bills. So that helps.

Peter, am I understanding what you are saying correctly is this: You don't gross just the 10% or 20% withholding but gross up based on a good faith estimate made by the requester of what his actual taxes will be when he files his tax return? Because if you are saying that I once worked with a large employer that allowed its people to do just that. and so we were grossing the hardship up by 30-40% at times if the person had a fairly high income and lived in high income tax state/city. To me the difficulty was how much should the employer try and check the estimate? If a person claimed his final tax bill was going to be 60-70% should that be rejected? If so, on what grounds you don't actually know this person's tax situation. By the way no one answer my earlier question. Do I have some basic misunderstanding of this issue?

Why aren't hardship distribution subject to 10% withholding per IRC §3405(b)(1)? The way I read it they can elect out of that withholding, but the default is withhold the 10% unless the person makes an election. Maybe that is what people mean by voluntary witholding. But to me it is slightly different. You do have to give them the W-4p and they have to elect out. And more and more I just see people not withholding without the W-4P saying they elect out. Maybe it is my just my experiance. At this job I am working on my 401(k)s than my old job, which was almost all ESOPs and balance forward PS plans that had odd allocation formulas. Although I was on a recent John Hancock webinar where the person just said you never have to withhold on hardships and when I asked about the 10% they never bothered answer the question. I am asking more for my benefit than challenge anyone else here. I am rustly enough I am just double checking my thought process.

I little off topic, and it might not apply to you. But just in case a little warning. In this economy people are starting their own company and moving 401(k) money into the company's 401(k). After that they are using the money to buy company stock to fund the business start up. While this can be done and I have some sympathy for people doing it. The IRS takes a dim view of this and it is very easy to violate the law. Here is an IRS link on topic. If you are not using the funds going into the new IRA to fund your new business just ignore this. By the way good luck on the new business, hope it does for you what you want and need. http://www.irs.gov/retirement/article/0,,id=231594,00.html I just had a client that has a Profit Sharing plan with company stock get a large letter asking lots of questions about their plan and the stock. As I spoke the IRS person it was clear they were trying to decide if this was a ROB and if it was they were going to hit them with an audit. I answered their questions and it was not a ROB, and the IRS left them alone. The IRS is looking into this stuff harder.

I also agree it is just an investment and treat it that way. But the way the question is asked it seems to be saying, but not clear on this point, that every year a deposit is being made to the plan to fund the premium. If that is true it looks like a contribution is being made and that would need to be allocated as such. Than an expense would need to be deducted from everyone's account. Bird asks a good question. Why put this in a plan and make it a general asset? What good does it do the plan to have this huge lump of money come into the plan at the key man's death to be given to everyone? You can see this in an ESOP some times. They will buy a policy on someone who has a large balance and if they die the plan can have the funds to pay the beneficary in cash instead of stock. This helps the company manage repurchase problems. But even there I see the policy owned by the company outside the plan more than inside the plan.

My understanding from a John Hancock webinar discussion of this is closer to Bird's understanding. They were expressing an opinion the prime + 2 was reasonable. It does not follow by logic anything else is unreasonable. To answer J4FKB's questions here is a local credit union website. You will note they will loan you money secured by a share account at account rate +2%. Their accounts are paying <1% currently. So you could get these people to loan you a secured loan at less than prime at this point. http://www.firstcommunity.com/rates/loan.html As far as I can tell the only reason you would take this loan is because you need the money now and don't want to "break" a CD and pay the penalty.

Tdavid sorry now I think I get the question. Does this help? From 414(u)(2)(B) (B) Amount of makeup required The amount determined under this subparagraph with respect to any plan is the maximum amount of the elective deferrals that the individual would have been permitted to make under the plan in accordance with the limitations referred to in paragraph (1)(A) during the period of qualified military service if the individual had continued to be employed by the employer during such period and received compensation as determined under paragraph (7). Proper adjustment shall be made to the amount determined under the preceding sentence for any elective deferrals actually made during the period of such qualified military service. Note the part about giving credit for compensation as if the person had continued employment. Here is paragraph 7 (7) Compensation For purposes of sections 403 (b)(3), 415 ©(3), and 457 (e)(5), an employee who is in qualified military service shall be treated as receiving compensation from the employer during such period of qualified military service equal to— (A) the compensation the employee would have received during such period if the employee were not in qualified military service, determined based on the rate of pay the employee would have received from the employer but for absence during the period of qualified military service, or (B) if the compensation the employee would have received during such period was not reasonably certain, the employee’s average compensation from the employer during the 12-month period immediately preceding the qualified military service (or, if shorter, the period of employment immediately preceding the qualified military service). If you treat him as having “receiv(ed) compensation from the employer during such period” don’t you have to treat him as having received the full $120,000 for that year? And if you do that I would favor giving him the full match. He made a $16,500 and is given credit for having earned $120,000 for 2010. I would add had I understood the question correctly up front I might not have answered. I favor giving the person the full match because of the logic above. I am not 100% sure of that answer. edit minor typo

12AX7 Who pays the premium? Does the check come from the plan or the employer? If the plan, does the employer put money into the plan to fund the check that comes from the plan? One needs to be very clear on this part of the facts in my mind.

I think we need more information to answer this question. When you say it passed the 1/3 test does that mean there were contributions to make loan payments during the year in question?

Here is the IRS FAQ on USERRA http://www.irs.gov/retirement/article/0,,id=109878,00.html This guy might not be "out of luck". You will see he has the right to make up the 401(k) contributions within a speciified time period. IF he does that he gets the match as if he was employed during that time. edit fixed typos

For what it is worth Rcline46 I agree with you that is how most amendements I see would be written. I simply took the queston at face value when it says: The document does not give any clarification. In fact I don't understand why one wouldn't write it they way you suggest. Why give a gift to a former employee. Edit: Although the idea of having only one sch might make sense. But even back when I worked with plans with thousands of employees that seemed like the least of our problems was having two vesting sch.

Based on what you are saying the document does answer your question. As of that date in 2009 the vesting sch is a 4 year sch. They could have written the amendment to exclude people who terminated before the date the amendment was adopted. Since they did not exclude them from the new sch they are included in it. This person gets the new sch as that is the only sch in the plan as of the date of payment.

These guys have a bunch of really good charts for this and just about any other RMD death combo. http://www.keeblerandassociates.com/files/...down%202011.pdf Edit Here is the full list of charts http://www.keeblerandassociates.com/education

I looked to see if there was another thread on this topic and did not find one. So here goes. Any thoughts or ideas on this one and any cite I can take to management. This is a small ESOP. PYE is 2/28 In the PYE 2009 the company had to put more money into the plan to pay distributions than they could deduct. The excess was reclassified as a 0% loan to the plan from the employer. Their ERISA attorney signed off on the idea, and made up the needed loan paperwork. There is a PT exemption for these kinds of loans. Although in my mind it is implied, but not actually stated these are suppose to be short term loans to cover cash flow needs for expenses. The loan doesn’t get paid back until 12/2010. So at 2/28/2009 and 2/28/2010 we put the shares related to the loan in suspense like you would if you had an Exempt Loan. There was cash in the plan as of 2/28/2010 that could have paid off the loan. They did not pay the loan off even though they could have at that point. They put a contribution in the plan for 2/28/2011 pye in October 2010. So now the question is how to allocate the share release. It seems like there would be three methods. 1) Allocate on the current year’s contribution like you would tend to do with an Exempt Loan. In fact the document demands only current and/or prior year contributions less previous loan payments be used to pay an Exempt Loan. 2) Use some combination of cash on hand (less distribution from beg bal) plus current contribution. 3) Use the cash that was on hand less the distributions like #2 with no reference to the current year contribution. Maybe there is a combination of the #1 and #2 I am not thinking through. My guess the answer is-- like all documents this one gives the Administrator broad discretion to decide what to do when the document and/or law doesn’t give a specific answer. And as long as that discretion is used in a reasonable manner and doesn’t discriminate the Administrator is fine. And for what it is worth I favor #1 above. But I wouldn’t mind a sounding board on this one

A couple of disclaimers: It has been around 10 years since I was the person in charge of aggressive ADP/ACP testing and I am doing this from memory. So if someone thinks I have the rules wrong please say so. I am NOT saying Tom is wrong. I am just throwing out the case that can be made to leave these people off the ACP test. This was my first reaction to the question. If I recall correctly there is a link between 410(b) testing (coverage) and ACP testing. You only put people on the ACP test who are benefitting. The other side of that “coin” is if someone is not on your ACP testing they are not benefitting for 410(b) and hurts your ratio test. Simple examples: If a person could have deferred and didn’t they are ruled as benefitting for the ACP. This is because they would have gotten a match if they deferred. (Assume they met the hours, last day requirement etc.) So they would be zero on your ACP test, but would count as benefiting on the ratio test. On the other had if the person deferred and did not get a match because of last day requirement they would be off the ACP test. This would help the ACP test, but hurt 410(b) ratio test. So I started to think about this question in terms of how would I put the person on the 410(b) test. This might be as I work with 410(b) now more than ACP test. And as the old saying goes if all you have is a hammer everything looks like a nail. To me this person has to be shown as not benefiting on the ratio test. I see no way to exclude them from this, and it hurts your ratio test. But if this person isn’t benefitting I don’t think they should be on the ACP test. This might be an exception to the idea of the link between 410(b) and 401(m) testing, but I can’t think of why that exception would happen here. I could be forgetting something. I really don’t think one is going to find a real clear answer to this one. This is just a plan provision that wasn’t thought of when the rules were made. As a practical matter here is how I would handle the situation. If would do the ACP test with this person on it and as a zero. AND I would do the 410(b) test with him on it as not benefitting. This is the worst case for both of the tests. If you pass you know you pass the worst case. If you fail one it might be time to get the client’s ERISA lawyer to make a ruling. He is the one that is paid the high billing rate to take the risk of deciding this kind of grey area incorrectly. TPA’s don’t get paid enough to make this kind of legal ruling. Disclaimer to everything said above. It is just me giving thoughts. Before anyone goes off and does something for a plan/client make sure you do your own due diligence.

If I understand the question correctly all the major insurance companies do that. I know our firm has Dr. offices with 4 to 10 employees with John Hancock as the recordkeeper. We have at least one client with around 50 employess at Securian. Not sure about the plans at Principal or American Funds but they both recordkeep and I don't believe they are large clients. This side is not my strong point, but I also know no one from my firm besides me reads this forum.