ESOP Guy

As RLL pointed out one of the key elements here is the person deciding if the ESOP should sell and if the price is FMV needs to be independent from the president. I would strongly recommend advising the client to hire an independent trust company to represent the ESOP for the purchase. There are a number that specialize in ESOPs. It can be an added cost that the client will push back on, they won’t want to spend that money. However, it can offer a fair amount of protection if the DOL comes looking into the deal. I have experience with several of these situations where management in effect was both sides of the deal. They were buying and were the ESOP’s trustees. Just the fees for accountants, TPAs and lawyers for time spent on the DOL audit was more than the upfront cost of a trust company. And the DOL demand to pay more to the plan’s participants because the price was too low was greater than a trust company’s costs also. In short the trust company looks expensive, but in my mind it is cheap insurance.

I have always been amazed at how hard it is to find that answer. So here are some material to look at. http://www.cshco.com/News/Articles/Article...;cat=&view= http://carpentermorse.com/pdfs/CMG_ASPPA_article.pdf

Learned something new today. I really thought you could not answer this question without reading the document and knowing how it is written. Although we aren't told if with is a 401(k) plan or a PS plan. It would make a big difference. But I went back and re-read the whole rule of parity stuff again. Thanks Tom. Edit: In my defense I would add, one could always answer this question by reading the document.

The best way to answer this question is to go and read you document’s eligibility sections. I can’t remember ever reading a document that doesn’t answer the question of how to handle rehires.

We have done what Austin is saying above at least twice this year for plans that terminated in 2/2011 and they were accepted by EFAST. We did it in May 2011 and we have not gotten any feedback so far.

I am almost afraid to ask this but.... Did they make this mistake because they have been following the terms of their document? If so, does that mean it hasn't been restated since those provision could be used? Drafted wrong? Oh the questions one could ask and fear the answer to them.

Unfortunately the 2010 SH contribution is not enough. THe sponsor is required to make the 2010 contribution, he has no other option correct? He cannot say to her that he will hold that until she repays the $2000 plus interest correct? Can he make it, and then forfeit it and she can then fund the difference? I wouldn't think so since it's 100% vested. You make a bunch of confusing statements in my opinion. One of them is this conversation about forfeitures. You would put the money into her account. If it still has a negitive balance there is nothing to forfeit. Her balance is just less than zero. Also, the 2010 contribution and this error just have no bearing on each other. He must fund the contribuiton for 2010. By the way if the employer puts any money in it is NOT a contribution. It can NOT count towards the 2011 S.H. contribution. I also seem to recall there are DOL rules that say the trustee has to make an effort to collect the money due from the person before the employer can put the money in. I am not trying to be mean, but I have been slow to offer advice because the nature of your questions seem to reflect a serious misunderstanding of how a balance forward plan would work. If you can find experienced help from someone who has full knowlege of this plan and its particular situation I would advise it. Edit fixed minor typos

The hard part will be to get the IRA company to NOT issue another 1099. That in the end is what I have found to be the the pain. Most IRA companies basic default position is any money leaving an IRA is a 1099 event. And while the broker might want to do it right he is most likely not in charge of the 1099 being issued. It is the company that he works for or uses to clear his accounts. So take this from somone who has been there and done that.. Have a long talk with the broker about the 1099 issue and make sure it gets done right up front. You don't want to be running around next Jan when the 1099 comes in the mail trying to fix it.

Below is 100% of what I know about QSLOBs. 1) I say this alot but it is a subject it is worth to hire an expert. The cost of getting it wrong is too high. 2) But if you wish to keep looking I beleive the part you are missing is that the Gateway has a Safe and Unsafe Harbor number. I have no idea if these are the same as the ABT safe harbor/unsafe harbor numbers. Here are a couple of links. http://pensionbenefits.wordpress.com/2009/...-qslob-gateway/ http://pensionbenefits.wordpress.com/2009/...-qslob-gateway/

For your question the only guidence out there are court cases in my opinion. You will find courts that have allowed employers to do what Sieve said, others seem a little more strict. Safe would be to make everyone 100% vested in the timeframe in question. If you want to do something else I think it pays to hire the lawyer you might need to use to defend the plan in court. If that is too costly in releationship to the number of people in question just vest the people, that seems like cheap insurance.

on the up side it doesn say if you submit it via Fire the client won't have to sign the form. That will in the long run be a good thing.

Assuming the owner makes 245,000 I would add this If you put the S.H. in place. Owner puts in 16,500 in 4k will get 9,800 in S.H. match. Now to get him to 49,000 only takes a PS of 22,700. This is 9.26% of comp. Gateway 1/3 is just over a 3% cont for NHCEs. (still need to pass test) So assume they all put in 5% 4k. They will get 4% S.H. match plus 3+% in PS, or just over 7%. This is often times the cheapest option for owner. I would add even while cheap for owner most people woould be very happy if their employer was putting in around 7% for them. Add their own 5% that means they have a little over 12%/year being saved by rank & file. That should actually fund a good retirement if done for a few decades.

For what it is worth this last April the NCEO conference an IRS rep talked about how the IRS would like to issue more guidence and crack down on the amount of dividends going into ESOPs. This in my mind has could be a game changer in EOSPs. More and more companies want to go to 100% S Corp ESOP owned in one transaction. A number of projections I have both done and seen show the only way to pay the loan off is by putting in the max contribution and rather large dividend. They could make going from no ESOP to 100% owned ESOP harder in the future.

Read about the wonderfully named "Steel Balls" court case on the topic. http://www.nceo.org/main/column.php/id/321

This might not help in this type of position but one of the first questions I ask my clients when they ask if someone should be treated as terminated for the qualified plan is to ask if you have sent the person their COBRA info. I have been amazed at the number of times they said "yes" to that, but were not sure if the person was terminated for the ESOP or 401(k) plan. To me that is a pretty good marker the company is treating the person as terminated. However, this type of position my not have had health insurance in the first place.

It should say "Filed with authorized/valid electronic signature" and the name of the person should be to the right of that. It has been about a month since I last had that happen. But I recall it saying something about an invalid signature, not being blank. I am rather sure you need to file an amended return with the right PIN. I will admit we use a different system, but EFAST2 is EFAST2. You should be able to see a valid signature message on that system. If you system gives you the actual EFAST2 error message the DOL toll free number people can be very helpful.

Check the signature line of the 5500 on the EFAST2 website. I believe it will say it has an invalid signature.

We just listened to a rebroad cast of their webinar titled, "The New Form 8955-SSA: Who, What, When, and How" and Derrin said it. I know not very strong level of proof. Kind of warned you about that in my first post. I was curious where they could have gotten this from. So try this... Here is a link to an IRS newsletter. Note it states the following: http://www.irs.gov/pub/irs-tege/epn_2011_5.pdf (see page 3) The due date for filing the Form 8955-SSA for both the 2009 and 2010 plan years is the later of (1) January 17, 2012 or (2) the due date that generally applies for filing the Form 8955-SSA for 2010. The IRS expects to issue guidance confirming this extended due date shortly. The January 17, 2012 date will not be eligible for further extensions by filing Form 5558. It says the "due date" not extended due date or special extended due date..... So far that is the best I can help. Maybe not what you wanted or hoped for, but it is what I know. This form is becoming a bigger pain then it is worth.

Sungard is saying you don't mark any box if you are filing the form and using the 1/7/2012 date. The effect is to treat that as the normal due date. I have not seen a cite by them in that regard. I am simply sharing what I am hearing them say.

Did you go online and look it up by EIN? You should be able to see a copy of the the form in a .pdf and the signature line will give you information if the filing was valid or not. http://www.efast.dol.gov/portal/app/dissem...?execution=e2s1 look for form 5500-5500-sf search in upper right corner, search by the plan's EIN.

Company A has two plans. Plan one is for union employees. Plan two is for non-union employees. During the year people move from union status to non-union status. The company’s record keeper is moving the account balance for these people from plan one to plan two. Can they do this, or are they kicking people out of a plan against the rules? (Assume there are people with a balance >$5,000) Also, note both plans still exist so this isn’t a plan merger. What about a former union employee who has terminated and for reasons unknown is moved from plan one to plan two. This seems less like to be ok. Not sure at this point if the plans are the same in terms of provisions. But for now assume they keep track of the BRF like vesting on the moved amounts. (It is a firm audit client and the audit group is wondering about this.) Does anyone have a hard cite for one way or the other?

My father found a house for sale near him. He thinks it would be a good investment. He was thinking of bringing my brother and myself into the deal. Currently, the best place for me to get the funds for this would be my wife’s IRA. From what I am seeing here it would be safe to say this is a high risk concept because of the PT rules. Can this be done? I have done some reading. Would forming an LLC and having the IRA buy the 100% of the LLC and then having the LLC be a partner in the venture help at all? My guess is no. The IRS if nothing else can look beyond the form to the substance of any deal and the substance of the deal is still a PT. But I thought it was worth asking people here. As an aside he is much older than my brother and myself. Assume we hold the house until he passes. Would my inheriting a portion of his share be an added PT issue? I suspect while it comes with its own set of problems the real answer would be to take a loan from my 401(k) account and just buy into my portion of the deal.

Bird: I am happy to be told I am wrong, but doesn’t the 50% rule only apply when the loan is made? (Assume a participant directed 401(k) plan) For example, if one had a $20k balance and took out a $5k loan, and then took out a $12k in-service distribution the loan is still fine. However, I did go back and looked at the DOL regs and here they are: § 2550.408b-1 General statutory exemption for loans to plan participants and beneficiaries who are parties in interest with respect to the plan. (a)(1) In general. Section 408(b)(1) of the Employee Retirement Income Security Act of 1974 (the Act or ERISA) exempts from the prohibitions of section 406(a), 406(b)(1) and 406(b)(2) loans by a plan to parties in interest who are participants or beneficiaries of the plan, provided that such loans: (i) Are available to all such participants and beneficiaries on a reasonably equivalent basis; (ii) Are not made available to highly compensated employees, officers or shareholders in an amount greater than the amount made available to other employees; (iii) Are made in accordance with specific provisions regarding such loans set forth in the plan; (iv) Bear a reasonable rate of interest; and (v) Are adequately secured. I don’t see how this loan is adequately secured. Even if the 50% rules only applies when the loan is taken out it appears this rule applies the whole time the loan exists. So, I agree with Bird it is a PT, but for slightly different reasons. For what it is worth I don’t think a DB fiduciary can get out of being a prudent investor just because the employer, who may be the same person, will be the one that pays. But I am not a DB expert by any means. While the same person might wear both the “plan sponsor” hat and “plan fiduciary” hat they are two different jobs and both need to be done right. So I don’t think the fact the risk is low because the sponsor will in the end be the one that pays works either.

I am going to answer your question with a question. ( I think I understand your questions) What happens in the following situation? The person takes the 100% in-service distribution spends the money and then quits. How is the plan going to collect the remaining loan balance, there is no longer any payroll deductions? If it doesn’t collect everyone else in the plan takes a hit. This doesn’t sound like the plan’s Fiduciary is doing his job. There is no rule related to participant loans that stops this idea, but Fiduciaries are required to be prudent investors of the plan's assets and this doesn't sound very prudent. Edit fixed typos

Datair just this year made Pension Reporter accept cents in both the amount subject to the tax and the amount of the tax. Don't get me wrong. I think these small amounts are silly. But most of the cost to the client is computing the lost earnings and allocating them, not the tax form. That cost is chump change compared to the rest of the process.