ESOP Guy

We are getting a little confused here. If the shares are distributed the next steps are between the company and the shareholder. But if the company doesn't buy the shares then dividends would be paid because the former participant is a shareholder. If the company can buy the shares shortly after they leave the plan, I guess why the question? That would seem to say they have enough money to buy the shares, regardless if in the plan or not. Your example is correct. If the plan document allows shares to be paid then 100 shares would be distributed, and cash would be paid for the fractional shares. When you say the employer "buys my stock installments" you mean it buys 100% of the shares and gives the person a note, then obviously the person isn't a shareholder and isn't due dividends, and won't share in stock price changes. But that note has to be secured by something besides the company's word, and as a practical matter finding good security will be difficult.

If the person has stock in their account they would share in the dividends. I would add they should share in any price change while you are making the installment payments. If you made the distribution in shares and the company did not buy 100% of the shares then the shareholder would be due dividends also. Once again how can the company buy 100% of the shares paid from the plan? If they have the cash to do that you wouldn't be asking these questions. If they don't and they pay with a note, that note needs to be secured by something. As a practical matter very few outside firms are going to agree to secure that note for the company. It sounds like you need to talk to an advisor who can look at all your facts and help you develop a plan to make payments. And more importantly plans for future years so you don't keep getting caught every year. Your questions just sound like it would help if you had someone who can help look at all the facts and develop a multi year plan for distributions.

The put option right as mentioned is going to make paying in shares not much benefit. They need to see if they can delay payment under the document/distribution policy. They might have some flexability on whose shares they are going to pay in shares vs leave the shares in the plan.

Regarding the 5500 you are over thinking this issue. The question on the SF, I or H is about assets and liabilities. It doesn’t ask if about allocated assets and liabilities (can you have an allocated liability). So if the money was in the trust by the end of the plan year it is an asset. If it wasn’t in the trust by the end of the plan year and you don’t think it was a receivable then it isn’t an asset. When it comes to the 5500 asset/liabilities it helps to think like an auditor not a plan administrator. To an auditor if the money is in the bank it is an asset. There might be a liability for that money if say a refund is due, or it is a pre-paid and so forth. The full amount is listed as an asset for the 5500 regardless if it is allocated to someone’s account or not. Like always willing to hear a different opinion, but what I described has served me well for decades in this business, and fits the form’s instructions. It asks for the value of the assets, not allocated assets.

One needs to look to see if the plan says it is a MP plan. A PS plan can have required contributions, and a J&S distribution section—even normal form. Ok, very rare to see either one, but the mere existence of those features does not make a plan a MP plan.

It is my understanding the date you use for 2(b) is the date the prohibited transaction starts. So it is the day the deposits are late. The date for 5(d) is the date the whole thing is fixed. So that is often times the date the lost earnings have been deposited into the plan. For some of our clients we won’t find out about a late deposit for 2010 until we are working on the 5500 in 2011. So the correction date would be in 2011 when we have computed the lost earnings and the client has put them into the plan. The amount show on the return is the lost earnings, not the whole deposit. That is the amount of the PT.

For what it is worth I agree with Tom. I started with the gad zooks quip because of that. I interpret the original question as something like a Safe Harbor Points Allocation, which you typically see them giving 1 point for every $100 or $200 of compensation and 1 point for every year of service. When giving those points you would stop at the compensation limit imposed by law. By the way the term Safe Harbor Points Allocation is like the “interim final” regulations. What kind of Safe Harbor requires a test to make sure it still passes?

gad zooks?????

And a new vendor

This is one of those items where you need to read the document and the wording of the dividend board resolution carefully. The board resolution should tell you on what date you needed to own the shares in order to receive the dividend. (Yes, I understand that the ESOP owns the shares, but that date is good to use for allocating in an account.) The document will tell you the order of allocation. As for the "orphan dividends" I have never seen a plan document address that issue. In most cases the plan's attorney will be comfortable with the Plan Administrator using their discretion as long as it is reasonable and nondiscriminatory. Most of my plans just allocate the "orphan dividends" at the end of the plan year to everyone. It should not yield a material difference from a quarterly allocation if the plan pays quarterly. I would check any method with the plan attorney to make sure they are comfortable defending that method. ESOPs get audited more than other plans.

I can't help but think this isn't out there some place, but I can't seem to master search function. If you change both Enrolled actuary and firm do you put the person's or firm's name of old and new actuary? I am thinking it is person in each case but would like to double check. Thanks.

ESOP guy, good question - one that the original post should answer. (not sure if you were asking me or the orignal post) It was for the original post.

I don’t believe it is a rollover either. I have always recommended to my client’s to have their record keeper make this money its own source on their system. I think it is best if you can track this money. I don’t recall ever having a client were the ESOP money has any meaningful protected rights to track so not 100% on that question. But don’t forget that money can never buy company stock. May not be an option in the 401(k) plan.

I am not trying to insult your intelligence here but I want to ask. Interns tend to be young and short term employees. Are you sure you have to have them on the coverage test? Most plans I work with that hire interns the interns are Otherwise Excludable employees. Once again you may have covered that already and that is why you are asking, but worth checking I guess.

I am not a 403(b) expert, but I believe there is a confusion going on here. There is the deadline to make the refunds to avoid the excise tax, 2.5 months. And there is another deadline to simply get the refunds made, end of the following plan year. There are two different deadlines. I just can’t remember what happens to the plan if they fail to get the refunds made by the end of the following plan year. The few 403(b) plans I have worked on never fail to make the refunds timely. Although if someone wants to tell me I am wrong feel free.

As a side issue that might help. You don’t mention what type of plan this is, or who controls the investments. But if this is a participant directed plan, for example a 401(k) plan your late husband could go on the web and change which funds the money was invested, as his beneficiary you should be able to get the power to change the investments. A pending QDRO won't change the fact you are the one with that power now. So if you fear a serious market loss you should be able to get the ability to change the investment mix to one that meets your needs/risk tolerance. You might want to seek out investment advice from an investment professional to help you find the right mix. I realize this won’t help you get your portion of the money any quicker, but it might allow you to manage what you feel is a risk until the funds are paid. If this is the type of plan one has no control over the investment mix--- disregard this message

That was what I was trying to imply when I said they should have a copy. You were just more direct.

You should have a hard copy any way. So you can get a copy from the DOL website, or Freeerisa.com. You can search for any 5500 at this link. You are most likely to find yours quickly if you use EIN. All 5500s are now public with this website. Print a copy for yourself every year is my advise after you file. https://www.efast.dol.gov/portal/app/dissem...?execution=e2s1

One of the firm partners has suggested we just over guess the lost earnings and have the client put that in based on the ratio of the ytd 4k def, in this case put in $100 in lost earnings. If one reads the rules the DOL rate is a minimum rate of interest you can clearly reimburse more. The problem was it appeared in the case of the client I am working of the 8 late payrolls the owner only def in 2 of them. He gets paid monthly everyone else is every 2 weeks. So the person most hurt by the late deposits is the owner’s wife. She defers the most and gets paid every 2 weeks like the rest of the employee. Our fear is over benefitting the owner. I guess you could put the earnings in and give the owner none of them. Even if you have them pay the excise tax on the $100 of earnings you still only have $15 excise tax. Total cost $115. That would be less then what we would charge to do the correction the correct way. Like I said has anyone else found a cheap way to get the client in compliance. As far as I can tell this isn’t a disqualifying defect. These small amounts might be just right to play the audit lottery.

Ok how do I control which forum this is put under. I didn't mean to put this under the non-qualified forum, but retirement.

Has anyone come up with a practical cost effective way to deal with this situation. In the last 48 hours we have had a client who had 8 late deposits in 2010 and total lost interest is 12.98 and one that had one total lost interest is <$10. As far as we can tell you have to compute the lost interest, divide it up amoung the people, file the 5330. In short they are paying us hundreds of $ for less the $15 in impact. The clients just aren't happy. I realized part of the anwer is just make the 4k deposits in 7 days. Any insights will help. I could not find a prior thread, but suspect it is out there. I have not fully mastered this board's search function.

I agree with QDRO I would get some legal help that can make sure they understand all the facts and law. After 15 years of working with ESOPs I just have gotten very comfortable with the idea of getting the use of a lawyer for my clients. Too many ESOP questions seem to have gone unanswered in ways 401(k) plans don’t seem to have that problem. For what it is worth I have found many attorneys then taking the position that this silence means a lot of flexibility. Having said that isn’t the safest answer to write the document such that 401(k) source diversifications have to be invested in the 401(k) plan? You have complied with the diversification law by allowing the person to sell the stock and invest it in the correct number of mutual funds. And you have preserved the 401(k) restrictions on in-service withdrawals. I can’t quote a place that answers your question, but to me that is the safest answer. Otherwise you seem to be setting up a way to allow people to get around the 401(k) in-service distribution rules. Just put your 401(k) money in the ESOP and the next time we allow people to make diversification elections you can do an in-service distribution for a 55 year old in effect. And that seems like you are inviting the wrong kind of attention from the IRS. Sometimes trying to find these “loopholes” just aren’t worth it. You are being too clever for too little benefit.

When you say you “sent” the forfeitures to the employers, are you saying a check was actually cut by the trust for $6,000 and that money was given to the employer? Because if you are saying the money left the trust and went back to the employer your problem isn't the 5500-SF, but the sending the money to the employer. The money should never had left the trust.

Your question doesn’t make sense to me. So let me ask a clarifying question. Are you including the forf amount in the ending asset value for question 7© ? Example: The total of the participant accounts is $94,000 and the forfeiture account is $6,000. Do would you put $94,000 or $100,000 on 7©? The other way of putting it is this—is 7© = to allocated assets or total assets? I ask because it seems like your ending assets would have to = allocated assets, not total assets for you to be having your problem. And if my guess is correct (and it might be wrong) then I would say you need to put total assets on 7© and your problem should go away. If my guess is wrong then I would have to see more data to help.

For what it is worth I stand by my first comment. I see the deadline as the later of the due date of the return or 8/31/2011. I don’t see any discussion that leads me to believe a terminating plan has a different due date for this form. But if you read the notice (http://www.irs.gov/pub/irs-drop/a-11-21.pdf) it does say they will keep accepting form SSA until sometime in April. I assume they mean people have been sending in 2008 SSAs for 2009 and 2010, as there are no SSAs for those years. So if you feel the need to filing something by 3/31/2011 send in a 2008 SSA and apparently the IRS will accept that as good enough. If one reads the instruction of the draft it would seem if a person should be an A on 2009 but paid by the time you file the 2009 you can just keep them off of the 2009. The instructions seem to be the same as the Form SSA. See the section titled "when not to report a partiicpant" This is the only copy of the draft I can find on-line. http://docs.google.com/viewer?a=v&q=ca...gFMym6_x8--7f7Q