ESOP Guy

This strikes me as a violation of the benefits/rights/features rules. You would have to test this every year to see if make sure HCEs were not benefiting more than NHCEs. I am NOT endorsing this, but throwing this idea out for comment. I once saw a plan that wanted to do what is being proposed. Instead of using balance they did it via a backdoor. The plan administrator went to his TPA, the firm I worked for at the time, and asked how much would the TPA charge extra for each brokerage account added to the plan. My boss said $500/year/brokerage account. They amended the plan to say if you want a brokerage account you had to pay the $500/year added cost. The plan administrator figured he could even add to his defense why should everyone pay for just some people’s desire to have this extra feature. By the way most of the plan fees were paid by the plan. The net effect of this is only people with very large balances were going to ever pay $500/year in additional fees. My boss thought this was a great idea. I had a 401(k) account that allowed brokerage accounts, but they only charged $50/year extra. I think this might work, but I have never decided 100% if this is a good way to do what is desired. Namely, only allow people with large accounts have self-directed brokerage accounts.

If the IRS was smart at this point they would just waive the whole 2009 requirement for the 8955-SSA and tell you to put it all on the 2010 form. But I can't imagine they will be that efficient. Bureaucrats just love their forms too much.

I have found over the years there are plenty of good ESOP people. There are plenty of good daily 401(k) people. There are very few good daily 401(k)/ESOP people. There are practical issues often times. People expect their 401(k) money when they terminate very quickly. ESOP distributions can take a long time because it takes a long time to get the new stock price. (I am assuming the stock is not publicly traded) Is the plan going to make 2 payments or hold the 401(k) until the ESOP is ready? Do you hold 401(k) statements to add the ESOP data, or issue two statements? That is a sample of the issues I have had with KSOPs. On the other hand if you can cut the number of audits in half that alone can save enough to make many of these issues worth dealing with them. I would add I once worked with a daily KSOP with a publically traded stock. Since both assets had a daily market value that worked really nice.

How big are the unreported assets in relationship to the reported asseets? For example, if the unreported assets are $20k and total previously reported assets was $2-3 million I would not adj the bb, but just wash the difference in earnings when adding the missed assets to the eb. If the unreported assets are $500k and total previously reported assets were $600k I would have to think about it harder. I am unaware of any offical guidence on this subject. I am of the opinion this industry "over thinks 5500s". There is no tax due with these returns. If the amount isn't very material do what is simple in my opinion. I know plenty of people who think I am too relaxed about 5500s with that opinion. And once again this is my opinion I know of no offical guidence. The strict answer I suspect is amend all open years. But that just moves the bb problem back to a closed year.

Read you document again very carefully. I have not seen one that doesn't answer that question within the eligibility section of the document. I suspect the group that says he enters when rehire is correct, but the answer is in the document.

The plan document should tell you how to allocate those dividends that are attributable to the suspense shares.

And the goofy part of all this is how little the form changes from year to year. Update the dates issue the form, how long does that really take? Even the new SSA if you look at it vs the old form. Does it really take years to make that few changes? My first job was with the IRS and now you know why I left. At times my current job's pace is too fast. But the IRS was always just too slow. I had to make myself slow down to "keep up" with those people.

Most plans are run for the benefit of the participants. This one sounds like it is run for the benefit of the commission earners.

As far as I can tell, no you are not missing a thing.

You are asking a large questions. It is kind of beyond the scope of a chat board. Whenever I run into people who are thinking about ESOPs I tell them the same thing. Start by going to some of the ESOP Assoc. or NCEO conferences and just meet and talk with people who have set up an ESOP. I interact with the NCEO more than ESOP Assoc. but if you become a member they have great material and free webinars through the year. Do your research. Get a handle on the concept known as repurchase obligation. This becomes the obsession of most ESOP companies. The repurchase obligation is the cash flow needed to pay terminated employees their benefit. The company has to make sure the ESOP will have enough cash to pay people their benefits. That seems like the big issue for any ESOP company. To give basic answers to your questions the ESOP can buy the stock directly. Most likely that is the best tax situation for the company as it can use after-tax dollars to buy the shares.

I use the method found in b

Not sure why my topic on this question got closed, but... Does anyone have an opinion on the idea that an ESOP that owns 100% of the stock can not have any 5% owners because the trust owns all the stock? So even a person with a balance >5% of the stock allocated to them would not be a key unless they are an officer with high enough compensation. Thanks

I just want to double check because it could make a difference this year with a client. It is my understanding that if an ESOP owns 100% of the stock there can not be any Key employee because of 5% ownership. The trust owns all the shares. So if a long term non-officer employee has an allocation balance that would be > 5% of the stock that person is still NOT a Key. With a 100% ESOP that means only officers with high enough compensation can be Keys. Thanks.

Count me as one of those people who hates that reverse polish thingee

At the most recent NCEO annual conference in Denver they had a semiar on this topic by a retired partner at McGladrey. She says she helped write SOP 93-6. I don't know her well enough to name drop. If you are member of NCEO they will often times let you get a copy of seminars from their conferences. She says they have books on this issue also.

If you google QDRO specialists you get people who will do just a QDRO for a few hundred bucks.

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