ESOP Guy

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

You have the date wrong. It is 8/1/2011. But yes they set the due date while the form is still a draft. http://www.ebia.com/WeeklyArchives/Statutes/20487

2nd the motion on get the attorney now. A little money spent on the help with the QDRO will pay for its self. The attorney is likely to think of things you haven't thought of yet.

Then go back to BG's question and your answer. How many people had a balance as of 1/1/2010? If <100 no audit, if >100 audit.

Go the www.irs.gov. Search for publication 590. Read about Prohibited transactions in that publication. It should pretty clear why you can’t do what you want.

For what it is worth I wouldn’t tell her anything that is just proposed and not decided. I would add I have seen plans that in the months leading up to the plan termination amend the plan to forf everyone who is terminated. Having to wait until 5 BIS is not a protected benefit. The plan forf those people, reallocates the forf to benefit the current workers, not give the “windfall” to the former employees.

This is a good company that will do various search methods. The will do the gov't search methods for you besides using non-gov't sources. Afterwards they will give you a letter stating the search met the DOL regs requirements for a search. Not that expensive. No I don't get a commission. Over the years I have had a number of client use them with sucess. http://pbinfo.com/

And for your 2nd example the right answer is $75,000. The point of the calc is to make the person no better or worse off. If their vested balance before the dist was $80k and they take $5 out, the new vested balance is $75k. So use the absolute value for the distribution number.

I believe, also, you are being tripped up by the idea the payments from the company are the distributions that are the 1099-R event. The plan will issue the 1099-R for the value of the shares in the year they leave the plan. If the person sells all/some/none doesn't matter, he owes taxes on the full distribution. So in your case it sounds like it will be possible that the taxes due in year 1 will be > then the cash recieved by the person. So if the person gets $10,000 in shares in year 1 he gets a 1099-R for the $10,000 as gross distribution and taxable distribution. If he sells part of them for $2,000, or sells all of them for $2,000 in cash and an $8,000 note he still owes taxes on the distribution in year 1. The 1099-B would reflect either $2,000 in sales proceeds or $10,000 (the $2,000 cash and $8,000 note). After that his basis in the shares is what he has already paid taxes on, in the example $10,000. GMK is correct is stressing one should only pay taxes on this stock once, and the practical reality is most of those taxes will be paid in the year they were distributied from the plan. The 1099-R will reflect the taxable amount as the FMV of the shares in the examples you give that don't have NUA issues.

If it is a 401(k)/PS plan and not an ESOP any flow through income from the company will be subject to Unrelated Business Income Tax (UBIT). I know 100% of the people will not agree with me on this, but my personal opinion is someone who owns >5% of stock in an account of a qualified plan is not a HCE by ownership. After all that person isn’t a 5% owner. The trust owns the stock. And the person with the stock in their account doesn’t actually have full rights of ownership. The trust and trustee can have many of the voting rights for example. If anyone has a cite to prove me right or wrong on this point please share it. I have not found anything one way or the other that I can point to. Also, while it is a VERY bad idea to not get an annual stock appraisal only an ESOP is required to get one. If this is a 401(k)/PS the trustee can use any method they believe to be reasonable to value the assets. You would have to check the box on the 5500 that says you have unappraised assets whose value is not set by a market. This seems like an audit flag to me. But I have met ERISA attorneys who are prepared to defend their client’s not getting an annual appraisal as client currently. Not getting one with the buy/sell is reckless in my mind as it could create an expensive PT. But allowing only one person to make this kind of investment is the part that is going to be the most problematic. Have they thought about a loan to the company with warrants/phantom stock right/stock appreciation rights – ie a form of non-qualified plan tied to the price of the stock. It would seem like that might work better then a qualified plan. Unless the only place the buyer had enough money to make the investment is in the 401(k)/PS plan. Sorry, should have added the PT issues is most likely a deal killer besides issues listed above. You just don't see Employer S corp stock outside of an ESOP.