ESOP Guy

You need to give more detail on the type of plan. ESOPs hold S corp stock all the time. For what it is worth only an ESOP is the pass through income exempt from the Unrelated Business Income Tax. So even if the another plan can hold S Corp stock you have an UBTI issue. That is why S corp ESOPs are so popular. If the ESOP owns 100% of the S corp stock no one pays income tax on the business income. I should add there are very complex rules regarding S Corp ESOPs. So before anyone goes off and thinks of setting one up you should talk to an ESOP expert. ESOP Guy, thanks for your answer. I have another question. The ESOP exception for s-corp stock under Section 4975(f)(6)(B)(ii) appears to work one way (i.e., sale from shareholder-employee to ESOP). Is there another exception out there for the reverse (i.e., ESOP to shareholder-employee)? Randy you are reaching a point where I think it is ill advised to form your positions via a chat board. I have never seen an ESOP sell shares of an S corp to one of the S Corp shareholders. The ESOPs I have worked with have tended to be a method of helping the current owners cash out. Given the cost a PT problem can cost someone a the use of an ERISA attorney here who can know the whole set of facts sounds like cheap insurance against future problems. Sorry can't be more of a help.

For what is worth I agree with Sieve's answer that happened on the other thread regarding this issue. I was just slow to add that because I only like to answer when I am rather sure of my answers. However, if you have access of the ERISA book by Sal he does have an ok section that covers this on the PT section.

You need to give more detail on the type of plan. ESOPs hold S corp stock all the time. For what it is worth only an ESOP is the pass through income exempt from the Unrelated Business Income Tax. So even if the another plan can hold S Corp stock you have an UBTI issue. That is why S corp ESOPs are so popular. If the ESOP owns 100% of the S corp stock no one pays income tax on the business income. I should add there are very complex rules regarding S Corp ESOPs. So before anyone goes off and thinks of setting one up you should talk to an ESOP expert.

I am assuming for this discussion that retirement benefits WERE subject to collective bargaining discussions. All the rules for union plans require that to be true. Treas Reg 1.410(b)-6(d) will tell you test union and non-union separately. So the non-union group is simply its own group. You use just them in the numerator and denominator. There are rules for some reason about having more than one bargaining agreement covering employees. It is found at 1.410(b)-7©(4)(ii)(B). However, the most important thing to know is union plans are deemed to pass coverage. See 1.410(b)-2(b)(7). So they simply pass coverage. Someone else is going to have to help you with the ADP/ACP testing and unions. I have only worked with union PS and ESOP plans. I think I have the reg references correct. But if you spend some time with the 410(b) regulations you will find your answers.

We have a client that failed to file the 5500 timely. They paid various legal expenses for the DOL submissions to correct the late filing. They now want to run those fees through the plan. I know great thing to do. You fail to do your job and now you make your employees pay for it. But it isn't clear to us what type of expense this is. Any help and reason why you think the way you do would be helpful. Sorry, the question isn't fully clear. We don't know if they can do that. Although so far the answer is looking like it is a "no". If anyone has something real black/white on the subject let us know.

Your client needed to get advice from a good ERISA attorney back when he was working through the business buy. A little money spent then would have saved him now. First, you need to go back to the advice of not merging the plans until 1/1/2012. If you have access to Sal’s ERISA book he has a good coverage over the transition period one MIGHT have in this situation. In many cases the two plans can be tested as separate plans in the year of acquisition and the whole following year. So in this case it would be for pye 12/31/2010 and pye 12/31/2011. Those rules were made before Safe Harbor plans existed so it is less than 100% clear how it would work in this situation. That problem could use an attorney’s advice. But if the same logic is followed it would seem like you could just test the non-Safe Harbor plan stand alone and the Safe Harbor plan stand alone. I know what happens when one assumes logic and Qualified Plan law. More importantly the ERISA attorney could help you with other issues. For example, why would you want to merge the other company’s plan into the buyer’s plan? What if that plan has a disqualifying defect? All you are doing is merging that defect into the buyer’s plan. Terminate the seller’s plan, pay the people out, make them eligible to the buyer’s plan 1/1/2012. No chance of importing another plan's defects into your plan. I am doing this from memory. So I would recommend getting the help from someone who has experience of Qualified Plans and business merger issues. I don’t recall ever merging the plans just because of the plan defect risk. I do recall using the transition period on a regular basis.

Everyone I know regarding this issue says the safe answer is for the employer to issue a 1099-B if the employer is buying shares from people who are exercising their put option right under an ESOP. This might be more answer then you want but here goes. This means that if the ESOP distributed shares to X worth $10,000, and then Company Y bought thsoe shares for $10,000 the safest answer is the following (I am skipping the NUA issue to keep it simple): The ESOP issues a 1099-R showing a gross distribution for $10,000. The company issues a 1099-B showing gross proceeds from a stock sale of $10,000. The best trust companies that work regularly with ESOPs will tell you this is the way they want it done if they are the trustee of the ESOP. Then again they don't want to be sued and they are spending their client's money to issue all these 1099s to protect themselves. I have never actually had anyone raise your specific issue. How many times, or times per year does one need to do this activity. So I have no specific knowledge as to how some of the people I have talked to over the years would answer your question. But one of my opinions about many of these questions on this board is they are being over thought, or people are looking to rationalize a way out. I would apply te KISS principle to most of these questions, Keep It Simple Stupid. To me the simple answer is if you are redeming shares every time someone is paid from the ESOP you are doing it on a regular basis. Issue the 1099-B from the company. I have never been part of a stock buy for a note so I can not help you on that one. Hope that helps.

We have a Keogh. The person sponsoring the Keogh was 70.5 in 2010. The RMD was paid to him and tax was withheld. Shortly after that this person died. Who signs the 1096 and 945 that needs to be filed? Does anyone have a link or can give me direction to where they found this answer? Thanks

This can be a very complex issue. I would advise getting better advice then you can get from a chat board. I work with ESOPs mostly with these kinds of issues. However, I recently worked with a profit sharing plan on this issue. Only ESOPs are required by law to get an independent stock appraisal from an appraiser. However, best practice would be for anyone who has non-public traded stock to get an appraisal. The simple reason is you are opening up a lot of possible issues if you don’t. If management sets the value they will have to be able to back up that value if challenge. In years where an HCE, or Key sells stock to the plan, or is paid a benefit if the value is determined to be too high opens one to all kinds of fiduciary issues. You can have Prohibited Transaction problems also. The firm I work with provides stock appraisals, but there are plenty of people who do that kind of work. Since you put this topic under the 5500 topic heading if they don’t get an independent appraisal you have to “confess” that fact on the 5500. Seems like an audit flag to me.