ESOP Guy

Yup no on or before. It clearly says you ignore the age/service requirements if they are employed on Effective Date. So the general rule of you must look to all service when deciding if the age/service requirements have been met. So Bird is right. If we assume the plan has 1 year service requirement it doesn't look like this person enters. So now to answer the original question you need to apply any age/service requirement looking to all service, including service before the Effective Date, with the employer and ignore the exception waiving those requirement as he was not employed on the Effective Date. This is no different than any other rehire. Just decide if the prior service met the age/service requirements or not. Most documents, might have to look to the Base Document, should spell out when a rehire enters the plan.

I agree with this. Which is why I spent so much time asking if it really says "on or before". To be very clear. If it doesn't say on or before it is "no". If it does say on or before I don't see how it can't anything but a "yes" and the person who wrote that document ought to be ashamed of themselves.

Does the waiver of age and service really say on "or before"? Or does it say anyone working on the Effective Date enters on the Effective Date? You can't ever ignore service before the Effective Date so to me the answer here hangs on the exact wording of the waiver. If they really wrote people employed on or before the Effective Date they were sloppy in writing the document. If they meant to write "or before" and didn't think of rehires they were still sloppy. I would think about getting the attorney who wrote this document (if there was one or the person who wrote it) to opine on this. Once you set precedent I would document so the plan is consistent going forward. I would also get the client to sign off as Plan Administrator to agree. However, if it really has the "or before" language in place I would tend to agree with Riley- or before means or before.

I have never really thought about this before but can you just game this to hit those conditions? You put the person in their own group and then declare any group that has a a set of conditions will get an allocation as define for the group? Your group now didn't get an allocation because it failed to have hit the allocation condition. I really am asking here as it just came to mind.

ESOP shares do NOT count for HCE determination.

If you have a copy of the plan document read it very carefully and see if it authorizes the Plan Administrator to do interim valuations at their discretion. Most plans documents allow for it and it is just for that kind of situation. There is a good chance they are all good. But it is very dependent on how the plan document was written before they did the interim valuation. If you search this forum you will find a bunch of threads on this very topic from that time period. That might help you get more background on the topic and the issues people were talking about back as Covid started to hit the markets.

Once again you need to go back and read what people are telling you. You have two issues here and you need to work through both of them in order to get the correct answer. Issue 1: There shouldn't be a way a person who has been gone 6-10 years ago who didn't forfeit. So study the document and figure out what SHOULD HAVE HAPPENED with those accounts and when. You have a failure to follow the document it looks like. A decision needs to be made how you are going to correct that problem. Issue 2: Once you correct issue 1 you may or may not have to worry about is these people can be forfeited or need to be made 100% vested because of the plan termination. I can't imagine the plan will have to vest them. But it the answer will most likely fall out from the correction of the correction of failing to follow the plan document.

This is my question. I THINK there are ways to get a person treated as a trader and all this income is the profits from their trade and business but that often times means they pay the payroll taxes at the LLC or personal level and stuff like that so very few people do it. They need to talk to a good tax person in my opinion before they come to you.

I fully admit I am a DC guy not a DB guy. So what comes next could be worthless. However, in the DC world if a plan was changed to stop people from being able to accrue a benefit that were still employed by the plan sponsor the conversation would be if we have to make everyone 100% vested. The Partial Plan Termination rules, which as far as I can tell cover both DB and DC plans, are clear a plan amendment can trigger an event that would make the affected people 100% vested. So if this withdrawal is anything like a plan amendment I think one might need to ask, "are these people really 100% vested?" Like I said I am happy to be told this is nothing like what I am talking about and I should go back to my DC world and be a good boy!

Not directly related to your question but I have some experience with this kind of stuff with ESOPs so I will share. Be careful you keep track of the differences between the plans and the SH rules. For example in an ESOP you have to allow a person the ability to take a diversification at age 55 if they have been a participant for 10 years. SH benefits can't be taken out as an in-service until 59.5. Most MP plans don't allow in-service distributions. I forget if SH have to be allowed to be taken out at 59.5 via in-service or that is just an option. It has been a long time since I worked on MPPs. I guess I am saying I would make sure there aren't any contradictions in the rules like that which need to be thought through. Both MPPs and SH have very specific rules at times.

I actually missed the "wild west" days of being able to do bottom QNECs. We had a client in the ''90s that refused to say no to their HCEs and refused to do refunds for failed ADP tests. But they didn't really want to put money in the plan to pass. We would do these crazy bottom up QNECs that would give people who quit in the first week of the year 100% of their deferral as a QNEC that would quickly get us a passing test for a fraction of the cost of a flat or consistent percentage to everyone QNEC. I had a boss in the early days of Age Based PSP plans that wrote crazy formula like we would allocate 3% of pay on the first $100k of comp and 75% of pay on all comp over $100k. Throw in those very loose age based rules in the '90s and you had a passing plan. And my land some of the perpetually refinanced participant loans I used to see! As far as I can tell some of the early TPAs I worked for are the reason there are so many rules regarding how not to abuse the rules. 😁

If you read the rehire provisions of the plan document they don't make any reference to the effective date of the plan. They simply say if this person is rehired after working 12 mo and having a 1,000 hours they re-enter upon rehire. If so, they enter upon rehire. I believe that reflects the general rule of the law. You can't disregard service prior to the effective date of the plan for entry. Check the plan document very carefully. I am convinced it will answer your question.

While this first day/any day thing is interesting I don't think it is answering the person's question. I think they are asking if a person turned 70.5 in 2018 and was a 5% and now in 2021 is no longer an owner, can they stop taking RMDs if they are still employed for example?

It has always been my understanding that the better question is: Can you cite where they are allowed to stop? If you read the rules it is clear if they are a 5% owner they must start taking RMDs in their required date once they reach the age that triggers the RMD. They must take them every year after that unless you can show why they can stop. There is no rule that says they can stop so they must keep taking them.

Double check the document. Some (well drafted documents) include language that says or within so many days of knowing the balance. I have never seen an ESOP get in trouble for holding paying such a person until the correct balance is known in all the decades I have been doing ESOP work. I think the Reg quoted by Rocknrolls2 is the key.

I think the more important question is do you have to follow the service spanning rules for this allocation condition? If so, this will be a major pain. The service spanning rule is hard enough with vesting and eligibility. I would hate to have to review this every year for allocations unless this is a pretty small group. I have never looked into the question does the service spanning rule applies or not to this but I would figure it out before you do the first allocation.

It has been a very long time since I did loans in a 401(k) plan. It was in a balance forward environment so I didn't have the coordinate with a reocordkeeper issues and we still hated refinance loans. You ended up regularly with simple practice issues. You get the whole thing set up and within the rules regarding the limits and the paperwork signed. (You got into all kinds of disputes on how to compute the maximum amount. It seems like it has been a while be easily 10 years after the rules changed you could see regular threads on this board over a dispute on how to compute the refinance maximum.) Say you are doing the new loan paperwork today. All the approvals happen will quick and the new loan goes off fine. You are told the first new payment will come out with the 12/24 paycheck for example. So you set up the amortization with the first payment for that day. Something goes wrong at the client's HR level and the old payment comes out of their check not the one that reflects the new amortization. Now you have a wrong first payment. Some kind of silly adjustment needs to be done to the whole thing. Money loser for the TPA! If we sat around with a number of TPAs who do this for a living now they could most likely give you horror stories of seemingly small things that can go wrong doing so that just eat up time that is hard to bill to the client. Loan processing as far as I can tell might be the single lowest margin thing a 401(k) TPA does. A refinance just makes that worse.

Not sure if you were just being a little sloppy but the idea of being a Key employee and needing an RMD aren't legally or logically linked. It is true a 5% owner will be a Key Employee but the code doesn't say a Key employee must take an RMD but a 5% owner must. As this case shows a person can stop being a Key employee and still need to take an RMD.

I don't see how someone who is being paid for work on 6/30 isn't employed on that day for the last day allocation. If the document says "no" in the fact set like described in other comments I can live with that plan provision. However, if there is no explicit provision like that how can you ever say someone being paid to work on 6/30 wasn't employed. The harder one is what will happen in 2022 which 12/31 will fall on a weekend. If the place of employment is not open on weekends and the person works on the last Friday of the year are they employed if that is there termination day? Or do they have to write the letter of resignation to day they terminate as of 12/31?

On a practical note I just don't see a big reason to procrastinate on this one. It was my understanding this is a simple amendment. Depending on how a document was drafted and choices made to not pay RBDs for 2020 because of the Covid rules could require an amendment (not all case but some it could be needed) we advised all of our clients to decide what they wanted for their ESOPs and get the amendments in place. In some cases there were two simple amendments that needed to be done so just get them both knocked out and be done with it. I will admit since ESOPs are still mostly attorney drafted and not some kind of pre-approved plan that changes the dynamics some. But we also told our clients this is the type of simple thing that could be forgotten about. So just get it done now while the decisions were being made. As far as I can tell regardless of the type of document the client is using this is a simple amendment to get drafted and put into place. In short this debate might be interesting but given the ease to get this amendment is place it seems like the upside of doing it sooner than later would be a good deciding factor.

Maybe the lawyers can give a better answer I would think you would have a problem if you never bother to do a termination amendment. I haven't worked on 1 person plans since the '90s so if someone wants to tell me I am wrong I can live with that.

I will admit I assumed the person asking the question was accurate that the person was due an RMD if it weren't for the question of the rehire. If the person was of the age and the termination was of the time frame the person needed to be 72 and they weren't that age there is no RMD. But that is because the person never needed one in the first place regardless of being rehired or not.

Yes, I should have been more precise as this is the better answer.

There is no clear guidance regarding this that I know of. I think the answer is "yes". I base this on the fact the rules tell you when to start. The plan document tells you when to start. They don't ever tell you when to stop. I THINK the ERISA Answer Book opines with a "yes" also. To be clear I have never found a cite one way or another so I can imagine a reasonable case for "no" but that is not the one I favor. So far most of my clients have gone with my "yes" when I layout the two possibilities and the reasons for each answer.

It is 7 months after the assets are all distributed from the plan.