ESOP Guy

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.

This is a classic example why the silly and artificial term "solo 401(k)" is so terrible. It is a marketing term not a legal term. This guy had a 401(k) plan as there is no such thing as a solo 401(k) plan in the law. However, by some marketer adding the "solo" in front of the term 401(k) it most likely gave this person the impression this was different than a regular 401(k) plan that has to cover employees.

In one of them Tom links to a Word document that is an IRS FAQ that say "yes". But it is vague in my opinion exactly what they are saying "yes" to. In a sense everyone agrees they can take more. The debate is if there is a general permission being given or the document needs to allow it.

So much so the guy who was my first mentor in this business had a firm rule. You couldn't come into his office with a question about how to do something for a client's plan without the "green file". it was back when it was all paper. In that firm all plan documents were put into green files. If you came into his office with a plan question without the green file he sent you packing. In fact you better have the green file and a brief description of where you looked in the document for the answer. Once you did that he was happy to take all the time needed to teach you both what the answer was and how to find it. I owe him so much for teaching me the skill of reading plan documents.

Two I found quickly.

It isn't 100% clear to me you can take more than just the RMD unless the plan allows it. It needs an in-service provision if the person isn't terminated. If the person is terminated it the plan might not allow a person to take anything but the RMD or the full account. I know some lawyers and some people on this board that say the M standing for minimum is just that the floor and you can take more. I haven't ever been 100% convinced nor am I convinced if it is the floor that means you can just pick the amount you want. I agree with others on the withholding description.

Why don't you just send the estate a check? It is an RMD you don't need paperwork to pay it.

You might want to review your WIP process to see if it was a one time, thing which happens to all of us, or there is a hole in your process.

If you search the threads on this board you will get all kinds of conversations how this can go wrong beside the PT.

Sorry pet peeve but it comes up on this board all the time. There is no such thing as a 1099 employee. An employee is reported on a W-2. An independent contractor is reported on a 1099. I would add this isn't something that can just be decided. Either a person is an employee per the rules (they are vague rules but there are rules) or they are an independent contractor. I also can't help but note that the last time I checks (which was many years ago) most bookkeeping software for small businesses have the ability to compute a paycheck, withholding.... and a W-2 at year end. I just can't imagine this is the reason that stops the spouse from being made an employee.

I am not being mean here but the obvious question to ask is are you sure your numbers foot when you input them? The box you are talking about is a total. Are you sure they aren't correcting a math error?

Are you saying the DRO was never submitted to the plan? If so, the DRO was never a QDRO. Please clarify if the DRO was never submitted to the plan to determine if it was qualified and thus a QDRO.

So what I am hearing there is it might be legal but practical issues might sink the idea anyway. I have to admit any more we send forms and notice even to people who have balances under $200 to give people a chance to elect a rollover. Most of my clients don't have a problem with that. Although ESOPs don't have the number of small balances a 4k plan does. In most ESOPs if a person has a vested balance there is good chance it is in the hundreds if not thousands of dollars range.

The answer above assume there were no deferrals from 1/1/2020 to 9/30/2020. You could have a problem if there was more than $1,500 in deferrals from 1/1/2020 to 9/30/2020. Since the 402g is calendar year limit you need to know how much was deferred from 1/1/2020 to 9/30/2020 to know if you are good for 2020. Ok, I will admit it has been a number of years since I worked on 4k plans but I am pretty sure I have a valid point. Tell me if anyone thinks I don't.

I guess if you want to keep it down to minimum effort for the <$200 balances can you send the notice with the check? I haven't really ever done that but it crossed my mind if a person really wanted to one step those payments to keep costs and efforts to a minimum that might be an idea.

My side note: I have never understood the resistance to handing out SPDs. I have a client that issues 26k W-2s/year. They put it in everyone's on boarding package. I have clients with a few hundred to a few thousand employees and they all put it in the on boarding package or when they become eligible. I will admit most ESOPs want people to think like owner employees so they have a bigger motive to get people to understand the plan but even back when I did 4k plans I just don't remember a lot of push back on this issue like I read at times on this board.

The reason you are confused is this question makes no sense under retirement law or plan documents. If a person is eligible to participate they are a participant 100% of the time. It doesn't matter if they did or didn't complete some form or decide to defer or whatever it is you are thinking of that makes a person a participant. If a person met the eligibility requirements and crossed an entry date per the plan document they are a participant- period full stop end of story. So if someone is eligible to participate you give them an SPD because they are a participant.