ESOP Guy

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.

I will let others debate the 402(f) issue. I can't for the life of me understand why a plan doesn't send forms and notices to everyone first I don't think I have ever not convinced a client to do it on the grounds it is the right thing to do to give the person a chance to roll their money over without withholding. I even have gotten them to send them to people who have <$200. Its their money give them some say and control over it already! I will get off my soap box now. And yes it all has to be in the document. I have had client's whose plan only forces out <$1,000 account balances. I have over the decades had plans that said they didn't have to force anyone out and they didn't.

Now that I looked at the link provided about try this part of the DOL https://www.dol.gov/agencies/ebsa/about-ebsa/ask-a-question/ask-ebsa They literally (I am using the word correctly here) are tasked with helping people who are not getting their benefits. Talking to a regional office most likely got you the run around. To quote the page I gave you the link above to: We can help answer questions on issues such as: Lost or stolen pension or other retirement benefits

Yeah, you would be shocked how many 12/31/2020 PYEs we still don't have the stock price for the ESOP as of today (10/13). The reality is many times if you don't have the stock price by around 9/1 the TPA's work and the auditor's work can't get done by 10/15.

We attach a page saying the audit is coming. We get an error from our software if we file with no attachment and it is a plan that needs an audit. I assume that the DOL's software would do the same thing. I find the software we use based its checks on the DOL's checks plus some.

I have never seen a penalty for perjury but I have seen huge penalties for not hitting the 45 days. So if you file without the auditor's report you better be sure you can get the report within 45 days of the letter. The hard part is you don't know when you will get the letter. Some come fast. I have had 5500s not amended until the following January and they never got a letter. The thing is once you go down this road you can't really access DFCV. So if you get a penalty it will be large. A DFCV filing limits your cost. So if you think it won't be long after 10/15 the amend filing is a reasonable risk. The less sure you are the more likely you should just not file and use the DFCV (I hope I got the acronym right).

So you are going to see if you can find a way to turn the chump change into real money? 😁

You really need to check your plan's QDRO procedure. Some of them will have rules that say if you have been given notice there might be a DRO on the way you are to put a hold on the account. Leaving aside the strong opinions on this board that object to such procedures if it is there you have to follow it. If it isn't there and the person asks for the benefit I don't think the plan can say "no". This answer to this is most likely answered by the plan document and QDRO procedures.

My understanding has always been they would have to show that rate is what is commercially available given the risks of the loan. You can find plenty of threads debating what kind of loan is commercially available compared to plan loans. There are after all over collateralized. There is 0% chance of the plan to lose money on this loan. It can only lower the borrower's balance. So I have always said, with plenty here disagreeing, that you should compare to a loan that is fully secured by the borrower's own account balances. My credit union will give me a loan that is secured by one of my own CDs at CD rate plus 2%. So I don't see how you ever get to 1%.

it would be interesting to see how they overcome 280E issues. Back in the '80s during the height of the war on drugs they passed a law that says you can't deduct any expense related to illegal drug dealing (illegal at the federal level to be clear). I know courts have said cost of goods sold are an exception to that rule. I don't work with these companies so there might be away around the whole thing. But if you can't deduct your retirement costs that changes the dynamic of the reasons to start one. It doesn't end the reason to start one but changes it. The real answer is to acknowledge the two realities: 1) This particular drug is legal in states so that ought be be enough for an exception 2) Most likely 280E ought be repealed. Read literally a chop shop can deduct their cost of wages paid to people who steal cars for them but a drug dealer can't deduct wages paid to the people selling their product. (Yes, I get it we are talking crimes but they have to pay taxes and they are entitled to pay taxes on their net income not their gross revenue unless your crime is drug dealing. It is a bias not rational.)