ESOP Guy

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.)

Your plan should have language that follows these rules as they are required to be in the plan. https://www.law.cornell.edu/cfr/text/26/1.411(a)-11 I quote: (4) Immediately distributable. Participant consent is required for any distribution while it is immediately distributable, i.e., prior to the later of the time a participant has attained normal retirement age (as defined in section 411(a)(8)) or age 62. Once a distribution is no longer immediately distributable, a plan may distribute the benefit in the form of a QJSA in the case of a benefit subject to section 417 or in the normal form in other cases without consent.

So don't they send them distribution forms every year? That seems implied in that. Maybe I am reading too much into that sentence. I would send them forms every year. My guess is if you put a form in front of them some will want the money if they are retired. Most people take the money and run if you offer it to them is my experience. A more radical solution to this might be to split the plan based on division and some claim it can be done on last name. If this is a problem as of 12/31/2021 going into 1/1/2022 the split would have to happen before 12/31/2021. I am assuming the problem isn't as of 1/1/2021 as paying people in 2021 wouldn't help.

I believe they ask you enough questions to get an idea you are some how related to the plan. It has been a very long time since I have called that number. However, EINs aren't like SSNs. They are much more public so the security around them isn't as high as it would be if you were trying to track an SSN. What you are also hearing is calling the IRS currently can be a many hour affair so use the restroom before you start the call. 😁

Oddly I have a lot of ESOPs that have a 3 year cliff. However, outside of the ESOPs it seems pretty rare with the clients I work with. So I agree it can be done with a DC plan.

I am a CPA not a lawyer. Also, I realize this is for a paper as such it is more hypothetical than anything else. You also don't say what kind of benefit plan. Within those caveats..... If this is a 401(k) plan or a lot of Profit Sharing plans as a practical matter what you are talking about is very likely chump change in my opinion. Let's just say the person discriminated against was due $10k/year more if they had not been discriminated against. A very large number of company's 401(k) plans match is 50% of the first 6% or 3% of pay. That is a whole $300/year. Over 10 years a whole $3000 vs the $100,000 of lost wages. If this was me I would want my lawyer focusing on the lost $100,000 not the $3,000. All you could claim you lost in being able to defer your wages into the 4k plan is tax free earnings which once again doesn't seem big as I am assuming you get back earnings on the back wages. So the benefit lost is the tax free part. Still chump change on the grand scale. Now if it is a DB plan I could see this being bigger as it would effect a life time annuity but they are pretty rare form of plan any more. There are some richer DC plans that this could be real money. I guess over a large group it could add up if the lawyer is getting 20%-30% of total recovery as his fees it become a big deal for the lawyer! Maybe I am being too much a CPA. I get fiduciary duties and understand this is a paper but as a practical matter I don't seeing this being a close to a big deal I am sure on this board someone will tell me I am wrong and why- part of why I like this board! Yes, take up Peter's offer.

Do you know why they aren't paying? It just isn't clear to me what a lawyer is going to do the DOL can't do.

Most of your questions need to be answered by the plan. The most likely answers are: 1) unlikely... my guess is the best way to do this is put it in an IRA which would allow you to control how much comes out of the IRA. 2) Since #1 is most likely no this is n/a 3) If you terminate it is unlikely they will allow you to take a loan. If you have a loan and terminate that will trigger the loan to become a distribution. Your company ought to be able to get you more information on that. But what I describe is how 99% of all plans work. You need to talk to your company to get the correct answers as they can be plan specific. The above are the most likely answers except for #3 which is pretty much how all 401(k) plans work. You will need to do a good amount of research on taxes, the withholding rules and these kinds of distributions. The withholding rules are complex. This will be US income if you take a distribution. So you will have to keep filing US tax returns if you take the money out of the 401k or IRA over a number of years. If you really have $100k you need to stop looking for free advice and spend some money on a good tax accountant. Free advice is worth what you pay for it. In this case spending some money on a good tax accountant will almost certainly pay for itself by saving you time, trouble and maybe taxes. I would look for someone who really understands taxes for people living outside the US and retirement plans.

There is a phone number to get it if you don't know it. https://www.irs.gov/businesses/small-businesses-self-employed/lost-or-misplaced-your-ein

Over the long term they need to work this out and watch this pay now. Back in the day I used to do a lot of balance forward PSPs. I remember in 2008 we worked on a plan for a large hospital. In late 2008 some doctor figured out he could ask for a distribution based on the 12/31/2007 balance. He figured that is a great deal given what the market was doing. He must have told his buddies as there was a run on the bank. The hospital had to quickly amend the plan to make people take partial payments based on the prior 12/31 and a true up after the next valuation. It might be sad but people will try to use these kinds of provisions to game the system if they can.

Add another vote to contact DOL. That sounds like you only chance that won't cost you a lot of money on a lawyer.

Absent evidence of the claim I don't see you can do anything. I am not a lawyer either but a concerned call isn't facts. I will point out most plans do have language discussing if a participant or beneficiary is a minor or incapacitated it seems like. So IF you GET the evidence there is a competency issue the document might give you direction on what to do.

Your question/comment is a bit baffling. Are you sure you were vested in the match? It would be very rare to be able to take your deferrals but not allowed to take the match. If you weren't allowed to take the match it would be way more likely you weren't vested and not entitled to it. How do you know they reported anything to the Social Security Administration? They might have done so but they aren't required to tell you. So how do you know? Where are you expecting this "account" to be set up? Do you have a copy of the Summary Plan Description (SPD) for the plan? If so, it tells you how to make a claim for benefits. Once you are more sure about the fact you might want to make a claim to clarify if you are indeed entitled to more money or not.

Why do you think you can have unallocated employer money in a 401(k) plan? Whatever they are they sure sound like ER contributions that need to be reported as such on the 5500. Now the question is: Has the plan handled them properly in terms of allocating them?

What is the TPA's liability in everyone's mind? It hasn't happened very often but I have had bosses sign off on doing work we found completely unfounded after the plan sponsor, who was the Plan Administrator and trustee signed a letter telling us they understood the issues (spelled out in letter) and wanted their TPA to do it their way. I am not a lawyer but is there something in ERISA that really says a TPA can be held accountable for doing what the actual fiduciaries told them to do after admitting all the problems? Or is the concern simply the cost of having to fight about if the TPA disclosed enough or reputational issues? Let me be clear I am all in favor of walking away for the simple reason these types of people are a pain and are just as likely to not pay your fees as they were to not pay the Safe Harbor contribution. But those are practical issues and the comments here seem to suggest there is actual legal liability at stake and I have never seen that happen.

I don't see how it can be B. Think of it this way. If the participant quit the day after the AP got paid choice B would mean you pay him $3,750. That would mean between the AP and participant they would be paid $6,250. I assume you agree the AP gets $2,500 under your fact set. The total vested was $5,000 now they are getting paid more then that. So getting the QDRO just hurt the rest of the participants by reducing the amount of forf that are available to them for fees or reallocation.....

I have both seen and done that. I doubt it is right. What I have found is the few times a plan didn't have a fidelity bond and a DOL or IRS auditor comes around they just make the plan get one. I have never seen them get in actual trouble. Having said that not following the rules and hoping for no problems is not a good plan obviously.