ESOP Guy

I am an accountant who receives QDROs all the time to process not a lawyer. You will want to wait until the lawyers who know the legal parts of a QDRO to give answers before you come up with a plan of action. The one thing I will point out is you don't need an actual dollar amount written into a QDRO. Now if it has gone before a judge and approved some dollar amount that is different. But if you are trying to get a judge to sign off on a QDRO and you need to express how much you are to get it can be simply written as you are entitled to 60% (or some other percentage) as of such and such date plus earnings from that date. The 401(k) plan can determine how much money leave his account and goes into your account. We get QDROs to approve and process all the time using percentages like that. Also, a QDRO isn't a form it is a legal process that requires the plan and a judge to get fully through. Like I said the lawyers that come by this board can help you more on those kinds of details.

I am super busy today so I am just give a warning that may or may not apply being done from memory. A year ago an ESOP I work with excluded all HCEs and a very large number of their employees. This included employees who had been participants who had even gotten allocations in the past. No one had any problem with this amendment. It was pointed out that when people were checking into all of this that this amendment was a partial plan termination and all of the people had to be 100% vested. The term the ERISA Outlines Book used was a "horizontal partial plan termination". There might be too few people here to matter. But if you read the regs on PPT it says a plan amendment can cause one. I quote: Treas. Reg. 1.411(d)-2(b)(1) (b) Partial termination - (1) General rule. Whether or not a partial termination of a qualified plan occurs (and the time of such event) shall be determined by the Commissioner with regard to all the facts and circumstances in a particular case. Such facts and circumstances include: the exclusion, by reason of a plan amendment or severance by the employer, of a group of employees who have previously been covered by the plan; and plan amendments which adversely affect the rights of employees to vest in benefits under the plan. Once again it might mean nothing here as it is one person. But if I knew this before last year I had forgotten and this turned into an interesting conversation about the cost of the amendment and if the client still wanted to do it. They did but it did change the dynamic of the thought process.

I worked in the Loop (the Chicago downtown) in the '80s. I was taking graduate level classes at DePaul University at their downtown campus during that time. I would get out of class around 10pm. I would take the L which out to the suburb where I parted my car. When the Guardian Angels were on one of the cars 95%+ of all people rode in that car even if they had to stand and there were open seats in the other cars on the train. I remember them well from those days.

Is the system smart enough to know I am a boomer and not give me that section? I looked for it after I read the comment and couldn't find out what he was talking about. Still funny comment.

This is a very valid point. The last time I worked on 4k plans I had a partner at a CPA firm that had a benefits department get on my for billing one of his client $200 for an $8 earnings correction. That $8 went most to the dr as he had the largest late deposit. The partner's point was it would have been cheaper and easier to just assume each nurse should get $10 of lost earnings and give the dr nothing and not do the work. The dr only had 3 nurses. No one really like that idea but until we get some kind of de minimis rules for these fact patterns you keep running into times the cost of computing the fix vastly exceeds the fix. I agree I would not go looking for reason to irritate a client.

If you are saying my wording wouldn't allow a person hired on 9/1/2020 to enter 1/1/2021 because they don't have 12 months that is correct. If the employer wants everyone to enter on 1/1/2021 they could write such a provision. I just don't know a way to do that excludes part time people unless you can come up with an acceptable exclusion based on division, location.... But saying all people expected to work to be part time are excluded is a problem. At some point it might need to be conceded that the law doesn't allow the employer to do everything they want.

Just write the provisions to say anyone who has worked 12 month with 1000 hours into the plan enters the plan on the next entry date.... For eligibility you can't ignore service before the plan it set up. So if someone worked 1,000 hours in a 12 month period would enter on 1/1/2021. I am ignoring any discussion of breaks in service or Rule of Parity to keep it simple for a comment section. If you won't put anything in the document that resets the clock if a person worked 1,000 hours in 1999 they would enter on 1/1/2021 as that is the first entry date after they met the requirements. I agree if you say anyone working on 1/1/2021 enters all employees enter. If the client can break down their company by groups/divisions and one of them has most of the part-time employees you exclude that group/division and keep them out if you can pass coverage.

Page 3 of the instructions are very clear. https://www.irs.gov/pub/irs-pdf/i5500ez.pdf Final ReturnAll one-participant plans and all foreign plans should file a return for their final plan year indicating that all assets have been distributed.Check box A(3) if all assets under the plan(s) (including insurance/annuity contracts) have been distributed to the participants and beneficiaries or distributed or transferred to another plan. The final plan year is the year in which distribution of all plan assets is completed. The final year ends the last day of the month the assets leave the plan. You count the normal filing deadlines from that month. So 2020 can't be the final year as there were assets in the plan.

Unfortunate but the DFVCP is the best option. While no one wants to pay it the cost is reasonable compared to many other options that could leave someone at risk of the full fine. Bird's idea is playing the audit lottery which is most likely low risk but not sure I would do it.

Yup saw it in the WSJ and knew it would spark questions as this idea tends to get oversold in the media. If you are a subscriber here you go. https://www.wsj.com/articles/a-little-known-back-door-trick-for-boosting-your-roth-contributions-11625848733?mod=searchresults_pos3&page=1

The correction can't be rolled over to be clear.

And even if it passes now it is easy to envision the right combination of turnover in one company and not the other to start making things not pass. Also, what has happened is in effect the benefits of the safe harbor plan have been made null and void by the existence of the other plan. I have seen this plenty of times over the years. Someone sells a person on a safe harbor plan. The person selling the safe harbor plan doesn't do the right due diligence about the situations and doesn't uncover the controlled group and basically undoes the benefits of the safe harbor plan.

I agree with the first answer but will add: read the plan document very carefully. When does the plan say a person forfeit their unvested balance. Did this person forfeit but the recordkeeping just not showing it yet? For example: I have plans that say a person forfeits the day of termination or the last day of the year of termination. A person who terminated in 2020 might have forfeited already per the document but the recordkeeping system simply hasn't caught up to that reality. For example I am still just getting some of my 2020 census files to even know if a person is terminated. ESOPs tend to be balance forward not daily. So read the document carefully and decide when this person should forfeit per the document and compare that to the plan termination date. If the document says they have forfeited already and it is just a matter of bookkeeping you can forfeit the person in my mind. Otherwise the person gets what I call the plan termination windfall and there is nothing that can be done about it.

That is where my research is leading me. I think the system is wrong in that in no place did I load the 10/1/2016 to 9/30/2017. This is an annual ESOP so I need to factor that data into it. If you got regular payrolls for a 4k plan my guess a system could be programmed to do it right. In this case the 10/1/2016 to 12/31/2016 census fields only have that quarter's hours. The 1/1/2017 to 13/31/2017 census field only has those hours. We computed the vesting right back then so I have the 10/1/2016 to 9/30/2017 so I have the data. The same overlap happens with vesting and break in service calculations as far as I can tell. Thanks

I agree with Peter. I don't see how it is the service provider's job. I am not of the opinion it is the person with the last balance in the plan's job either.

I have an plan that switch from a 9/30 PYE in 2016 to a 12/31 PYE. This created a short plan year of 10/1/2016 to 12/31/2016. My system is counting Breaks In Service (BIS) wrong in my opinion. It is counting the short plan year as one year. So I have people who worked <500 in the 4th quarter who terminated in 2017 as showing as having 5 BIS. It is counting the short plan year as 1 than 2017, 2018, 2019 and 2020 as the next 4. I think the 2017 terms are forfeiting a year early. I am pretty sure that is wrong. What I don't know is what is the right answer. Do I have to figure out if the person worked 500 hours in the calendar year? Do I ignore the short year? Any help or guidance is appreciated. Thanks

More https://www.dol.gov/agencies/ebsa/employers-and-advisers/plan-administration-and-compliance/abandoned-plans

Not an expert on this but this sounds like an orphan plan. https://www.irs.gov/retirement-plans/plan-sponsor/fixing-common-plan-mistakes-using-epcrs-to-terminate-an-orphan-plan So I think neither the service provider nor the participant are responsible. I am not sure who goes to court to get someone appointed and what that costs but that seems to be the route to a solution.

EBECatty nailed it 100%.

I am not adding a lot but I will go with the communication crowd. We tell all of our clients about the drop dead date for getting checks cut and know they will be done by 12/31. The drop dead date is NEVER in the week between Christmas and New Years. It is always before that date. We will process payments beyond the drop dead date and often times the checks get out on time but we make it clear if they don't people were told and the chips will fall where they may. While this doesn't solve the current problem I think that is where the original questioner's firm needs to go moving forward with procedures. They need to work out the drop dead date and let everyone know what it is. I have never had a client say that is unreasonable.

The only time I have seen a 52/53 week plan the document was very clear. It said the year end was the last Saturday in September. It was a grocery store. Their weeks ended on Saturday with the weekly specials and they wanted the plan to always end on the end of one of their business weeks in September. I think I have seen a 52/53 week checkbox on some Adoption Agreements back in the day. I haven't looked for them recently.

I have never seen this fact pattern go to probate. The real risk is making sure there really are only two children. If there is a 3rd or more out there they can make a claim on the plan after the benefits are paid. That will be a real problem. So make sure there are only two kids.

It has been 10+ years since I had a 52/53 week plan but what Mike is saying is my memory. It was hard work for the plan auditor as they had to constantly figure out the actual value of the assets in the plan as of the odd date when all brokers issue monthly or quarterly statements. However, the 5500 was not as hard as the first two comments made it out to be.

Sorry, I don't recall....

If I recall correctly we made the case they did not need an audit. They were never audited by the DOL so our case was never tested by them. We convinced the client they had dodged a bullet and worked with them to pay a lot of terms that year to get them well below the audit level Between the opinions we got here and whatever we saw in Sal's book convinced us they were not participants for 5500 purposes as of 1/1.