ESOP Guy

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.

Legally speaking it is my understanding there is always an estate. They just happen once you die- your stuff enters your estate regardless if there was a plan or not. A plan just defines better what an estate looks like. That might not help much if you can't find anyone who can do something with the estate. You are most likely going to need the plan lawyer to tell you what to do. I would at least start by making sure the plan says document what has done to find an heir. Try outside of the box thinking. You would be shocked how many times we made a payment because we found an obituary that named the church the funeral service happened at. So we called the clergy to ask if they knew how to contract any family members of the deceased. Most people hold a funeral at church do so at the one they attended regularly so the clergy knows the family. Most obits name all the surviving family members also. Most are online. You MIGHT be able to defend a forfeiture and reallocation if you can document a very good search but I would want the plan lawyer to make the ruling.

Show how often I file DFVCPs!

If they can't get the audit done by the time the 2020 is due this is a valid strategy in my mind. The DFVCP fee has the same cap regardless of the number of forms filed late.

I can tell you for a fact if you file the 2020 it is just a matter of time before you get a "where is the 2019" letter. I would delay the 2020 filing to the actual due date and do your best to convince the client to get that 2019 filed by no later than that day also.

Maybe it is me but your question is confusing. Are they changing the company name or the company and plan name? There is no need to amend the plan document if the company name is changed. There is no requirement the plan's name changes if the company's name changes. If they are actually going to bother changing the plan name then I would assume that would take an amendment as that is defined in the document. That strikes me as a waste of time and money to do. I have seen companies that close down change their name from XYZ, Inc to XYZ liquidation (or close down) corp. and not change their plan name. So maybe a little help on what you are asking is in order. Are you just worried about the 5500?

I can't imagine a Plan Administrator would ever want to take on that burden of picking. As for the participant if the document doesn't give them the power to pick I would say "no". I have never seen a document that gives such power to a participant. I can't cite anything but that would be my answer every time.

To be clear are you saying this person will not be 72 and a 5% owner at the same time? Or you saying this person will simply not be a 5% owner by the 4/1 that is the first required payment date? I just like to be very clear on these questions as I think it is easy to get the facts confused. RMDs are very fact driven determinations.

If they are a 5% owner on any day in a year they are a Key Employee https://www.law.cornell.edu/definitions/uscode.php?width=840&height=800&iframe=true&def_id=26-USC-1004659535-204952971&term_occur=999&term_src=title:26:subtitle:A:chapter:1:subchapter:D:part:I:subpart:B:section:416 That link is found if you click on the key employee link here. https://www.law.cornell.edu/uscode/text/26/416

I have only once had to even start down the road of helping a client get an annuity for a payment. A person asked what an annuity would look like and the conversation was serious enough that the plan sponsor has to actually get quotes from insurance companies. What I remember most from that was all the fiduciary concerns. What if the insurance company goes bankrupt and the plan has to still provide the annuity amount? In the end the person choose a lump sum so it was all wasted time. We billed it anyway but it was wasted time. You would hope (I know dumb hope) that any such rules would give some clarity on the fiduciary liability in that situation. Yes, the balance size would reduce the cost. And maybe if it became a requirement people would start to automate the process as it would final be worth the investment. I just remember even one notice could take 20-40 min to get estimated annuity amounts. Get them loaded into a letter to the person. Everyone getting happy that there was enough cover your hind end language that the estimate as just an estimate and if they asked for annuity the monthly amount could change. Like I said you might create the form letter and plug the annuity factors in software or a spreadsheet to allow for a mail merge to cover that. But whatever time you spend would most likely be a waste since almost no one will choose the annuity based on history. I guess I am just not impressed with the idea but congress has to prove they are "doing something to solve problems"!

Back when I worked with MPPs or PSPs with an annuity option I had been in the industry for a good 15 years. I think I saw 1 person take an annuity that whole time. I will admit the universe of plans offering annuities was pretty small so the results couldn't have been large. But I have seen no actual interest for this option over the years. It would be interesting to hear from the DB folks: how many people who have a lump sum option or an annuity option take the lump sum vs annuity. I always got the impression from the DB I know that if a lump sum was offered it was taken way more often than the annuity. As in something like a 90% vs 10% type ratio. I could be wrong as I wasn't taking a formal survey. So such a law will increase the number of plans offering it but I doubt it starts a trend. On the other hand the annuity disclosures for MPPs and PSP with annuity options were a huge pain to prepare and send it. So my guess is it will increase costs without much benefit. But I might be a cynic.

You would need a plan EIN for account ownership. Also, if the plan writes distribution checks from those accounts and does withholding it has to have its own EIN for withholding deposits, 945s and 1099-Rs. You can create a real mess if you deposit the withholding from a plan using the sponsor's EIN. The issue is you can find threads on here if you get a plan EIN and don't use it for a time the IRS will in effect declare the EIN no good. So this is a bit fact driven how important it is to get one.

I think a participant can rollover any part of their distribution to a Roth which is what that seems to be saying. They just have to accept the tax consequences. The question is can the plan force out after-tax to a Roth? I have not seen that. I have seen a force out to a regular IRA and working with the IRA company to record the basis that is in the IRA. I think the best answer is to put all of the money in a single IRA and get the IRA company to understand there is after-tax money in the IRA that has a basis. For one thing most of the time two IRAs means two sets of fees to set up the IRA and annual fees. I would be worried if that is a fiduciary concern if you set something up that has more fees than needed. I know Millennium Trust Company is able to handle what I just described.