ESOP Guy

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.

An old discussion that might help or hurt I remember having. The question that I had raised was: what if a person meets eligibility in the middle of the year and the plan says everyone enters retro back to 1/1. The plan had 119 participants before that person as of 1/1. Did they need an audit? Several people took the position of "no". Not 100% the same but similar.

My advice to you is to get a conversation with the appraiser and trustee (especially if it is an outside trustee - bank or trust company). If there is an outside trustee they will have most likely have thought through this but mistakes happen. However, the idea they (both the trustee who is supposed to be reviewing the appraiser's work) have to defend their work is reasonable. Based on your description I agree the denominator sounds wrong. Those two should be able to defend their denominator. To be clear if I implied I thought someone did something wrong I did not intend to do so.

The first line in bold: Do you know that is true? The second line in bold: Are you sure that is true? To know those are true would require you to know the inner workings of the ESOP and see the appraisal. If you have access to that data fine but the average participant wouldn't know this for sure. I am not an appraiser but I don't know of any appraiser that would do what you are saying if I am understanding your correctly. If you have the kind of access to know what you know do you have access to ask the appraiser questions? They tend to care very deeply about the denominator for the reasons you spell out. I have seen them do so pretty good math to account for the changes in outstanding shares for 12/31 transactions over the years.

Man I wish I could have worked for some place with that rich of a benefit as a whole goat for 25 years back in the day! Most I found I had to share a goat.....

I am not sure what the question is also. Read the plan document. Does the plan allow anyone to enter the plan as of the first day the plan is effective? If so, you need something besides 0 there in most cases. You can make a case if the plan was signed on 12/30/2020 and effective back to 1/1/2020 that no one was a participant on 1/1/2020 (thinking of a PSP not 401(k) in this example where you make it effective back to 1/1 to use full year compensation). I have seen people make that case but it tends to only come up if it makes a difference if the plan needs an audit or not. It looks like your numbers are so low that doesn't matter. So go with the first part of this. What does the plan document say? Did someone enter the plan as of the first day of the plan?

In fact I prefer the documents to say if there is no beneficiary and no surviving spouse it list a few types of family members the benefit goes before it says it goes to the estate. Paying benefits to an estate is a major pain for the family involved. Unless there is a state law that helps out often times that means the family has to get an EIN for the estate. You can't send a benefit paid to an estate to an IRA so the estate has to pay taxes. You watch how much work it is to get an estate paid is for a family and you will never fail to complete a beneficiary form ever again.

By after tax I mean we reported the IRA had a basis so the person didn't pay taxes twice on the money. Once again I don't claim there is clear guidance. The problem is the government hasn't given us any guidance. So we did something that seems fair, they don't get taxed twice, but allows the plan to end which is also fair. To me until the IRS or DOL gives guidance to a situation that is rather common they can live with the industry's solutions. For them to demand we follow the law and then not give us a legal way to solve a common problem is not a rational expectation on their part.

I can't cite anything but we have done what you suggest in your first comment. We have set up an after-tax IRA at Millennium Trust Company for that kind of fact pattern. It is that or escheat it to the state which is grey at best also.

I am with Lou here. This comes from my days at the IRS back in the mid '80s. A person is an employee or they are an interdependent contractor (IC). You are NEVER both. Here is the part that is relevant to the original question and here..... The determination if a person is an IC or employee is based on a complex but objective test. You can debate how the test applies to a fact set but you can't debate the determination is an objective test and is NOT subject to negotiation or employer decision. You are either an employee or IC by law. So this Dr can't do this becasue you can't be both. in regards to the original question if the person really was an employee before (and they most likely were- as in 99.99% likely they were an employee) the Dr can't just wave some magic wand and declare the person an IC. If nothing changes in the relationship between that dr and the former employee the IRS will disallow the change if caught.

Isn't this fiduciary 101? The assets of the plan have to be title properly or the trustee isn't doing their job. I mean if titled wrong couldn't a company creditor try and make a claim on the plan's assets. By your logic would you be fine if all the stock was titled wrong? Or it just a question of immateriality in your mind? If the bank account doesn't have much money the risk is acceptable but not the shares???