ESOP Guy

See question 2 https://www.irs.gov/retirement-plans/retirement-plans-faqs-regarding-loans#2

I think it is against the law also. I would think this would violate the substantial determent rule in 1.411(a)11(c)(2)(i) https://www.law.cornell.edu/cfr/text/26/1.411(a)-11 I would think this would violate some kind of fiduciary obligation to act in the best interest of all participants. I don't think the fiduciary rules would allow for you to discriminate in favor of the current employee over the terminated participants.

Have a good retirement! Your comments over the years have always been insightful.

My guess is the strict answer will be try and find the person. But as a practical matter are we talking $10s, $100s, $1000s+? The simple fact is most people are going to have a much different attitude about a $1,000 check vs a $10 check. So if you don't mind letting us know the range we are talking about here. The risks of getting it wrong between the two amounts seem to be very different. For one thing would the cost of hiring a search firm exceed the amount for example? But let's say it is in the $100s or $1000s+ I would think you would have to at least hire a search firm to look for them. You can get a good search for <$20 it seems like. Also, to be clear it really is for just one person? It was in some kind of self-directed investment and no one else was in that fund at the time?

You know there are from time to time complaints on this board about people leaving out important facts in questions. The fact this is a government plan would be an example. All you said at first is profit sharing plan. The answer to that questions 99% of the time is the fiduciary responsibility answer. Since I don't work with government plans I have no idea if the other reason that came to when I read the first question. (Reading EBECatty's response says this doesn't apply) The substantial determent rule in 1.411(a)11(c)(2)(i) https://www.law.cornell.edu/cfr/text/26/1.411(a)-11 But in a regular PSP plan that would be the 2nd reason I would cite you can't do that. Maybe governments can be unfair to people. It wouldn't be the first time congress carved out exceptions for governmental plans on the assumptions state and local governments would be as "evil" as those for profit corporations only to be proven wrong time after time. I will get off my soap box now.

No

I doubt a 2013 document would be a true volume submitter for an ESOP. It has only been with in the last 12 to 18 months I have seen those that are fully operational with all the needed approvals. Does it look like this is a full document? They might have been working on draft volume submitter as the IRS has been talking for a long time of getting ESOPs to that point. But in the end they just used that base to make it a custom document maybe????

Yup, agree

The one and only time I paid a for profit corp was about a year ago. (The why is a story I will skip. The plan's attorney said pay the company. ) We got the company's EIN. We paid the distribution. I don't recall if with withheld 20% or not. We sent the 1099-R to the company. It was their problem after that. In this case the company wanted the money. Not sure in your case the company wants the problem. I can't cite anything to support what we did. But the company is paid. They will have to pay taxes and the 1099-R was filed. The only question I am not addressing is can a person name such an entity as a beneficiary. Once you get past that part pay the company and issue a 1099-R. It is their problem. You did what the form said. You issued a 1099-R as the law requires. The company can report the income how they want. Maybe we thought it through too little but I am not sure you aren't over thinking it. Not sure why TPA's always think it is their job to work out everyone else's problems in these situations.

I can see the amended filings when I do them. I don't think I see the original on EFAST2. Did you get one of those numbers (I forget the name) that proves you filed? Every filing gets assigned a long string of numbers that can reference the filing and is one of the best proofs the filing was received. It has been a number of years since I have done it but the times I have called the DOL's EFAST2 helpline they have been very helpful in determining if all went well or not. When things went wrong they were very helpful in determining what happened. I don't know if there is a delay when amending between seeing them as it has been a while since I have filed an amended return but I think your concern is well founded.

Can you do that for people who have passed decades ago?

They have put themselves in a bad place by prior bad decisions. How did they pay them when working without a SSN? Before everyone else was paid out declare them lost and it would have looked less self serving to forfeit and reallocate to all the rank and file mostly. At this point it is a bad choice by declare them lost participants and follow what the document says to do if that happens. Hopefully it says forfeit and reallocate. Not pretty but I don't see how you fix it since they don't have a SSN. I am not saying it is a good answer. Nor can I cite anything to support it. Likewise, I think a DOL auditor or IRS auditor will not like the answer. But the right answer was in the past- get the SSN when you hire them and no one can go back in time and do that.

Based on what you are saying I don't see any reason why the split wouldn't happen per the terms of the QDRO. Maybe one of the QDRO experts will add if they agree or still see more issues.

We need a lot more information. Just because a court accepted the order doesn't mean it is a QDRO. At that point it is just a DRO. It doesn't get the Q (for qualified) until the plan accepts the DRO as qualified. So has the plan accepted the DRO as qualified? Given the dates has the DRO even been sent to the plan? What do you mean the late wife hasn't signed the QDRO? Did she agree to the split before it went to the judge? As a rule, neither person signs the typical QDRO I get. There are some lawyers that come around here who know QDROs very well. They should be able to give you insight what happens if it was a DRO the plan hadn't accepted yet or it was a QDRO the plan has accepted. They should be able to tell you other important factors, but language and facts are going to be very important here to get a good answer in my mind. To be clear I am not a lawyer just a CPA that helps companies run their plans, now just ESOPs now a days, including things like QDROs.

Yes, let me be clear with my statement above now in bold. When I said it would be the broker's EIN it would only be true if the broker used its EIN to deposit the withholding and in effect held itself out as the paying agent for the plan. There are banks and funds that do that. As part of the service they will issue the check or ACH, they will withhold when needed and issue the 1099-R. A number of our clients hire such paying agents. In many cases in the ESOP world if the ESOP has a bank as a professional trustee that bank will issue the payment, withhold, and issue the 1099-R. I believe you can hire Penchecks to do that. I know you can hire Reliance Trust Company to be a paying agent. However, the mere fact the check was written by the broker doesn't mean the are the paying agent. Like the last two comments by Bird and RatherBeGolfing make clear. Sorry, if part of my comment above caused confusion.

Look one of the worlds largest religions has a prohibition on paying and earning interest. To be clear there are conservative strands of Islam they take this very serious. The thing is if this is the issue the waivers was the wrong answer. Islam is big enough in the US that there are Islamic investment funds that don't pay or earn interest that address such concerns. Look up Sharia compliant funds and you will find funds that don't deal with interest. So if that is the issue and if the employer can undo the waivers (or can they start a new plan??? I haven't ever looked on the waiver issue to get the employees in a plan without waivers) maybe the issue is to finding investment funds the employees would be willing to invest it. After that you get them into the plan. If it is a different religion and/or interest isn't the issue this isn't a solution. But there is no way you can run a plan and not have most to any NHCEs benefit. I think the solution is found in addressing the employees' concerns not trying to find a good way to ignore them.

You might want to ask McKay Hockman. That sounds like an odd thing to have and then take out.

Yes, this is where you want to look. Almost all my documents have a provision that says this or it is a choice that could have been made in a pre-approved plan. This is a document review question not law question.

So do you know if there are any escrows or any other hold backs from the stock sale? I have had ESOPs take years to fully terminate because part of the sale's proceeds was put into escrow until some metrics were hit. At that time the rest of the sales proceeds were put into the ESOP trust. That might slow the full termination down. However, once the stock has been exchanged for cash and it is cash in the trust as a general rule the termination is like any other DC plan's termination. If there was an acquisition loan at the time of the sale something has to happen with the shares in suspense. I would let the lawyers give direction on that.

I hope I am not too annoying by hijacking the other thread and creating the poll. It is one of those Monday's however.

I just created the poll version of this thread. See here

See this thread for more information.

Isn't there a way to do a poll on Benefitslink?

An ESOP without stock is odd. What happened to the company stock? The facts are a bit thin but if all there is in the trust is cash, and mutual funds this is pretty much a terminating profit sharing plan. You can in many ways just think of it like that if the facts are right. Things change a lot if there is any company stock or there is any kind of acquisition loan in the ESOP.

There are no boxes on it to say one wasn't required. It is silent regarding what happens if you do nothing. It seems like most would say you could get fined if you keep refusing to file. This one just intimidates the client by implication.