ESOP Guy

Yes, she just got a zero check. She had gotten her tips every time she closed out her shift she worked. So she got the tip cash. As a practical matter for the typical waitress the tips is the game. My daughter pretty much paid cash for nursing school via her tips.

Sorry, late to this conversation. You might want to ask the future client or when you win the business the client how they handle and report tip income. They are required to measure it and report it on their W-2. So they might be able to measure the tips and take deferral from the wages on a check. The following is based on my memory (for what it is worth) of my daughter who put herself through nursing school as a waitress. She saved some money in the restaurant's 401(k) plan. She was required to report tips daily as part of her checkout process. This included cash paid to her and via credit card tips at the end of the night. She was actually allowed to defer on her tips at that restaurant. They took it from her check however not her tips. I remember this clearly because one time she got a zero check. Between the 401(k) deferral, and all the tax withholding it took up 100% of her wages. In fact as we looked at it my daughter and I became convinced they had to cut back the deferral becasue the taxes came first and then the deferral came out. That would be the other practical issue that would come up if you allow deferring on tips and they are cashed out daily. What do you do if the deferrals plus withholding exceed the cash wage paid for the week or two week period? Not sure if that helps or hurts but I am rather sure their is a restaurant company in the St. Louis area that allows deferrals on tips.

I have never heard anyone claim you can deduct them twice. They are considered employer contributions. In a sense they simply don't ever become Box 1 wages. So they can't be deducted as wages. They really don't come from a person paycheck by the way. We tend to show it that way to help people understand what is going on. But what you are doing when you make a deferral election is declare part of your total compensation is being put into a retirement plan. Once again as such they never became wages. I can't cite anything but I also find the idea anyone seriously claims you deduct them twice laughable. If that were true it would be announced on every 401(k) sales material and the best benefit for a company to set up a 401(k).

Sorry, a little late to this conversation. As a former IRS Revenue Agent let's be a little more careful with the "tax evasion" term. The law defines tax evasion as: “Any person who willfully attempts in any manner to evade or defeat any tax imposed by this title or the payment thereof shall, in addition to other penalties provided by law, be guilty of a felony and, upon conviction thereof, shall be fined not more than $100,000 ($500,000 in the case of a corporation), or imprisoned not more than 5 years, or both, together with the costs of prosecution.” A little legal commentary here: Proof of the crime requires first proving the attendant circumstance that an unpaid tax liability exists. Second, the prosecution must prove some affirmative act by the defendant to evade or attempt to evade a tax. Third, prosecutors most show that the defendant possessed the specific intent to evade a known legal duty to pay. To convict, the jury must find the defendant guilty of each of these elements beyond a reasonable doubt. https://www.law.cornell.edu/wex/tax_evasion Note there are intent elements to this crime that have to be proven to convict for that crime. the risk of prison is very, very close to 0%. Even the civil fraud case would be hard to make here. I can't imagine any Revenue Agent who found this would talk about a fraud referral. On the other hand there is a very real civil penalty for negligence that I could see a Revenue Agent who caught this would try and apply. IRS talks about negligence this way: "Negligence" includes (but is not limited to) any failure to: make a reasonable attempt to comply with the internal revenue laws exercise ordinary and reasonable care in preparation of a tax return or keep adequate books and records or to substantiate items properly This penalty may be asserted if you carelessly, recklessly or intentionally disregard IRS rules and regulations - by taking a position on your return with little or no effort to determine whether the position is correct or knowingly taking a position that is incorrect. You will not have to pay a negligence penalty if there was a reasonable cause for a position you took and you acted in good faith. https://www.irs.gov/pub/irs-news/fs-08-19.pdf https://www.nolo.com/legal-encyclopedia/negligence-versus-tax-fraud-irs-difference-29962.html Sorry for the long link choked comment but discussion of prison here seemed to be over done in my mind.

When you say you can't find anything in the document are you saying you have a copy of the full plan document and not just a Summary Plan Description (SPD)? I would expect the plan document to spell out how and when the restoration is made. It should spell ought how the restoration is computed. Does it include earnings or not? The most common provision is to not include earnings. That is to say if you account was worth $10k when it was forfeited they would put enough stock and cash into your account to be worth $10k at year end of the year of the restoration is easily 99% of how all ESOPs I have seen are written. In fact there is usually an explicit statement that someone who had a deemed distribution like it sounds you had if there is a presumption of the distribution being repaid. It might, but not always, tell you when the presumed repayment happens. If you have the actual document in pdf format I would search for the word "forfeit" and see if you can find the restoration provisions. I would also search for the word "deemed". That should help you find the deemed distribution section of the document. Between those two sections often times the restoration provisions can be found. Or go back to the company and see if they can explain the method used and maybe which part of the document they base that on. I wouldn't hold my breath on getting the document section question answered but it can't hurt to ask. In short the plan document ought to really have the answers to most if not all of your questions. So your quest for answers needs to start with finding out what the plan document actually says.

I just recently had a case in an ESOP where the plan found a person 5 years after the death. They kept trying to find the person as the mail same back. They finally got a hit on an internet name search that showed an obit. They couldn't figure out why the obit hadn't shown up before. They called the church the obit said the services were held at and the minster was still in contact with a family member.

I agree with Bill 100%. You MIGHT get a good cause waiver but if you don't the cost is so much higher than the DFVCP cost that the risk/reward makes no sense.

As far as I know your expectation is wrong. it has always been my understanding that a fiduciary can't ever fully delegate their duties. They always have to monitor and review what the experts do to make sure they do their job right. I don't think they can just assume a TPA has sent notices for example. They need to know they were sent in some way. If it is an internal trustee that is a participant did they get a copy of the notice for example? That is a big part of the Greatbanc settlement. It sets out guidelines, and I have always understood them as a guidelines not a safe harbor, to help trustee's understand if they have discharged their duty in regards to the stock appraisal. When you say are there guidelines that say you have discharged their duty and can't be assessed a penalty it sounds like you are looking for some kind of safe harbor rules regarding fiduciary duties. I think the reason you aren't finding anything is because they don't exist. I am happy to have an ERISA attorney, which I am not one, and tell me I am wrong. Every attorney I know on this topic says the way to defend yourself in this area is document your procedures and how you followed them. As long as the procedure was reasonable and they were followed you tend to have a strong defense in this area. As far as I know you can't just claim you hired professionals. They have to follow up to make sure the professional did their job.

Maybe it is part of being a "mods" which I assume is some kind of moderator but I can't ignore Mike. But If I hover over Bill's name like described I could choose to ignore him. The above is an observation.

Many years ago I worked with a bank that helped plans issue checks, 1099-R.... They sent the check and 1099-R in the same envelope. If you got a check today your got your 1099-R in the same envelope. The primary downside was people lost track of them between getting the 1099-R and tax filing season. So the requests for replacement 1099-Rs was kind of high.

Maybe you have done this already but to me you are focusing on the wrong thing. I am with Bird what is done is done move on. I would spend my time figuring out how to change someone's procedures so the withholding is done correctly going forward. Like I said maybe you did that but at our firm if we found this changing process to stop this from happening again would get 95% of our time and attention and worrying how we reported it on the 5500, fines and so forth would get the remaining 5%.

It is my understanding is what the DOL auditor will tell you if they come in and exam the plan. If the 401(k) money isn't deposited as fast as the withholding there is an issue. The only defense after that is the 7 day safe harbor.

As the plan is written you can't do it. You have to follow the terms of the plan. It seems like you could amend the plan to put everyone into their own allocation group and see if the tests pass. It would seem they would pass as it is one of the HCEs getting shorted. I agree with Mike 100% can't be done as described but someone should be able to get the document to a place that allows the plan to meet the client's goals.

I would say "yes". In fact if they wanted I think all the people who don't respond could be sent to an IRA. It wouldn't have to go to a related 401(k) if they don't want to mess with it.

What you are suggesting sounds like fraud and if so is a felony. The odd part it you could get the same result legally for minimal cost. A good divorce lawyer could get a QDRO in place that would get the results without committing a crime. Price out a QDRO and don't commit what sounds like a felony.

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.