ESOP Guy

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.

Bumping to top to see if anyone has seen this or not.

I would use the EIN that was used to deposit the withholding. It is my understanding the IRS computers will try to reconcile the deposits they got to the amounts listed as withheld on the 1099-Rs. To not have the 945, 1099-R and 1096 not all sync I think could cause letters from the IRS about their inability to reconcile the amounts later in the year. I will warn you I am not an expert on the topic but that has been my understanding for years. Anyone want to confirm or deny what I said would be great. I would think that is the broker's EIN but if they made the trust deposit the withholding with its EIN I would give serious thought to using that EIN.

Has anyone seen this also? Our firm normally files an extension for both the Form 5500 and Form 8955-SSA at the same time. We always extend both of them. We did that last summer for a 12/31/2019 PYE ESOP. We determined later they did not need to file an 8955-SSA so we did not file one. The Form 5500 was filed timely. In the past that would have been the end of it. We however just got forwarded by the client a letter from the IRS informing them the Form 8955-SSA is late. It should have been filed back on 10/15/2020. Is this a new trend? Do we really have to know by 7/31 if a Form 8955-SSA will be needed or not? If someone has gotten this kind of letter before did a simple response saying no form was due enough to satisfy the IRS?

Yes, it sounds like the rest would end up getting the surrender fee as part of the income allocation it sounds like. To me the solution is to value the contract net of the fee until there is no fee. That would seem to have the effect to stop that. It would at this point however mean everyone takes a one time hit of all the possible fees. It has been a long time since I have dealt annuities with these kinds of fees in a plan so maybe I am not thinking it through fully.

Let's clarify something here. Are you saying that Participant A's account balance equaled the value of say annuity 1. Participant B's account balance equaled the value of say annuity 2. Is that what is going on? Or Is the value of everyone's account actually made of the value of all the annuities combined? I ask because the first thing I described is an individual balance type plan and the other is a pooled form of accounting. I think the answer to your question might depend on if this is a pooled plan or not. I really think the original sin (beside using annuities in the plan) was valuing the annuities without factoring in the surrender charge every year. That is to say the fee should have been baked into the account balances until there were no more surrender fees. That in my mind is the real FMV of them. If the plan terminated how much cash would the plan have? The annuity values less the surrender value is the answer so that is the value that should have been used each year to value those assets. That would have stopped this issue but that is water under the bridge as they say.

I am not a lawyer but in theory the bank works for the client. The Plan Administrator and Trustee have the final word if someone should get paid. However, experience has taught me many banks fear real or perceived regulatory risk more than a customer threatening to leave and go to a different bank.

I don't know if they have an obligation or not but I know of plenty that do it. Will the bank not give this person any choice but provide a good SSN that is different? I mean if this person produces a birth certificate, SSA card and photo id it seems like that ought to settle things. I know the banks we work with that do these checks give us a number of solutions. Ask the bank what the menu of solutions are.

It looks like your 2nd and 4th column are basically a repeat. You have the two big ones in my opinion. If they ever deferred or had any vesting in the past you have to give them their old service. Those two rules means 90%+ of the time you have to give them their old service back. That is so true that I have reached the point that I think most plans ought to be written to simply give everyone their service back. It would save you hours of research (or feel the need to make a cheat sheet) to get to that point 90%+ of the time. 😀

When shares are forfeited and when they are restored is governed by the plan document. There is a window for forfeited shares to be reinstated. The 5 One Year Break in Service rules does apply to forfeiture restores. If you are a participant in a plan talk to your Plan Administrator for full details. If you are the Plan Administrator you need to read your document carefully. The rules for this are always in the document.

Well I have to admit I am a TPA. So we are the one's that prepare for our client the distribution directions after we get the forms back from the participants. So we set up the spreadsheet. So I would assume (and I am assuming) if Fidelity is your recordkeeper and they set up the payment directions you would have to see if they are willing to do it? If Fidelity holds the 401(k) money don't they offer simple IRA rollover to a Fidelity options?