ESOP Guy

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?

Allow me to clarify while most of my clients use MT for just their lost participants I don't believe it is limited to that. So what I describe would be a work free method for such people (who I don't understand as I care about my money more that what you seem to describe. But I digress). All it takes to get a person into an IRA at MT is whoever does the distributions get a spreadsheet to MT and wire the money. After that MT sets up the IRA. The person can go online and see their IRA after it is all. It kind of sounds like what you want.

I am not sure I understand the question. Millennium Trust will set up the IRAs for a plan. You get an agreement and all that has to happen is you send a spreadsheet in their format and wire the money. The IRAs get set up. A lot of our clients use it for their lost participants.

It is more amusing when the come back and actually terminate They get a contribution in that year. The next year they come back and terminate and get another contribution. I have seen that go on for years and years. As long as the termination is legit it is how most plans read. You get an allocation the year you retire and you retire any time you terminate after NRA. I have had that happen a number of times. I have also seen plans that get amended to say you can only retire for the allocation condition once. The other thing is many times in an ESOP you don't get paid until the year after you terminate. So those coming and going stops the person from getting a distribution. I have had clients amend their plan to allow a person who is over NRA and has retired once to keep getting a distribution in the year they are rehired. It was just to allow one person get his distribution otherwise he wouldn't have come back for a short time and they really needed him to come back. To the original question. I agree if the person is NRA and terminates that is a reasonable to say they retired.

It seems clear the plan needs to be made whole for the amount that would have been forfeited. EPCRS is only speaking to if it was paid in error for the lack of a distributable event. In such a case no one is "hurt" as the person only got their money- just early. In this case anyone that would get a forfeiture allocation would be hurt if the forfeitures are re-allocated. If the forfeitures reduce then the money is being paid to the plan regardless as less forfeitures means large contributions. I would still go through the process to cover the plan and just in case no contribution is made- at which time it becomes like the forfeiture re-allocated fact pattern.

What is the distributable event in your mind to allow what you are proposing?

I know you said resource not a list but I will say the following (which maybe obvious sorry not trying to insult anyone's intelligence): 1) Remember only an ESOP can have leverage in regard to the stock that is purchased. So if there is still an acquisition loan this won't work. 2) Remember if the company is an S corp a PSP would have to pay taxes on the flow through income every year. Only an ESOP gets to not pay taxes on the flow through income. So if you have an S Corp ESOP and are planning on keeping the stock in the PSP this will tend to kill the idea. Just a couple of thoughts. I would poke around the NCEO website and ESOP Association's website for resources that you are looking for. They both have a large amount of free information and published information for sale on ESOPs. I might be biased but unless the company is a C Corp and the sponsor really wants to use some kind of highly biased allocation method (some method that uses age/service to skew the benefits towards the HCEs that require all the best testing methods that ESOPs can't use) an ESOP is better for company stock than a PSP. That is why there are so many more ESOPs than PSP that own most or all of a company's stock.

I have made wire (not ACHs or direct deposits) payments to countries outside of the US for a few participants of my clients. Bill's idea might be simplest.

While the plan might (this one is pretty grey they were allowed to make the payment at the time) have to ask for the money back if the person doesn't pay it back nothing really bad happens. The self-correction method is pretty clear. https://www.irs.gov/pub/irs-drop/rp-19-19.pdf' See page 38 of 125 4(b). I quote: "(b) Make-whole contribution. To the extent the amount of an Overpayment adjusted for Earnings at the plan’s earnings rate is not repaid to the plan, the employer or another person must contribute the difference to the plan. The preceding sentence does not apply when the failure arose solely because a payment was made from the plan to a participant or beneficiary in the absence of a distributable event (but was otherwise determined in accordance with the terms of the plan (for example, an impermissible in-service distribution))." So make the good faith effort to get the money back. Send the needed letters and so forth but the correction method in the end is nothing. The paid the person that was otherwise due the money except for the absence of a distributed event.

Sorry for 3 comments in a row but these were separate thoughts. Back to the original question. (I am a bit of a story teller so here goes) If you are unhappy find a way to fix it. In the early '90s the company I worked for changed ownership. I went from loving my job to hating it. I was slow to leave as I was making good money. I had great health insurance, a pension plan, a great 401(k) plan..... I am the breadwinner for my family. So I stuck it out for years for my family. I was bring it home however. It was stressing me, my wife...... In the end they froze the pension and laid me off in 2009. I landed on my feet quickly. I look back and realized they did me a favor. I was hating my job and life for money and benefits. You spend too much time at your job for too many years to hate it. You owe yourself and maybe your family better. Find a way to stop hating the current job or get one you can not hate. Sorry if I am stating the obvious but some times in these situations being told the obvious is a favor.

This is one of the hardest things to get the average employee to understand. One of the hardest parts of being a team leader years ago (I now just put my head down and do my work) was annual reviews and pay raise time. They all wanted a bigger raise (who doesn't including me). And you had to explain to them where is the money going to come from? They were part of the billing process and knew we were lucky if we could get small annual increases in our rates. Their cost of health insurance was going up a bunch and they want a 4-5% raise when billing rates are going up 2%. That math doesn't work in the long run.

That is interesting. I have never not been salaried while working in this industry.

Back to the original question and the person who asked the first question. Strictly speaking I agree you can do these various buckets of vested money under the right conditions. As Luke pointed out these are all the legally correct answers and the first two answers are where the practical answer is. Unless the client is willing to pay extra for you to track all the various buckets of people's money and the complex version of who is in what group just don't go there.

I agree with David. As a practical matter I would recommend the amendment applies to anyone who enters or is hired after a given date. I would add something like 1/1 makes it easier than say 12/20. I would add get it written in the amendment how rehires are going to be treated. Easiest is to simply apply the vesting schedule that was in effect on their original hire date (date of entry). You do NOT have to do that but it is a pretty easy way to do it. It depends on how big the client is and how often a rehire is. I have several clients with thousands of employees that did a change to a worse vesting schedule and they have a lot of rehiring. This made things pretty easy to track. But unless this is a tiny client that doesn't tend to rehire anyone the rehire question will come up. You might as well get the amendment to spell out what happens now instead of running around trying to interpret what it means regarding rehires.

Please check your document carefully. I have some documents that clear say a beneficiary can't make a beneficiary election. Odd but true.... I would also read the document carefully to see if it has any provisions about a beneficiary's death before payment. Many of the documents I work with have such provisions. I will admit since ESOP documents have historically been individually written and not a prototype or volume submitter I see a much broader versions of documents. If you are using a prototype or VS I would read both the document you make selections and the base document. I find most documents have a section that describes the rights of beneficiaries and what happens if they die before being paid. It MIGHT add some clarity. If it comes down to that election I am not aware of any guidance.

Yeah, we would need more facts to say for sure. However, Lou is correct as a general rule USERRA forbids a plan to treat a person on military leave as anything but as still employed if they go back to work immediately upon returning from duty. As such it is hard to see how they would lose shares. I would start by asking questions and getting more facts. Once again it is hard to see how it would happen but given how vague the facts are more information is needed to know for sure there is an issue.