ESOP Guy

Sorry, I guess I assumed they only deducted 108k because they hit the limit not because of some other error. The way the first question is written it didn't make sense if the 108k wasn't the limit but now I see what the writer was saying. If the deductible limit was above the contribution made there is no excise tax. And while not a huge expert on the deduction side of things no I don't think they can take the $2k in 2020. You are allowed the deduction in the year made or up to the filing deadline of the corporate (or other tax return) for that year. So you can deduct a contribution made in the next year if it qualifies. I know of no provision that allows you to deduct a contribution made in the past. If the CPA refuses to amend the prior year's tax return I think the deduction is lost. I am happy to be told otherwise.

It is subject to the excise tax for 2019. Yes, in fact you have to use the excess tax up in 2020 or you pay the excise tax again and every year following until the excess is gone. This is why this mistake is so expensive. Back in the '90s we took over a plan that was admin internally. They had been over contributing for over 15 years. The the ever increasing layers of the excise tax being charged year after year plus the current year's excess being added resulted in a total excise tax that would have bankrupted the company had we not found a solution.

The firm I work for moved to Foxit a few years ago. I still don't find it as slick as Adobe but I also am not one of the people who sees how much the costs are If the price turns out substantial I can would agree that the money saved to lose a bell or whistle here or there is worth it.

You are asking for a lot. I don't know if you will get it all. As for your other question it depends some. You have money that isn't eligible to be rolled into an IRA. Depending how the new 1099-R reads it might make that clear to the IRS. I would focus on getting a decent accounting of why and how much you really owe and help to get the money transferred out of the IRA back to the plan that doesn't cause you to owe any taxes on the distribution.

Can a case be made that one of the choices is to stay in the pooled part of the plan? That seems to be the choice they made in effect after all.

I will point out that if (and that is a big if) the IRS were to find out that those funds are in the IRA and there still in there that could be subject to an excise tax every year until the money is taken out. Depending on the new 1099-R they send out that might tip the IRS off. I have seen the money sent back but it is rare for the obvious reason. The cost of a lawyer to get you to give the money back if it comes to push vs shove will add up to the amount they over paid you pretty quickly. So it does come down mostly to what is your ethics in this situation. I stand by my earlier recommendation in that regard- go talk to them. There is a good chance it isn't your money but someone else's money you have in the IRA.

What you should do is talk to them. They do owe you some explanation of how the amount was computed. There is an excellent chance you owe the funds and you have funds in your IRA that shouldn't be there. You should also ask them for help in getting the money transferred from the IRA to the plan that doesn't generate a 1099-R from the IRA. You shouldn't be taxed or have to pay any kind of penalty for giving back money. If you don't get to keep the money why should you pay taxes on it? While the fact they made a mistake doesn't relieve you of the duty to pay back the money it does put some burden on them to help you make the correction as painless as possible. So start with communication.

You people seem to be over thinking the example in the details and are missing the main point. I find the idea that my compensation will be in part based on if I do behaviors my employer approves outside of work odd at best and offensive at worst. Who are they to judge if my idea of hobbies, ways to better myself, deciding to own a pet, other lifestyle choices I make.... are worthy enough of their approval seen by given cash to people? Just pay people and they can spend THEIR money as they see fit and stop making me go and find out if my employer approves of my spending/lifestyle or not. To get real blunt (if I haven't crossed that line already) I would find this benefit a negative. I might not refuse to work for an employer that offered it but if I was making a list of good and bad things about the company as I was making a decision to work for them this would be on the bad list. It points to the idea they are too paternalistic. I don't mind a boss but I don't need nor want a new parent.

I say this all the time a well written termination amendment will answer this question. Does the amendment discuss when a person is fully vested? If not, review the document again. Does it say exactly when a person forfeits? For example, I have some documents that says the person forfeits on the day they terminate (this is mostly for people who are 0% vested which your example isn't) , some say the day they are fully paid their vested balance and some that say on 12/31 of the year they are fully paid. In your example if the plan say forfeits the day they terminate would result in a much different that day fully paid or 12/31. If all of that still doesn't answer the question I think the safest route is to vest but I can't cite anything. This has become one of my pet peeves. If a client tells me before hand they are going to terminate the plan I try my best to get the attorney writing the termination amendment to make this clear in that amendment as this question come up in just about all terminations for plans with vesting- or just about all plans.

I am sorry I am not answering your question.... I just have to know who likes this idea as a benefit that is a "trending" benefit? Am I understanding how this works correctly? Say we have employee A and employee B. They both do the same job and get paid exactly the same in terms of salary and benefits except for this program. A has a pet they board and B doesn't. So A's W-2 will reflect a higher gross and taxable wages because of the reimbursement of the pet boarding? If so, that means a person's total compensation is based on a personal choice to own and board a pet and not work place actions, is that correct? Like I said I am not answering your question at all so if you want to ignore me as I am being way off topic there will be no hurt feelings on my part. This board collectively can hijack a topic and I am as guilty as the next person. I am however curious about my questions enough to write them.

I did this many years ago for one of our ESOP clients. it might have been around 2012 or 2013. We sent a letter to the IRS as soon as we found the problem to the place you sent the extensions with a corrected extension and an explanation. We sent it certified so we could prove we mailed it. We filed the 5500 with the correct EIN. We told the client we expect them to get a letter saying they filed late. We asked the client to just to send us the letter and we would reply to the IRS. When the client got that letter we responded by sending the original 5558. We sent the second 5558 and letter with proof of mailing. In our letter we made a case that the penalties should be waived because it was extended and a simple one time error happened. We documented all of this with the above paper trail. The IRS waived the penalty. The only other choice you have is to basically act like the forms are late and file under DFVC and pay your client's penalty. That method would be a sure way to know what will happen and the exact cost will be lower than if the waiver doesn't' get accepted. The waiver route is a risk and they are less willing to give them now that DFVC exists unlike in the pre-DFVC days just about any reasonable argument of good faith efforts got you a waiver at least once. The firm I worked for was prepared to pay the penalty that happened when we went this route. We knew we were going to have to pay any penalty so we decided to go for a zero knowing the risks. As long as you and the client understand the risk I would think about the waiver request idea when the fine letter comes. Lastly, this was on an ESOP and not a welfare plan and I have no idea if that would make a difference. I don't know if the people who review wavier requests for retirement plans are the same group as welfare plans. I don't now how important that difference is but I thought I would point it out.

We use PBI all the time for 5 to 10 people searches for $10 to $15/person charge - not ever $1,000s. The thing I think about their search service is they give a letter that outlines what they did that really helps document the plan did a good search in case the DOL comes a knocking. If you are looking for an online where you can simply type in an SSN I don't know what their costs for that is.

It has been a while but it would be a distribution or other income. I would guess distribution is most likely. In this regard I am with Bird it is clear there is too much over thinking of it is going. Have you ever had an IRS agent who is auditing the 5500 get into the details of the Sch H this much? I haven't and I could easily explain what these amounts are. It could be because I deal with mostly larger plans- my smallest plan has 70 people but my largest has over 20k employees and most have over 500, these amounts are immaterial. So I just don't see a need to sweat it as hard as some seem to do.

Just to be clear I do not use "other contribution" but other income- line 2(c) on the Sch H. I don't think this is a type of contribution or rollover. I don't file that many SFs.

I have shown it in the past as a type of other income on the Sch H. I don't like netting with current distributions but not sure I could point to anything hard to cite. I don't see a reason to amend prior filings. You legit though the money was out of the plan. As a rule I don't see plans carry a liability on the books until the check clears the recordkeeper's system.

It is sad to hear that people didn't do the right thing here. ESOPs as a general rule are wonderful plans. I have over the decades seen many of them make the employees rich and secure great retirements.

There is typically a bigger difference between the US Postal address and the private delivery service address. Many of the IRS service centers get so much mail they have their own ZIP Code (one on the many types of trivia I learned when I worked for the IRS) and in effect the US Postal address acts like a PO BOX to the Post Office. Since companies like Fedex and UPS can't delver to a PO Box you have to have an actual street address. So if you send it by mail use the Post Office address. If you are going to use a private delivery service use the private delivery services address to make sure it gets to the right plan. There is no preference except use the address that matches how you send it.

Not the same set of facts but the one experience that comes close to your situation is the following. Many years ago a client of the firm I worked for back in those days was audited by the DOL. It was determined the counts were done wrong for years and they should have had been doing audits for years. The DOL's position was get the audits done for all years. They showed no interest in compromise or any flexibility. Based on that very small sample size I have to say if the government figures out the audits are missing they are going to take a hard line on getting them done.

There isn't a good solution. The correct answer is get the audits done. Any other answer is the wrong one. You might be able to get a prior TPA on something but my guess it will take expensive litigation. This is just bad.

I have seen it with the older SSAs as they were paper which means someone at the IRS had to input the data on the form into some system. Like anything that isn't going to be perfect. Since it has gone electronic I don't think I have seen it.

While Peter's answer is the right answer. It is my understanding the plan has a burden to keep the records to show this person was paid. Bird's answer is the most practical answer. I find if someone talks the person and points out the notice does say "may" be owed a benefit and the plan's records show they have been paid the person goes away 99.99% of the time. It is only if they don't go away after that you need to really start to go down the road Peter layouts out as a practical matter. Just to be clear have the client look for old records that might show if the person was paid or not. To make sure their benefit wasn't forfeited because they were lost of something like that. If the plan owes them the benefit the plan ought to pay the benefit. This by the way brings me back to a pet peeve of mine. Do those stupid "D" codes on the 8955-SSA. That would solve this. As I tell people all the time: When in doubt D. I have yet to see a D code to come back and bite me. I am asked all the time, "but what happens if we put a D code in and there wasn't an A code?". I have never seen that cause an issue. So when in doubt D. To the point if the client thinks they have old SSAs it might be worth to do a clean up filing this year to make sure anyone paid out and might have never had a D code filed gets one now.

They way the service spanning rules work such short leave and come back people almost always have the time gone credited to them. Both of these give an overview of the service spanning rule. The 2nd one is easier to read- starts around page 14. https://www.law.cornell.edu/cfr/text/26/1.410(a)-7 https://cdn.ymaws.com/www.nipa.org/resource/resmgr/2013nafe_presentations/richter_2s.pdf

Please let us know if this gets resolved and how.

I am not trying to be mean here but what you are describing doesn't make sense. I would go back to the advice in my first comment and get the SPD and distribution policy. These have to give you a summary of how people are going to be paid. Once again ESOPs have a lot of discretion on how people are paid out but it can't be arbitrary. And no I don't think I have seen an ESOP that allows them to determine year by year to simply turn a person's distributions on or off. Nor have I really ever seen a plan that doesn't respect a person's wishes on how much that goes to an IRA vs paid to them. Just curious how do you know the window to make a request is only open for another 15 days? It sounds like they haven't sent you are any forms to make a distribution request. If they have complete them and get them in on time. I would see if you can get someone at HR to either explain or help you. The company does have some obligation to help you get your benefits. Your next step if you want to escalate the situation would be to file a formal benefit claim. The SPD will have instructions on how to do that. They are required by law to make a formal determination and written reply to such a claim. They can still say "no" but they have to put into writing the why. Next is: If you really feel you are getting no where you might want to enlist the DOL for help. They have these people called Benefit Advisors. They will sometimes reach out the company and make an inquiry about the situation. The great thing about it is they aren't a DOL auditor so the company is less likely to lawyer up and really dig in. However, that is always a risk as some people will simply hear, "I am from the DOL". But if you really want to go that route here is the link to the DOL website to start the process. https://www.askebsa.dol.gov/WebIntake/ I am not 100% sure what more to say. Like I said the description given doesn't make sense. There is a break down in communication or understanding some place in my opinion.

Sorry, but your merge idea doesn't work. Only an ESOP can have the unallocated share and the related loan. At this point unless they simply want to get rid of one of the plans there isn't much value in a merge that I am seeing. I just thought merging to a KSOP would be simpler because you wouldn't have to deal with the unallocated shares. You could keep the loan and the suspense share in place. Since the goal doesn't focus mostly on getting rid of a plan as much as changing who owns the company a KSOP doesn't make difference. As for the goal of the minority owners slowly taking a majority of the stock by distributing the share from the ESOP and I assume making the shares treasury stock is an interesting one. It would slowly result in the ESOP owning a smaller percentage of the over all stock and the outside owners a larger percentage. You seem to understand this but currently the ESOP being the majority owner gets in effect a premium on the stock price for being the majority owner. When the ESOP's ownership fell to a minority the stock price would get hit with a discount for being a minority owner and all the remaining shares would lose value. I would research if the fiduciaries have to account for that and make some kind of adjustment. I mean this plan would result in loss of value to participants in a plan and it was because of the direct actions of the Plan Administrator and Trustee. They have a duty to not lose the participant's value. I see a possible big fiduciary problem here. Maybe one of the attorneys who come around here who knows ESOPs will opine on that issue. This is going to be complex enough you need a good ERISA attorney who knows ESOPs and doesn't merely dabble in ESOPs. If the current trustee is an inside trustee, and especially if the inside trustee is one of the 2nd generation people who could be seen as having a conflict of interest regarding this, I would look to getting an outside trustee. If they have the ability to simply buy all the shares from the ESOP that would make thing easier but that could take more cash than anyone has at this point.