ESOP Guy

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.

To me it uses both past and present tense. I quote: Another optional election that can be made is the Rule of Parity. If a plan has this rule, it applies only to individuals who were not vested in any benefit when they terminated employment. Under the Rule of Parity, a rehired employee’s prior service is disregarded if the employee’s breaks-in-service exceed either the number of years of service s/he had prior to the breaks, or five years—whichever is greater. If the employee’s breaks-in-service do not exceed the greater of those two periods, the service prior to termination must be counted for eligibility purposes. Remember that the Rule of Parity does not apply, even if it is in the plan, if the employee has even one dollar of vested benefit in the plan, including salary deferrals in a 401(k) plan. If the employee is vested at all, s/he will re-enter the plan upon rehire. The first bold part talks about if they were vested when terminated. The second bold part uses has and in my mind confuses things by doing so.

I have always understood the Rule of Parity measures the idea if they have a non-vested benefit on the date of termination not rehire. So I stand by my idea if they took a distribution in the past they had a non-forfeitable right that trigger that provision. This is why you hear all the time most employees ought to enter a plan upon rehire if they had any kind of service and the plan gave any kind of contributions. The difference between once a participant always a participant and Rule of Parity just aren't that large.

Isn't the answer for any one of those that ends with "took a distribution" mean they had a non-forfeitable right? So really the only two that seem hard are elig for 4k and never made any cont and elig for PS and never got an allocation. The simple answer is to get everyone to set up a once a participant always a participant plan 100% of the time! ?

Yes, too much time in the retirement world. I have edited out the error.

No, people might have been sloppy with their terms but you are either an employee and you get a W-2 or you are an independent contractor and you get a 1099. You can have leased employees but they are employees. You can have some interesting arrangements with Profession Employee Organizations (PEO) but those people are still someone's employee. The determination if you are an employee isn't based on you getting benefits. You determine if you have an employee or not and then you work through the benefits issues. You can have employees without benefits because most benefits are mandatory as long as you give them to no one. You could also convince me that someone treated you as some kind of odd mix contrary to the law. As I said a lot of people misclassify people and get away with it.

Here is the problem with you newest idea. The decision if a person is a employee or independent contractor isn't arbitrary nor is it something you just decide or negotiate. There are laws that define who is an employee or an independent contractor (by the way a 1099 employee is an oxymoron. If you get a 1099 you are never an employee. If you are an employee you get a W-2 always). While the laws on this have their grey areas it isn't as simple as saying you are an independent contractor. I will gladly concede there are plenty of places that misclassify their people in this regard and get away with it. However, as a matter of law you need to figure out if you will have employees or independent contractors. If you don't have employees you don't have an issue as they don't have to be covered by a 401(k) plan. If you misclassify your employees and the IRS figures it out they will drop the boom on you. My first job out of college was with the IRS and they trained us to look for misclassified employees as a standard part of an audit of a small company. Your choice on this one.

You are always free to max out an IRA for you and your wife. But if you are looking for a plan that allows you two to put in $10ks with pre=tax dollars and nothing for employee that doesn't get any benefit that basically doesn't exist. That is the government "price" to give you the nice tax benefits, you have to share with the employees. If you are willing to give your employees say a 3% of pay contribution which isn't all that expensive you open up a lot of options in the form of a Safe Harbor 401(k) plan. If you are willing to do that once again visit a local CPA or TPA and they can help you come up with a plan to maximize what can be done at the lowest cost to you in regards to the employees. But the employees getting nothing isn't really going to happen.

This is a pretty complex topic. Is this severance or pay that is coming in after they terminated? It matters a lot. The simple example is if a person gets a commission or vacation time paid to them after they terminate most likely (the specific facts and how the document is written will be critical in the final determination) that is compensation they could defer upon. If this is true severance pay- they are paying this person because they were terminated and the termination is what triggered being paid- it would seem like it is most likely they can't defer upon that compensation. Once again you need to look hard at the specific facts and the document. The discussions of severance paid within a given time period tends to be mostly found in the 415 rules/parts of the plan document and be interpreted in that context. One thing you might want to check is if this pay is part of some non-qualified plan that pays out a deferred compensation over 3 years. I have plenty of clients whose Stock Appreciation Rights (SARs) and other non-qualifed plans pay over a number of years after the person leaves the company. That is not severance pay but often times excluded from the definition of compensation in the plan document. In short I think you need to ask more questions about what this pay is and then read the document very carefully to see if it addresses what this is.

This is my opinion. I can't cite anything. I normally think 99% of the time people over think these counts unless you are close the line where you move from not needing an audit to an audit. I would actually amend for the reason you stated in this case. I would add with the software our firm uses it is simple and not very time consuming. The hardest part would be someone has to call the client and apologize for the mistake. I would rather do that than have a discussion why an IRS letter or agent shows up asking about the number. In short the cost of amending seems low and the bad thing of not amending seems high even if you don't know the chances of it happening. In fact your firm may have spent more man hours (minutes most likely) debating to amend or not than how long it would take to do the change on the software. That is my 2 cents.

As far as I know there can be common control. It can be something very obvious. I once had as a client a not for profit hospital group that owned 100% of the stock of a for profit insurance company and they owned 100% of the stock of a for profit medical management group. This rather old article seems to say outside of my example it might be very hard to get common control. I guess based on this I would be careful if one of the groups can remove officers and board members of the other pretty much at will. But even then it sounds like it isn't obvious. https://benefitslink.com/cgi-bin/qa.cgi?n=288&db=qa_who_is_employer

If it talks about investment experience from 12/31/2018 the split will have gains/losses based on actual gains/losses on the account from 12/31/2018 to date of the account is split.

If Fidelity does a direct transfer back to the plan there shouldn't be any taxes or penalties from the IRS. What you really want to make sure is Fidelity does a transfer that doesn't generate a 1099-R to you more than anything else.

The TPA firm i work for has many staffing firm clients who have set up ESOPs. I personally work on two. They all want the benefits to just go to the corporate employees and not the people they are jobbing out to their clients. And they can't do that and none of our clients exclude the people who work the temp jobs for the staffing firm's clients. I completely agree with you. They have to include those employees or pass coverage without them which sounds impossible. If they want to try and set up some kind of points based allocation or other kind of allocations system that can pass discrimination testing that favors the internal employees go for it. My guess is those 6 employees also have all of the HCEs making this very hard also. To answer your last question I don't know of any staffing firm that is excluded these types of people and we have a pretty good sample size at the firm I work for. We here have at least 5-8 staffing firm clients I am thinking. I don't know of any that are doing what you describe.

I am happy to be told I am wrong on this as I am doing this from memory. But back in the day (the early '90s) when I first started working on 401(k) plans I remember being told there is no such thing as a stand alone 401(k) plan. I was taught that all 401(k) plans were a provision in a Profit Sharing plan or ESOP (thus being a KSOP)..... You might even be able to put a deferral provision in an MPP but never a stand alone 401(k) plan. Are you sure the document doesn't have a PSP provision? If a prototype check the base document or something. I has always been my understanding if you have a 401(k) plan you have a Profit Sharing plan. To repeat someone wants to tell me I am wrong fine as I am doing this from things I was taught decades ago.

I can't cite anything off the top of my head but it is my understanding is if the person doesn't pay the taxes the IRS can come after the Plan Sponsor for the taxes still. Once the taxpayer pays the correct taxes the plan and sponsor are pretty much off the hook.

I am sorry if my reply was too harsh. In a bit of my defense go back and re-read your original comment. You make it sound like your whole strategy is hope so I replied to that. In regard to your 2nd reply. No, I don't know if any good way to do it other than several letters. Yes, the days of calling someone and fixing it with a simple call are gone.

I agree with Belgarath.

You can never make the participants pay for the Plan Sponsor's/Administrator's mistake and not filing on time is their mistake.

I don't see any reason to issue a 1099-R. There hasn't been a distribution from the plan. To me if the spouse is the beneficiary the money became hers when the participant died not when you changed the title on the account. In fact since this is a qualified plan and not an IRA I don't think you have to do the whole John Doe deceased FBO.... stuff. In these situations we simply changed the name on the account to Jane Doe. We marked it was a spousal beneficiary and not a normal participant just so we knew and kept thing clear.

Off topic but I don't find this so odd. Presumably the father in this case spend money out of pocket already to pay the needed expenses. This is no making him whole after the fact.

Yeah, I got used to it at this point.