ESOP Guy

To answer you question directly... No, there is no law I can think of that requires them to give you an allocation of the suspense shares.

As I tell my clients all the time I am going to tell you the correct answer and not the answer you want to hear. There is a good chance you are out of luck. If the short term disability payments wasn't compensation for plan purposes, and there is a good chance it wasn't, you didn't have any compensation for ESOP purposes in 2020. If they allocated the suspense shares on compensation and you didn't have any compensation the result is you get none of those shares. It will be hard to give you a complete 100% answer without getting into the weeds of the plan document but I (anyone on this board) can only give general insights. If you feel strongly about this I would recommend the following. Find a copy of the plan's Summary Plan Description (SPD). You should have gotten a copy of it at some point. In it there are instructions on how to a make a formal written claim to the plan that will trigger a requirement they make a formal written reply to you. You can try and make a claim and see what they say. These formal claims tend to get their lawyers involved so don't be shocked if they lawyer up. But that will also result in someone who knows the document really making sure it is/was followed.

I will admit I was lucky enough to have a client willing to do the leg work a few years ago to find out how to pay the lady in prison to her prison account. Larry very well could be correct this person might want it to go to an IRA. I would see if you can get the form completed or at least some idea what this person wants. That would at least narrow the range of future questions. Good luck on this one! As one of my old bosses used to say all the time.... If this were easy everyone would be doing it.

Let's be clear while the beneficiary will be entitled to the benefit even if in prison there are very strict rules in many states (maybe all) on paying a prisoner. The last time I had one of these the money was put into an account at the prison for the benefit of the prisoner. You will want information form the prison or prisoner on how to write the check if you are helping do that. It was the lady's money but it was in some odd prison account. Everyone agreed it wasn't a violation of the anti-alienation rules because once she was out of prison she controlled the money. It is just her control while in prison that had limits.

I am not even sure I understand the first question. Are you talking about the stock compounding or the cash in the ESOP account? If you are asking about the stock the value of that part of the account is simply the number of shares times the price. If the company isn't publicly traded they get an appraiser to help determine the price each year. You should be able to see from your annual employee certificate if the number of shares you have is going up each year or not and why you are getting more of them. As for how many diversify it is a real mix. It depends on how much stock they have and what other kinds of retirement plans they have to keep them in a good mix of investments.

A well written document, not all of them are well written, will guide you through the process. If this is a prototype read the base document and see if it breaks down how rehires are supposed to be handled. A good when will go through the various possible fact patterns and you should find the one that guides you to the right conclusion. I would say Mike is right but the working through the document would be a good exercise. When I get stuck mentally on an issue like this reading the document again gets my mind back to where it needs to be on the issue.

Let's be clear here you don't have to hire an appraiser for this. The trustee and Plan Administrator have a fiduciary duty to come up with a good FMV. If you don't use an appraiser you have to mark that question on the 5500 saying it isn't traded and hasn't been appraised. They better do a good job of documenting their method of coming up with that value in case it gets questioned. Although it sounds like this might not be a material asset at this point. If this plan isn't audited you have to look into if this still allows you to not audit the plan. I do very few plans with <100 participants in it so I forget how that works but I am thinking that this could be an issue here but willing to be told I am wrong. But the audit safe harbor rules are based on all the assets and data is coming from sources that can be trusted and know you have an assets that isn't being held at one of those type of places. Like I said it is outside my wheelhouse but check the audit requirements. If the plan is audited I would make sure what method you use they can live with it. But the legal requirement is to show the FMV. If the trustee thinks they can do that and be prudent about it so be it. They should know the risks of being wrong but they can come up with a FMV.

This is interesting. As an aside the ESOP world is full of talk should ESOPs get an interim stock value in the summer of 2020. The same dynamic is going on. The 12/31/2019 value can't reflect any of the events in 2020. So is a new stock price which will be used to make the payments in 2020 a better price. I have ESOP clients who if they do this the savings could be in the millions of dollars. But the same kind of issue comes up in my mind. There never is a push to do this when times are good only when bad. It will be interesting to see if the court makes note they specifically refused to do a special allocation date in 2019 when the market was up but did it when it was down. Thanks for sharing.

Are you saying one of the plan sponsor's customers actually managed to deposit stock into the qualified plans of the plan sponsor? If so, how did that happen? I don't mean in terms of blame but it would seem like a stock broker/investment person had to help and made a mistake in the transfer paperwork If so, what responsibility do they have- if any? I am still just trying to figure out the basic facts on this one.

How it is split is up to you and your spouse to decide. it is just one asset out of many to look at and decide how you two want to divide them up. Once that decision is made you need to get a valid QDRO written. I would STRONGLY advise you get the help of an attorney who knows ESOPs. If they don't have a lot of experience with ESOPs I would strong advise people talk to the people who know the ESOP at the company. ESOPs are very different from 401(k)s. It is harder to be clear on how to compute the split since the stock tends to be only valued once a year, unless the stock is traded on a market. Also, there can be restrictions on how fast one can be paid from an ESOP. I have been in the position of having more then one Alternate Payee crying or yelling at me they need the money now to buy a house or some other huge need as I tell them it could take months to years to be fully paid from an ESOP. So I would recommend by starting by gathering information from the company about how they need the process to go to get the QDRO approved by them and idea of what the payment process will look like. Like I said however how you split the balance is subject to the negotiation between you and your spouse. QDROs are very technical and have to be written just right. The company that sponsors the plan has a lot of say in if it is valid or not. I can't say enough an attorney helping and talking to the company and their plan advisors helps a lot.

I once saw a plan document that did put it back on the employer if the plan was terminated. It was very clear about that point and I have only seen it once.

Let's be very clear here. A plan can reject a DRO as not being qualified (the Q in the QDRO) even if a judge has signed off on it People are used to the idea a judge signs an order it has to happen. In this law if the judge signs it and the plan rejects the QDRO as not being qualified, the response is get it fixed and have the judge sign it again. The judge can NOT order a plan to pay under a DRO that isn't in fact qualified. At the risk of saying it too much, a QDRO isn't in fact a QDRO until the plan agrees it is. So you need to find out if you really have a QDRO or a DRO the plan is saying isn't qualified. So as the others are saying you need to find the answers to those questions and it might help to find an attorney who knows QDROs well.

I can't cite anything but I listened to a couple of lawyers last week for my CPA CPE and this question came up. They are saying there is nothing stopping it. I agree maybe not in the spirit of the law but doesn't seem to be prohibited. Maybe a few lawyers that come around here will give their insights also.

My reaction was the same here. Does the plan require the diversification go to the 401(k) plan or is that one of several options including taking a payment. I don't know if I have ever seen an ESOP document require the 401(k) plan be an option and not allow for a distribution also. It could be written so that the 401(k) is the only option but it would strike me as odd. So agree check the document again.

How is the company treating this person on their books? This isn't a retirement law question. This is an employment law question. Have they done other things you would normally do when someone is terminated? Have they given this person a COBRA notice? Have they marked him as no longer employed on their payroll system? Have they notified other benefit providers this person is no longer an employee and not covered under those programs? To me the company has to decide when, if ever, did this person stop being their employee.

I would ask the appraiser. They are very open about the method they use to value a company. They have to be open about it. The trustee is required to understand what they did to get the value and determine if the inputs, assumptions... leading up to the value are appropriate and reflect FMV. I go to multiple ESOP conferences a year so I know most of the big names in the ESOP appraisal world and they are all open with their clients/trustees on how the value is determined and what could change the value.

Let's be clear here even if you can delay it to 2021 January might not be an option- it would most likely be much later in 2021. If this is a calendar year plan that means any payment in 2021 has to be made based on the 12/31/2020 stock price. I am assuming this is NOT a publicly traded stock. They are saying a payment this year will be September suggest it isn't a public company. So it sound like they are working on getting the stock appraised and account balances determined. That is why they pay in the fall and not sooner after year end. If my assumption is true I would assume any payment in 2021 would happen in September of 2021. Most of the ESOPs I help do their work pay around the same time each year because that is how long their process take to get to that step. ESOPs aren't like 401(k) plans were you get to just say give me my benefits when you want. They work at their own pace and you have to understand what the pace is. I would get a copy of the SPD. It might tell you if you can delay the payment. If not, the comptroller might be able to get you the answer. I would also clarify with that person when they would estimate a 2021 payment would actually happen. I am willing to bet it would be around September of 2021. Also understand you would have to take the change of the stock price good/or bad that happens as of 12/31/2020 if you delay the payment to 2021. I am not saying you can't delay or it is a bad thing to delay. I am saying you need to make sure you understand what you can and can't do. And you need to make sure you understand all the ramifications of such a decision. I get the impression that isn't true at this point.

I would agree the ESOP Association seems to have be more geared towards the industry professional vs the NCEO which clearly has an employee owned company as more of its goal. I will say that ESOPs are a real specialty to themselves. I am not trying to be mean but I cringe whenever we get a client whose former TPA was a 401(k) shop that was doing the ESOP work as a courtesy to their 401(k) client. They have a very high VCP filing record after we start to dig into them. If you want to learn I would suggest you find out which ESOP Association chapter you live in. If you live in the US you live in a chapter's territory. You can find out when they are having local conferences. They all have at least 2/year. I would think about attending those. The chapter conferences are less expensive and since it is broken down into territories you might not incur as large travel costs. They all have good breakout sessions. If you just can't make a conference if you join the NCEO they have a 1 hour webinar most weeks of the year that is free to members. They happen around lunch time if you are in the Eastern or Central time zones. If you are west of that it is still morning when they happen. At one hour they aren't going to be super detail but you can get a good idea of the issues.

Talk to your HR department. Fidelity works for your company. The company my lean hard on Fidelity to get it right but in the end the company not Fidelity is most likely the final decision maker. Fidelity is way more likely to listen to the people paying them.

I am having a hard time believing the document is silent on the topic. I would talk to your document provider. Check the base document if it is a two part type of document. In all the decades I have been working in this field I can't remember a time the document didn't discuss this issue. The most common provision is some kind of forfeiture of the benefits if the person is lost and you did a diligent search. The DOL is now making a lot of noise about doing that but it is the most common provision. If you can get a pdf of the document I would search for words like "lost" "missing" and other words like that.

Your plan document will tell you how to handle lost participants. The big thing any more is making sure you can document they are lost. The DOL has taken this topic up. You need to be able to document you did a search that meets their requirements before declare a person lost.

Help me understand something here. I admit I haven't gotten too far into this as most ESOPs are pretty far still from making payments in 2020. But it is my understanding the plan has to make an amendment to elect to not have to pay RMDs. If there are no RMDs why do they have to do an amendment? Logic (in know pension law and logic don't have to go together) would say if they don't elect to waive RMDs via amendment they have to pay RMDs still. So what are those payments if not RMDs?

The one and only time I worked for a CPA firm that did TPA work through a subsidiary they never did both. The closest I saw was we would prepare the Form 5500, 8955-SSA and SAR for a plan they did the plan audit. It was my understanding it was the CPA rules for independence that was the issue not any kind of TPA ethics rules. But I can't quote anything even though I am a CPA. I just wasn't involved with those independence questions by management at the CPA firm.

Just added this comment because I forgot to set the "notify me of replies" option.

I am going to start with one of your last questions/issues. I work for an ESOP TPA firm and our installment forms are very clear if you do not return a form in the future years you will get sent an installment sent to the same address and in paid the same way as the prior year. On the last part it means if you asked for your installment to be sent to xyz IRA and never return a form after the first one all the installments after that will be sent to xyz IRA. You, or someone at the company, is the Plan Administrator not the recordkeeper/TPA. I recommend you speak to your ERISA attorney. if they agree the plan can have the forms say all future installments will be paid as the previously returned form demand it changes. You drive how the plan works not the TPA/recordkeeper. If the person's balance is over $5,000 you can't force them out of the plan. it is just how the law works. You can force them out of the company stock while their balance stays in the plan. This is called segregation in this business. If your plan allows for it, and if it doesn't talk to your ERISA attorney to get it amended, you can set up a method that allows you to sell the people out of their stock and into cash based investments. They key here is to give the plan flexibility. See if your attorney will allow the plan to be written such the company decides who much cash it wants to put into the ESOP to segregate the accounts and describe the method to do so. Pro rate is the most common method. For example, if there is $100,000 of shares in terminated employees accounts that can be segregated and the company is only prepared to put $50,000 in cash to fund segregation using a pro rata method all the terminated employees would be forced to sell 50% of the shares in their account. You can use other methods than pro rata. We have clients that sell 100% of the stock from the person with the oldest termination date for example. You go from oldest to newest until the cash runs out. You just have to make sure the method isn't discriminatory. A good ESOP TPA can guide you through this. You will find many of the people start taking their payments if they know they are going into a cash based investment vs the company stock. After all they can invest in mutual funds and so forth in an IRA with more control if they do so. There are a number of issues you need to investigate before you do this that is too long to write here. For example. by making them sell the shares and putting them into some kind of cash investment your company has made an investment election for these people. That means there is a fiduciary liability regarding the investment choice. Not saying that is a deal breaker as segregation is common in ESOPs. I am just saying you need to be aware of the risk when making the choice of investment and pick one that helps mitigate the risk. Search the NCEO and ESOP Association's websites for the word "segregation". You will get a large number of hits for information . This is the closest I will do to a "sales job" on this board as that is frowned upon here. Is your TPA/recordkeeper one that is known to specialize in ESOPs? I am a little surprised that they haven't brought up segregation. If not, I recommend you get one that is an ESOP shop. They can do other types of plans- the company I work for does. But ESOPs have enough unique situations I think you need an ESOP specialist to help guide you through these kinds of situation/planning opportunities. Lastly, I would recommend you attend your local ESOP Association chapter meetings- when we are allowed to have conferences and meetings again! Also, NCEO has weekly webinars. The NCEO also has a large conference in April. There will be breakout sessions on segregation at most conferences. You can learn a lot and speak to other ESOP companies that have done segregation. If you aren't a member of the NCEO and ESOP Association you should think about joining to access these benefits and learning opportunities. There will be a wealth of other sessions on ownership culture, repurchase obligations. what to do if you find a mistake...... Sorry if this was a little long.