ESOP Guy

Sorry, for the slow response. I didn't get any kind of notice that allowed me to pick up on the fact there was a reply. To be clear I work for a Third Party Administrator (TPA) and I am not an appraiser. I think you are going to simply have a hard time making a case. An appraiser's risks are too high for them to simply do what the client wants for fear of losing a paying client. They are not going to issue a report they don't think they can't defend in front the DOL. I would suggest trying to find out if there is an outside trustee or not. The Summary Plan Description should help you on this point. If there is an outside trustee It would be very rare for the the annual valuation to be off a lot. In that case it would take both the appraiser and the trustee to risk liability for fear of losing a client. If it is an inside trustee there is a conflict to a degree but once again the trustee has to be willing to be open to legal liability to try and play games. I have to stress again an appraisal of a private company is based on a fair amount of assumptions. You can't just show you don't like those assumptions. You have to show the assumption used weren't reasonable and prudent decisions. That is a tough thing to overcome. I am sorry you don't think the stock price is what you think it should be but everything I have seen unless a subsequent event happens that can cast doubt on the price you have a hard burden to over come to force the issue.

Don't forget the audit costs can be paid from the plan. That might not be popular but there is a way to get the auditor paid to do it. It is just a matter of the fiduciary doing their job. I am about to send out the final distribution forms for a company sold back in 2015. For a number of reasons the ESOP is only being shut down now. The former CEO has had to handle all of this and not get paid since 2015. He is the only one left. He got the big bucks while CEO and got a healthy balance from the ESOP this is the other side of that coin.

If you send it certified you have proof you mailed timely and that counts regardless of when the form is processed.

There is a lot going on here and there is most likely a lot being left out. The stock in an ESOP by law has to be appraised once a year by an outside appraiser. While legally speaking the appraiser only brings a value to the trustee who has the final authority to approve that value or not the fact is ignoring the appraiser is something a trustee can't do as a practical matter. The trustee has a legal duty to make sure the appraiser is right but can't just ignore. You will find the legal liability on an appraiser is too high for them to not come up with a value that can't withstand a lot of scrutiny. So I would tend to trust the appraised value unless you can come up with some very solid reasons to think otherwise. Appraising ESOP stock is not simple or easy. (I am not an appraiser by the way.) Just knowing revenue and profits isn't enough. Factors such as does the company have one or just a few main clients that generate a substantial portion of the gross revenue. There is a famous court case where an appraiser was accused to over valuing a company where Wal-Mart was over 60% (I think that is the number) of the company's gross revenue. The stock was sold to an ESOP and Wal-Mart dropped the company a few year later. The stock value crashed. The claim was they should have discounted the value one normally would give a company like the one in question for the fact they had an additional risk of having too much of their revenue dependent on one source. My point is there could be factors going into the appraisal you might not even thinking of. All ESOP stock that is 100% owned by an ESOP gets some kind of discount to the price for the lack of marketability for example. I have seen that discount be as high as 15% and as low as about 5%. Your not going to be able to debate these kinds of elements of the appraisal. You say the President/CFO runs the ESOP. What do you mean by that? Is this person also the trustee of the plan? The Summary Plan Description (SPD) should tell you who is the trustee of the plan. An internal trustee isn't illegal it is becoming less common for reasons of conflict. But a professional trustee isn't cheap so some companies do save the money. But if the plan has an internal trustee isn't in itself illegal. I will let the lawyers that come to these forum speak to the legal questions. I will say as a practical matter very few of the legal challenges I have seen by a lone participant was worth the cost. Once again the appraisers are more fearful of the legal liability of their appraisals being challenged than they are of losing a client if they are unhappy the stock price they are giving isn't what the company wants to make stock prices to be off by large amount very often. The times you see court cases on it the claim isn't they were told to come in with a price of X and they did it. Someone is challenging what seemed like a reasonable assumption that after the fact now seems less reasonable- see my Wal-Mart example above.

I know most of the banks I work with give us a chance to amend or correct 1099-R codes in December along with updating address. If the number gets large that could be a pain. But if the people issuing the 1099-R allow for that it might help to start a list now per client of people to revisit this in December and hopefully we have guidance. I wouldn't want to have to go back and find these people in December without a list guiding me.

There is more going on in that question than you might realize. You would best to go and ask someone at the company to help you through the facts and get the best answer. Without knowing how vesting is computed: Is it elapsed time or do you have to work 1,000/year to get a Year of Service for Vesting? If it is a 1,000/year plan which is the most common what years (assuming the plan is a calendar year plan) did you work 1,000 hours or more? As a very general rule, and there are a lot of assumptions going on here, I would expect such a person to be 40% vested the day they come back regarding any new money/shares allocated to them. Depending on the facts they might have moved up to 60% or 80% vested because of the additional years worked. It would fairly rare to see the person reset to 0% upon their return. But ONCE AGAIN WITHOUT SEEING THE PLAN DOCUMENT AND KNOWING ALL THE FACTS no one can say for sure. If you paid back any of the prior distribution to you that can make the situation more complex but such paybacks are rare. So talk to your former employer and have them explain it to you is your best bet.

Do they want to terminate the plan? I agree with David unless something in the sales agreement requires it they can keep the plan. It was a stock sale so the company never went out of existence.

The one and only time I had this happen we filed a form under the correct EIN. When we got the letter about the form being late.... We showed them we filed an exactly identical 5500 timely except for the EIN. We explained why the new EIN was correct. We never heard back from the IRS. That was early last fall. I can't cite anything to say that is the right method. It is simply what we did.

I know now isn't the best time to invent how to get your systems to work while people work from home. But maybe this should be the event that moves your firm to doing that. Most of the TPA firm I work for works from home 100% of the time. I have worked from home since I took my current job back in May of 2012. You couldn't get me to work for a TPA that doesn't allow me to work from home and/or pays me enough I can live in the same town I work in. And even if I live in the same town I worked in I would still want to work from home some. I will never go back to a 30 min commute again unless I am desperate for a job. That was my longest commute and it lasted for 16 years and once I stopped doing it I came to realize how much I disliked it. Most TPA work can be done remotely in my mind. I would add since I started this job and I was the only person in this region we have gained over 8 new clients. I am not in business development and I didn't do most of the work to get the clients. But my presents and speaking at local conferences has gotten the firm I work for a lot more exposure and looks from local ESOP companies. So it has been good for my bottom line and the firm I work for bottom line.

If you can't point to some place in the recently passed laws it covers 2019 RMDs I would not risk it. So far we have gotten all the needed 2019 RMDs out by this week.

If it is 2020 RMDs they are talking about delaying than you would still have to take the 4/1 RMDs as those are 2019 RMDs.

Couldn't you do the General Test with the rate groups? I have had a few ESOPs over the decades with a YOS allocation and that is how we always did it. Since you aren't allowed to do a benefit equivalent basis in ESOPs we never future valued the contribution to a benefit equivalent. I am not trying to be mean but the lawyer (or whoever) set this up didn't do a projected test to make sure it would pass as set up and in doing so researched this out?

I am with austin here on the rule isn't a very good rule. I am just not sure what to do about it. I have seen cases were a company sold a division late in the year and those people exceeded 20% of the employees. They were terminated. I can see why they are made 100%. But the rule would have someone who terminated months before that worked in another division become 100% vested. Even a person terminated for cause is made 100% vested.

Let's be clear here the correction isn't write him a check like the HR group seems to be saying will happen either. The correction is a QNEC into the plan by the employer. The QNEC as mentioned is employer money into the plan.

This forum is mostly industry professionals so you will get the best answers come Monday morning when they are back at work. But here is the actual IRS guidance on correction and no it is not making a payment to you. https://www.irs.gov/retirement-plans/401k-plan-fix-it-guide-eligible-employees-were-not-given-the-opportunity-to-make-an-elective-deferral-election-excluding-eligible-employees https://www.irs.gov/retirement-plans/fixing-common-plan-mistakes-correcting-a-failure-to-effect-employee-deferral-elections I would wait until you get some responses Monday from the 401(k) experts before going to your HR department. I haven't worked 401(k) plans for almost 9 years now. The experts can give you more detailed answers.

Check your document. It will define hours. It will most likely define hours as hours for work paid. To me that means it follows compensation. Otherwise you would have the hours in 2019 and the comp in 2020. That makes no sense. Unless you have one of those documents allows the comp to be "pulled back" into the year earned. This is most likely a document question not a law question. Given how almost all my documents read I would never take the position this person has 1,000 hours.

Larry you are being tiresome so this is my last reply to you in this topic. Here is the reply to my first questions from the person who posted the question which you seem intent on ignoring: ESOP Guy - great question for clarification. instead of saying value updated for g/l through current, I should have said last valuation date. Payee received 12/31/19 values, took their time to send in forms, and is now demanding that cash amount be distributed. Sounds like plan is going to insist on an updated valuation anyway but it was a testy divorce so they are contemplating how to minimize issues. Part in bold done by me. To me the plain meaning of that statement seems to change the facts from the original comment. Have a nice day but like I said don't expect another reply from me in this topic. I simply don't care enough to keep beating the dead horse.

See the reply to my first question. it seems to be saying there isn't an adjustment for earnings in that reply. I didn't say anyone didn't say to not read the QDRO. But what was happening was a discussion of if you should allow in kind dist to happen and not answering the actual question. To me now that the facts are confused given what is said in the orginal comment and the reply to me that needs to be fixed first. But to me worrying about the type of distribuion at this point is pretty secondary to getting the how much cleared up. For one thing I still don't see how it matters.

If the QDRO actually says they get $x and there is no adjustment for current earnings isn't that what the plan has to pay? The the participant just takes all the losses and the Alt Payee gets the amount in the QDRO. I don't see how the plan can do anything about it. I think there needs to be a good look at what the QDRO actually says. If it allows for adj for earnings since split date the plan can do an interim valuation and the person gets no say. If the QDRO doesn't allow for an earnings adjustment the participant takes the losses and the plan isn't allowed to do anything about it.

I am not sure I understand the question. If the value of the QDRO was supposed to be $1k for example adj for g/l through date of payment what difference does it make? The market is down by about 20% so now the amount is $800 not $1k. It doesn't matter if they get $800 in cash or shares does it? I am curious also on this point: Share of what? Are there actual stocks or mutual funds at stake here?

I am just curious how others handle this. I terminated years ago from a CPA firm. I had some pre-tax and Roth money in their 401(k). They used a well known and large platform for their plan. I tried twice to get all of my money rolled over to my Roth IRA at E*Trade. Both times it wasn't possible to do it online. In fact the first time I was told by the person on the phone it isn't legal to roll pre-tax 401(k) money to a Roth IRA. I got forced out of the plan after being gone for 7 years this last December. The part that still bugs me the most is I got two distributions to Millennium Trust (MTC) and the large platform that had the 401(k) plan charged me the $90 distribution fee per check not for the single distribution event. Every place I have ever worked the distribution fee by event not per check. So if you ask for a payment from a plan and one check goes to an IRA and one goes to you the fee is the same as if you asked for just one check to an IRA. But in the end between those fees and the MTC fees I lost around 10% of my money. I paid those two $90 fees, paid two account set up at MTC and now two distribution fees to MTC to get my money to E*Trade. To me MTC's fees are more justified they would always set up a pre-tax and Roth IRA on a force out like this and they really had to run two accounts at this point. It is the large platform that bugs me. One because Roth 401(k) money has been around long enough that it seems like it ought to be easy to get an account with a mix of money sent to one place via an online election and two I just don't care for the per check fee. So once again how often do you see a per check fee vs a per distribution event fee?

Your question doesn't make sense to me. The term "merge plans" mean they are moving the balances from the old plan to the new plan without giving the employees any choice. The decision was made by the trustee and plan administrator to move the assets from old plan to new plan and the employees get no say in it. On the other hand if they are terminating the old plan and setting up a new plan the answer could be they need to give them an option to take a distribution. So please clarify what is really happening here. Are they merging the plans and the employees have no say about it or is the old plan being terminated?

Not a lawyer here just a CPA who does ESOP TPA work. Depending on what they are asking for that is from back in the day it can still be relevant. I mean the purchase of the stock and loan agreement might have been signed 10 years ago. But if it was a 20 year loan those documents will still be driving how shares will be released today. In those kinds of situations I don't see how you will win a fight to withhold the documents.

I don't know about studies that showed they wanted to set up ESOPs to get out the market "casino" (a loaded term). There are studies that showed ESOP companies laid off fewer employees during 2008 than similar companies who didn't have an ESOP. https://www.businesswire.com/news/home/20170425006676/en/Employee-Ownership-Companies-Laid-Workers-Firms-Recession https://www.nceo.org/assets/pdf/articles/EO_Costs_of_Unemployment.pdf https://www.esopassociation.org/articles/employee-owned-companies-have-fewer-layoffs The NCEO, ESOP Association, the Beyster Institute and the place at Rutgers in the first link are the best places to find research on employee ownership. The NCEO and ESOP Association tend to require membership to get their best research or you have to pay to get the research on a per paper/book basis. The lower cost of unemployment insurance by employee owned companies has even caught the eye of several congressmen. You could lower government costs and spread the benefits of employee ownership by encouraging employee ownership seems like good public policy to them. Hope that helps.

I realize this doesn't really help or answer your question but I can't even figure out why a company wouldn't supply SPDs. Given you can do it almost exclusively electronically now a days. I work currently for a company with about 60 employees. We use I think the term is a PEO that handles our benefits and payroll stuff (that is the technical term by the way ?) I could go on a website right now and get every SPD for every benefit I have. I get why people didn't want to do it back when it cost $5/package to send a paper SPD to 2,000 employees. But now it is so cheap it makes no sense.