ESOP Guy

Just to be clear here you also aren't an owner or a family member of an owner are you? My guess is the answer is "no" because if you were an owner or a family member of an owner your problem would get solved quicker. But let's make sure something isn't being overlooked here however.

Yeah it sounds like you won't benefit much from the sale through the ESOP. So unless they agreed to give you SARs or phantom stock as part of your pay when hired I it sounds like you need to keep your expectations pretty low in terms of sales proceeds.

There could be a lot going on there so it is hard to give a good answer based on what you have written. It will depend a lot on if there are just allocated shares (all the shares are in someone's account) or if there are still suspense shares (a loan was used to buy the shares in the ESOP and the loan isn't fully paid.) The sales proceeds will follow the shares like any other company sale. So if all the shares are allocated that is how the money will flow. If there are suspense shares it gets more complex very quickly. How the sales proceeds after the loan is paid off on the suspense shares there can be some discretion on that allocation. If you are part of the executive team that is making the decisions regarding the ESOP you need to talk to the TPA, lawyers and trustee to make sure everyone understands how the suspense share proceeds are going to be handled. If you are an executive but not part of ESOP decision team you might just have to ask or wait and find out what is going to happen. You best chance to get an allocation given your service is if they allocate the proceeds from the suspense shares on compensation. They however are not required to do that. They could allocate most of those proceeds as a gain which would favor the people with the allocated shares. That is about as good of an answer I can give without a lot more details and this not becoming too long.

If you are saying you think the 1099-Rs were done wrong in the past so you should keep doing the 1099-Rs wrong I would disagree. if that isn't what you are saying I am not sure what the question is. A side point have they been updating the basis every year for the S Corp flow through earnings? That can change the basis and NUA a lot.

You might have done this... I have had more success than one would think searching for an obit online. It not only often times names the family but the church the service will be held at. We have called the church and the pastor knows how to contact someone in the family and does it for us.

Congrats

Those CPAs and their sticklers for numbers! (This is coming from a CPA by the way.)

I have an ESOP client and here are the facts: Person A owned >5% of the stock in Company XYZ until 100% of the shares were sold to the ESOP in March of 2018. The ESOP was effective on the date of the sale of the stock to the ESOP. This person was 70.5 in 2018. He was 70.5 in 2013. It just dawned on my he got a balance allocated to him as of 12/31/2018. We didn't get the work done until August of 2019. So is the 5% rule you are a 5% owner any time during the year regardless if the plan exists or not or do you have to be a 5% owner on or after the effective date of the plan? Does this person need an RMD for 2019 because he was a 5% owner in 2018 when he was over 70.5 or does the fact he stopped being a 5% owner on the day the plan was effective change this? The RMD will be <$30 so the amount is the issue it is a simple compliance question. I guess the balance could grow to the point the RMDs become more meaningful.

Stopping the IRS from auditing all forms. Maybe it is the CPA in me but from my first job at the IRS the idea there are forms you can't audit because of the statute of limitations happens was talked about as important. You can say that is pretty small in this case. Maybe it is a small benefit. But the cost is very small. It has been a very long time since I worked on this small of plans but we had all the information to complete the form to do the work we did for the client. All you had to do was have some input done and a quick review. Low cost maybe low benefit but I will take for the cost.

Yes, that is a problem. But no one here is defending that fact pattern. No. and I mean NO ONE is saying ignore the rule. They are saying there is a presumption that if it takes over a year it is a problem unless you can rebut the presumption with good reason(s). That fact pattern is not even trying to have a good reason. To use example from another place you have a presumption that can be rebutted. I have a bunch of ESOP clients that are staffing firms and convenience stores. Every year, and I mean EVERY year, their turnover is greater than 20%. A number of them have been audited by the IRS over the decades. In each case we have a conversation if the Partial Termination has happened. We have won that there wasn't a Partial Termination every time. The 20% rule is a presumption there was a Partial Termination unless you can rebut it. We can show their turnover is an industry norm. We win once we show that is true. In both of these cases the rule is there and no one is saying ignore it. We are saying make sure you have the documents to rebut the presumption. In the case of plan terminations experience tells us if you can show just about any fact set that comes across as reasonable you will rebut the presumption. Another story but I have an ESOP that is going on its 4th year in the termination process. The plan terminated in 2016 and we will most likely get the assets fully paid in 2020. We have had multiple partial payments as the funds were available. It turned out one of the money market funds they had invested in was subject to embezzlement. It has taken until last month for the final court rulings on what can and can't be paid from that money market fund. We paid all most all the assets the plan had access to within the 1st year. Now we will pay the last of the assets when released by the court. Taking 4 years is a very long time but it was reasonable and I am confident we could rebut the presumption of the 1 year rule.

Can I suggest you file a Form 5500 always? The only way a statute of limitation clock starts is if you file a Form 5500. Back when I worked on very small plans (a very long time ago!) we still did the trust accounting. So we had all the data for an EZ or SF always. It is very easy to complete and file a form. It would take less than a man hour to protect your client more it seems like. It just isn't that much work to give a client added protection vs no statute of limitation.

For years we joked about this provision in the law. The joke got old before we got the regs.

You should be able to show her how her earnings was allocated and what the basis for the allocation. She doesn't get to pick and choose which assets she is invested in if this is a pooled account. She is invested in the pool. As for her portion of the underlying investments doesn't really make sense. She is invested in the whole pool. While it could be a pain I see no reason to not send her copies of the CDs and brokerage statements and say, "here is what the trust is invested in" You account balance is x% of the total so in a sense you are invested in x% of all of these investments. Since it is a pooled account you don't get to pick and choose which assets only apply to your account balance. But in the end I would stress the idea her account isn't invested in particular assets of the trust but all the assets in the trust. And until the plan is changed to individual accounting that is how it is.

I think you have to know more before you can say there is a problem. What if it is a way for small plans to gain access to the cheapest class of funds within that fund family and the total fees are still lower than what a small plan can get on its own for example? Almost all mutual funds have shares that have much lower fees if you can invest say $5M. Any given small employer's plan can't do it but could this structure allow it to happen? I don't think you can say there is no value in the structure. It very well could be a problem. I have seen plenty of layers of fees that existed to enrich people but you not seeing the value doesn't prove there is not value in the structure of the fund.

I learned something new today and that is really a neat little site/function. Thanks

I am working with an ESOP to get their problems cleaned up. We need to file an amended Form 5500 for the a 10/1/2014 to 9/30/2015 plan year. We can't access the 2014 form on FT Williams. I don't do really old forms like this very often but something in the back of my mind says after so many years EFAST2 requires you to submit very old 5500 on the current year's form. So I am thinking this is right. Seems very unlikely FT Williams would get this wrong also But can someone confirm this for me? Thanks

There are lengthy debate threads on the question is the RMD amount a minimum and you can take more vs it is simply the amount authorized to be taken on this board. I am with Lou on this one. Unless the plan has an in-service provision you take the RMD and not more. I have a few plans were the plan attorney has said the RMD is just a floor and you can pay more than the RMD. For a long debate read this.

My only issue would be to ask why didn't forfeiture happen when the 5 BIS happen? That has got to be the latest date the document would have said it ought to have happened. So you had a failure to follow the document in my mind back in the 2009-2020 time frame if this person termed in 2004. Had the document been followed this question wouldn't have even come up. I would recommend at least make sure your firm's procedures look for people who ought to forfeit when the document says even if they aren't paid for all clients.

I agree you are reading the regs correctly. Let's say a plan says a 0% vested person forfeits on date of termination. So Joe is a 0% vested person terminates employment on 10/15/2019. The plan termination date is 12/5/2019 does Joe have any rights in the plan that become non-forfeitable on 12/5/2019? I think the answer is "no".

A well draft termination amendment answers your question. I find most of the termination amendments are not well drafted. If someone calls me before they draft that amendment this is one of the first questions I ask them to answer in the amendment. If the amendment doesn't say, you need to go to the document and read the forfeiture provisions in your plan document very carefully. I have some plan documents that clearly say the forfeiture happens on the last day of the plan year of the triggering event and other say the forfeiture happens on the date of termination if they are 0% vested. Some even say they forfeit as of the day they are fully paid if being paid their vested balance is the triggering event. My point is some plan documents tell you exactly when a forfeiture happens so is that date before or after the plan termination date? If before you can make a reasonable case they forfeited and are not 100% vested. If the forfeiture date is after the termination date they are 100% vested and they got a "windfall". If you get through all that and still don't know I think the best answer is "yes" they are 100% vested. So in order: 1) Read the termination amendment- if no answer 2) Read the document- if no answer 3) Make them 100% vested Is my take on this. There is no hard cite in the regs that I know of.

If you do the documents, including SPDs and distributions forms, correctly I am pretty sure you can single out the terminated participants to pay some of the fees the actives don't pay. So if the plan sponsor pays most of the fees and you help the client to get the documentation lined up the fees might encourage the terms to take their money.

Yes, if the fiduciaries are making an investment decision they have to show the investment is prudent. With interest rates so low many would argue a pure money market fund isn't prudent. There might be some discrimination issues but I would be more worried about the fiduciary duty issues.

I am confused what exactly is the question. Are you asking can they still make a deductible contribution for PYE `12/31/2018 ESOP in Dec of 2019? I don't see how that can be done. Intent has nothing to do with when a contribution is deducible. or Are you asking if they actually set up a plan back in 2018? If all the paperwork was in place I think there was a plan. It just sounds like there are no assets in the plan as of 12/31/2018. I am assuming you are working with a 12/31 PYE since you never stated what the PYE is.

There are practical issues here also. What happens if the person defaults on the mortgage? Now the plan has to come up with the cash to foreclose on the loan. The plan forecloses it now has real estate in the plan. That is a host of problems. If they go all in and put most of their account in these types of assets what happens if they need an RMD. Will the monthly payments be high enough to supply the cash to pay each year's RMD? It isn't like the plan can borrow money to fund an RMD to be paid later. If I thought about it for a while I might think of other possible problems.

I know Millennium Trust is willing to set up an IRA in this case with a basis for that fact pattern. I have concerns a record keeper is declaring policy instead of the Plan Administrator but I think there are solutions to many, if not all, of the practical issues to the move.