ESOP Guy

I agree that merely being terminated is not enough to say no worries. Someone has to guide the plan and trust to paying out everyone. I don't think Company A is responsible for the ESOP merely because company B doesn't exist. Even a terminated plan is supposed to have a sponsor until fully shut down. Someone is still the plan's trustee also. If A owns the stock of B and B is the sponsor doesn't A have control of the sponsor? I think you are basically correct but for slightly different reasons. I am assuming the cash paid for B's stock is in the ESOP's trust and needs to be paid out. I am shocked people aren't being hit up with requests of when do I get my money. Curious who does A's management think ought to be responsible for finishing the process of closing the trust and paying people out?

I have an ESOP that defines Normal Retirement Age (NRA) as age 65 and 5th Anniversary of Participation. When the plan started it was a 9/30 PYE. The first PYE was 9/30/2015. In 2016 they switched to a 12/31 PYE. So they have a short plan year of 10/1/2016 to 12/31/2016. I have a person who entered on 10/1/2014 the Effective Date of the Plan. As of 12/31/2018 he is over age 65. Does he have his 5th Anniversary year? Do you count it as PYE 9/30/2015, 9/30/2016, 12/31/2016, 12/31/2017 and 12/31/2018 which comes to 5. Or Do you count actual anniversaries 9/30/2015, 9/30/2016, 9/30/2017 and 9/30/2018 which comes to a count of 4 by the time the person terminates. It makes a difference as his YOS for vesting are at 5 as he got a YOS in the short plan year. However, this is a 2/20 vesting scheduled so by YOS he is 80% vested. If he has hit his NRA he is 100% vested.

Not my area of expertise at all but I was thinking under the Affiliated Service groups you needed common ownership for A and B types but NOT for the Management type. I am close to 100% of my knowledge here. See starting page 67 in this pdf by the IRS. https://www.irs.gov/pub/irs-tege/2013cpe_related_employers.pdf

I agree with C. B. Zeller those articles are written for the average person and they use language that makes sense to them. In many ways it looks like you are paying interest to yourself but legally speaking it is paid to the plan and allocated to your account. In my world the common way of explaining an ESOP is legally incorrect. It is often times said you own stock in the company in your account. For most purposes that is a good description but legally speaking all the stock in an ESOP is owned by the trust and the participants are a beneficiary of the trust. There just isn't much practical value in all the extra verbiage when doing an enrollment meeting so it is skipped and we talk about how the participants own the stock of the company. Even in a 401(k) plan we talk about how you are invested in this or that mutual fund like you own the mutual fund. Legally speaking the trust owns all the assets and the participant is the beneficiary of the trust. The poor person who asked the original question getting hit with these technical side conversation! To that person I agree with the other people go talk to HR and see if there is some kind of misunderstanding as I have never in my decades seen a rule like you describing.

Question 1: We have a mix that have and don't have a procedure that puts a hold if the plan thinks there is a QDRO coming or not. (My sample is all ESOPs now) Question 2: I don't recall there ever being a major fight over the procedure to put a hold on an account as long as we can explain this has been the procedure for years and it has set time limits. If you can convince people they are being treated the same as everyone else and you let them know this procedure is about making sure the plan has all the information so it can do things correctly most people seem fine with trying to be right. Question 3: I don't think I have ever heard of a plan going to court on this issue. Question 4: I don't ever recall it. Question 5: It doesn't seem to be high . In fact the thing that gets me yelled at more than anything else is more unique to ESOPs. Being as the stock price is set once a year we have a hard time explaining why they should write that the account balance be split as of an allocation date (most of the time a 12/31) and why ESOPs are so slow to pay in general. People are used to 401(k) plans being able to split and pay a QDRO within days of the judge signing the thing. An ESOP can still take months to know what the balance that needs to be split is and to split it.

Glad to hear it is working out.

Look I am a simple CPA working for a TPA and all your words are nice and most likely are all legally corerct. I have been working in the DC field since the early 1990s. I have never seen what you keep describing. What I get is a phone call from a client and they say: Joe is saying he is getting divorced what should we do? I have never in my life gotten a letter that quotes 20 U.S.C..... If we got a letter like you describe we would most likely tell the client to go talk to an attorney. Or we get a call that says we got this QDRO thing what do we do? We some times get a copy of a divorce decree but that is rare. So to answer your question of what what would I do if I got such things you describe? My answer is simple: I will let you know when it happens but in a better part of 30 years it hasn't happened. yet. Call me cynical on this one.

I guess my question would be: So what if it is? Based on all the descriptions it clearly isn't a QDRO. If they have a procedure that says if they get a DRO they can put a hold on the account I guess I can see this being enough to put the hold on the account until the time is up or they get a QDRO. But strictly speaking I am not sure I have seen a legal definition of a DRO.

You have hit upon what I consider to be one of the hardest topics in this field. I can't stress too much you need to do a lot of research on the leased employee rules. https://benefitslink.com/cgi-bin/qa.cgi?db=qa_who_is_employer&n=20

This I 100% agree with. I am a firm believer in, "if in doubt D". If you aren't sure the person was reported with an A before send the D through. That is so much less effort than proving the person was paid out years after the fact. Likewise, I have not ever seen an example where someone got blow back from the IRS saying you reported a D and there never was an A.

While it is my understanding a martial settle agreement can in theory be a DRO and a QDRO. What the people I know that know this subject well tell me is as a practical matter they almost never have all the needed characteristics. Based on the original description I don't see a QDRO. It has always been my understanding that DROs should be rejected for what seem like even minor technical issues. For example in the ESOP world we see DROs come in that call the plan, "XYZ Corp Employee Stock Option Plan". We will always recommend the client reject the DRO and make them get the right name "Ownership". So unless what was sent to you have all the the needed requirements I stand by the advice given by most of the people in this thread.

Huh? Here is the instructions for the Code D Code D Use this code for a participant previously reported under the plan number shown on this form who is no longer entitled to those deferred vested benefits. This includes a participant who has begun receiving benefits, has received a lump-sum payout, or has been transferred to another plan (for example, in the case of a plan termination). Also complete columns (b) and (c). Participants should not be reported under Code D merely because they return to the service of the plan sponsor. These people haven't been reported previously so why use a D now?

My only question for the lawyers that so far I have not see addressed is this: Is making a deferral election in any way a contract to have money taken from a check or some other way ? As a general rule minors can't sign contracts. So if a deferral election in any way forms a contractual relationship I would think a parent needs to be involved.

We have always understood this part of the instructions to mean you don't report the person with your fact set: When Not To Report a Participant A participant who has not been previously reported is not required to be reported on Form 8955-SSA if, before the date the Form 8955-SSA is required to be filed (including any extension of time for filing), the participant: 1. Is paid some or all of the deferred vested retirement benefit (see the Caution), 2. Returns to service covered by the plan and/or accrues additional retirement benefits under the plan, or 3. Forfeits all the deferred vested retirement benefit. If they have been paid before the form is due they aren't reported.

I agree with ldr here. I don't mind a certain bluntness in answers, I am also very thick skinned so my blunt could be another person's rude. However, I try do make sure initial answers are not rude. It is for the reason I think people should be encouraged to answer. Even if you give a wrong answer you ought to be encourage to give an answer. You should learn from the other answers if you are wrong but that is really the only way to learn here. I know for a fact you can search my answers over the years where I have gone back and edited my answer to say something to the effect: I have edited my answer to nothing as I have been shown to be wrong in my first answer. Sorry for the confusion I may have caused. That should be good enough and encouraged. That is how everyone learns. And in the case of this forum the number of truly dumb questions is very small. So all questions ought to be encourage to be asked.

I don't work on any plans so small that filing a 5500 is optional. However, back when I did I was always in the same school of thought as Larry. The Form 5500 with modern software just isn't that hard to complete and the simple ones for small plans is low in terms of labor. In return your client gets the statute of limitations started. It was an easy recommendation in my mind to make.

We use Millennium Trust for most of our ESOP clients if they need to do a force out to an IRA. It seems to work well. I know they do a yearly search for the person as part of the package of holding the assets in an IRA. The one downside in my mind is the fees. I am thinking it is around $50/year. Pretty common price I find. But on a $1,000 balance that take the first 5% or the ROR. I don't think there is anyone a lot cheaper but just giving you my full opinion. On smaller balances the IRA will be gone after a few years. They are in Oakbrook, IL as suburb of Chicago if that matters.

Personal insight from me for what it is worth. I would see if the powers to be at your firm are wiling to start to work on a basic QDRO policy you can offer to your clients. You can use this to see an area where it would have been nice to have had a written procedure for the client in place before the fact. I will be the first to admit not all the ESOP clients I work with have a good QDRO policy. As you say at times it takes all you have to keep up with the normal day to day flow of things.

The ERISA attorneys I know personally tell me all the time it is often cheaper to call before then after and a fix is needed. Over the decades experience has taught me they aren't being self-serving here.

My guess is the lawyers who know more about QDROs will leave comments at some point but here is my take. What do we know at this point? You have a participant who is terminated. You don't have a DRO or a QDRO. There might be one coming but you don't know that for sure. What does the law and plan document say? You clearly have a distributable event for this guy that would entitle him to 100% of the funds in the account. Is there something in the plan document, QDRO procedure or law that says something different? I have seen plans with QDRO procedures that say if the plan get notified there might be a future DRO to put a hold on the account for 90 or 180 days. After that wait the hold is up and the plan goes on using normal procedures. Does the plan or procedure have any such rule? If so, follow that rule and part of the document/procedure. If not, on what basis are you not paying this person 100% of the money in his account? A well written document or QDRO procedure ought to guide you through this so let us know what if anything they say. There is a good chance it answers your question. But at some point the document says this guy is entitled to be paid 100% of the benefit in the plan for him unless someone can point to something that says otherwise. That is how I would look into this. As for your final question: No I don't think this guy can arbitrarily say just pay me 50% and wait for the ex-spouse to show up with a QDRO to pay the other 50%. He is entitled to 100% of the money since he is termed or something in the plan documents is saying you can put a hold until a QDRO is produced or some time limit is hit.

Point out if the plan terminates before they are fully vested by law everyone becomes 100% vested. Unless they sponsor on employees soon why don't just make the plan 100% vested from day 1?

It quotes the Book of Psalms from the Old Testament. Almost all of them were ancient Hebrew songs.

You really had me confused for a short while. In all my comparative religions class I don't recall reading that line in the Book of Mormon and the language was too modern. I had to Google it. It is from the play not the actual book. Never seen the play so that explains why I didn't recognize it. Now my mind is a little less twisted.

I am not sure how much I can help as audits aren't my area of specialty. But are you saying the IRS is taking the position the name change of the plan from ESOP and Profit Sharing Plan to just ESOP makes these two different plans?

A person doesn't get to decide if they are an IC or not. There are objective tests you follow and if the tests say they are an employee they are an employee. If you treat an employee as an IC there are serious legal issues. You need competent legal help on this question. What I just wrote is a very short summary of what they trained us to know back when I worked for the IRS. We were taught to look for employees who were treated as IC and if we found them problems for the employer followed.