ESOP Guy

The search services I mentioned does have a level of service that does send a letter to them to confirm it is good by letting them know they are being looked for by a plan. If an address is found we often times suggest the our client reach out to them to get them paid as it is rarely an employee who is lost. They will have the best ability to detect if something is amiss as they have background data on the person. However, at some point once you think you found someone you get them forms to sign. If a person signs for someone they aren't they did the crime. I get a fiduciary has some responsibility but I have never seen this blow back on a client who has used a reasonable process. The fiduciary obligation don't require them to be mind readers after all.

I really like PBI locator services. The thing I like about them is they will give you a letter regarding what they did to find this person. So if someone like the DOL asks about due diligence you produce this letter.

As Rigby said in my mind. All the rules talk about is vesting. Anyone terminated and made 100% vested via these rules would still have to follow the normal rules for when they get paid.

Common: no Allowed: yes Nightmare: I think so Thoughts: make sure you price this one correctly and understand which limits and comp... you use Recommendations: Talk to the client and find out why they set it up this way. I once had a client that had done this because back in the '70s when it was all set up their payroll system really couldn't get comp and hours for any period than what the W-2s were done. But now they have a system that could do it and the longer we talked about it they sync the two up. Have fund.

I agree

If it was a merger they are in TH testing like any other type of plan being merged into another plan. Also, don't forget a merger will mean protected benefits. These assets are in a type of pension plan and for these payments a person has to be offered J&S annuities of various types as a form of payment. They can opt for a lump sum, and most people will do so, but this is the big hassle of these plans if it is a merger. These assets still have just about all the restrictions on them as if they are in an MPP still. Do your homework.

I got an email from a client concerned about how much data is public on EFAST2. They have had this plan since the inception of EFAST why now I don't know. The CEO is saying he was reading on all the instructions that he saw something that said you could request some or all of your data to not be made public. I couldn't find anything in the instruction or on the website talking about this. I thought I would throw it out here before I go back and say, "can you show me what you are reading" if anyone has heard of this? I mean if you could do this every company would try and it would be more common knowledge around a firm like I work at which has hundreds of employees. Have we missed the boat on this somehow? Any help would be appreciated. Thanks

Yup The estate will have to get an EIN and file a tax return on its income most likely also. An estate is the worst possible beneficiary.

The one time this happened to me the firm I worked for agreed to pay for the person to get the needed help from someone who knows how to do this. To be clear I was the person who made the mistake. I know no one likes to pay for this kind of error but it really does seem like someone owes her this level of curtesy/professional responsibility. I think it is the new recordkeeper's fault. They should have a process to ask for a W8Ben if one is not on file 100% of the time. Although oddly if there was no W8Ben my understanding the withholding was supposed to be 30% not 20%. I would look into the current recordkeeper as it really does seem like they don't know the rules about this. https://www.irs.gov/instructions/iw8ben#:~:text=Provide Form W-8BEN to the withholding agent or payer,withholding rate under section 3406. I quote: Provide Form W-8BEN to the withholding agent or payer before income is paid or credited to you. Failure to provide a Form W-8BEN when requested may lead to withholding at the foreign-person withholding rate of 30% or the backup withholding rate under section 3406. end of quote That was the issue when I made the mistake. I thought the person had refused to complete the W8ben and they had sent one in the prior year. I missed that fact. So I set them up for the 30% instead of the 15% and it wasn't caught in review. And no I don't think itis income connected with a US Trade or Business. This person ought to be getting a 1042S from the recordkeeper so in my mind they ought to be helping here. If you go to the pdf version https://www.irs.gov/pub/irs-pdf/i1042s.pdf Appendix A there is a code 15 for pension payments. If you go to the codes instructions on page 24 it gives the link to the appendix A. I think the online version takes you to Appendix A also. Hope that helps.

The times I have seen this the legal guardian can set up an IRA for the minor.

I was in undergrad when that movie came out. A friend of mine got a student job in the computer operations room. He had access to the system that was more than maybe you should give to a student. All the workers came to work one morning and the first message they got on their work terminal was: Do you want to play a game? How about Thermal Nuclear War?

Another voice questioning how all participant's have an interest in the real estate if this is really a pooled plan. If it is a pooled plan the participants are beneficiaries in the trust and they have an interest in that on each asset. I have seen this kind of transaction done before also, but a good lawyer is simply a must.

I agree as presented the math doesn't seem to work.

This! You aren't paid enough to make this call in my opinion.

I believe Inspira has a program where plans can distribute amounts into an account that is taxable. I THINK my firm has done this now and then.

They maybe running it that way but they really can't be the same. But if the plan isn't issuing 1099-R under its name it isn't a huge deal. Sure the bank accounts should be under the trust's EIN but I have seen a lot of plans that never get an EIN. If there are 1099s for the plan's earnings being sent to the company and they aren't reporting it you would think that would be an issue but it sounds like it isn't. Your way is the better process but I have seen what you are seeing.

There used to be an article on BenefitsLink about Who Is The Employer. It seemed like I could easily find it when I needed it. I am not finding it. Is it still out there? If so, does anyone have the link? Thanks

This discussion assumes what is being distributed is cash. The moment you start distributing something other than cash, in an ESOP it can be company stock for example, the rules for determining withholding are different. But any form of in-kind property changes things. But I won't bore with details are most likely not needed.

You don't understand what Inspira does. They set up IRAs for all those people. They need a 1099-R with a G code.

This is very important. If you do NOT use the same EIN for the deposits and the 945/1099-Rs letters will be sent by the IRS. The IRS reconciles all of this. I have seen people have to waste a lot of hours trying to get the IRS to understand what happened. This was before Covid when you could still call them and get a phone picked up pretty quickly. I would hate to see what it would take now a days.

Or worse if as the original post noted some have terminated their 415 limit is $0 there is an allocation for them. I have had to have this conversation with a client before. It is most likely a bad idea to fund such an old allocation years later.

I can't imagine the IRS is ever going to get this far into the weeds but since you asked.... I think there is an IRA balance as of 12/31/2024. In tax law there is this rule known as "Constructive Receipt". it says when a person/entity has receipt of the money they own it. Simple example: If the plan wrote the check on 12/31/2024 mailed the check on that day the 1099-R would be a 2014 1099-R and the person would have to report the income. That is because being in the mail is constructive receipt of the check for the person. I think in this case the IRA has constructive receipt of the money even if it isn't invested anyplace. There is a check made payable to the IRA so it is an asset of the IRA. I used to be an IRS agent and if I ran into this and though the money was worth debating over that would be my argument to say an RMD was due for 2025 from the IRA. Do what you want with that.

I think zero taxes withheld is correct. You withhold the lessor of 20% of the distribution or cash distributed when there is a mix of cash and in kind assets.

You can't cross test but you can do an Average Benefits Test still. You can also do a General Test based upon allocation rates you just can't convert to benefits. In all seriousness if you are having 409p issues and having to invoke the parts of the plan document that call for adjustments the issues are serious enough the client ought to be willing to pay to have an ERISA attorney who is very knowable of ESOPs involved. I work for a firm that specializes in ESOPs and we are full of people, myself included, who have worked on ESOPs for decades. We would be recommending to the client to get the attorney in the loop.

I have a large client in MO. When this happens their ERISA attorney was comfortable to paying the heirs of the estate and by pass the estate. I am not a lawyer but it is my understanding is the small estate rules are designed to by pass having to file an estate return and other paperwork that can eat up all the value of a small estate. I would have the plan inquire with their lawyer to decide if the plan pay the people.