ESOP Guy

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.

I am not the biggest expert on pension plans but given what I know and am reading here is there someone higher up in the Pensions Department you can talk to? It sound like it possible there is a misunderstanding at the level you are currently speaking to. Also, you mention it is important you live in NJ. Do you work for a government body? That can make a big difference and can be an important fact for the experts around here to know. Public pensions have very different rules than a private pension plan as a general rule.

Don't take it as a slam on my part. I was just pointing out how to find it. Please don't be shy to ask questions here. That wasn't the point of my reply.

If we accrue it so it shows on the participant statement we put it in the RMD calculation. Anything besides that strikes me as overthinking the topic and doing more work than needed. Are you really going to back out the number from an allocated balance as of the valuation date the part that is the income accruals? Sounds like a major pain to me.

I agree with Bri. This looks like a classic example of the service spanning rules. https://www.asppa-net.org/news/2019/10/handling-rehired-employees/#:~:text=Elapsed Time Method%3A&text=Under the service spanning rule,or can use 365 days. I would add if you study the base document, assuming it is some kind of prototype, it will most likely have a discussion of the Service Spanning Rules and how to handle rehires. The guy who trained me in this business back in the early '90s wouldn't let you come into his office to ask a question unless the following two condition were true: 1) You had a copy of the plan document with you. 2)You could explain where you looked in the plan document you looked for the answer. He claimed, and is correct, 90%+ of all questions can be answered by reading the plan document. He was willing to spend all the time you needed with you showing you how to find the answer in the document if you met those two conditions. He threw you out of his office if you hadn't met one or both of those conditions. My guess the document really does answer this question.

As noted allowed and common.

I have seen the wrong tax period issue last year with a 2/28 client. We sent it in around the time everyone would have been sending the 12/31 extensions. That client hates waiting. At the time I assumed a person was just not paying attention. I think they need to go to an electronic filed/input forms.

I realize this is off topic from your question. But there is a lot going on here. If you haven't put a lot of thought on the beneficiary of the beneficiary question I would recommend going back to it. The late wife's beneficiary election in my mind is for her account as a participant and most likely says has language making it clear the election is for her account as a participant. I am amazed at how many plans that do say if a beneficiary can make a beneficiary election and I on a regular basis run across plans that clear say a beneficiary can't name a beneficiary for some odd reason. I don't get why you would put the restriction in a plan but I see it. So the kids might end up with the money as beneficiaries or via the estate but the full repercussions of which path can be different. I wouldn't assume figuring out who the beneficiary of a beneficiary is real easy to determine. Maybe you already chased this down if so ignore me.

Maybe but a shockingly large number of auditors I deal with will refuse to issue a report until the Sch H and their report agree. I can't tell you the number of times in my decades of doing this stuff I have had an auditor send me a pdf of the Sch H with the changes they want and it is things like round one type of income down by $1 and another type of income up by $1. I can't relate to them taking the time to actual mark up the Sch H and sending it to me.

If the auditor wants to put a reconciling item in their report let them and don't care. I can't recall that ever being an issue with the IRS or DOL when they come a knocking. In fact I wished more auditors would use that option instead of demanding I change the Sch H. Often times it is they want to reclassify something and not change the totals. Just agree to disagree and move on.

I am not an expert on UBIT but what I know is if there is leverage used in a plan you need to seek expert advice to see if UBIT will be due. If they have to pay a type of income tax on income inside the plan my guess is this idea will be less popular. I would add finding a CPA that knows how to file a UBIT return of a 401(a) plan is not easy. Because of that it isn't always cheap. One has to really watch out for any idea that makes it look like they are trying to run a taxable business in a qualified plan and if they get clever and try to use Roth dollars so they never pay taxes on the income ever gets the IRS' upset and they can be aggressive. Too many people try to get too clever. If it was real simple to never pay taxes on your business' income more people would be doing it.

I think you asking the wrong people. This forum is employee benefit professionals and I don't see an question that seems to relate to employee benefits and the divorce.

If the fact set is as you say there can be a fiduciary issue regarding timing taking people out of the stock is based on knowledge of a pending company sale. But if you knew that already why are you asking? However, at this point by your own admission you are speculating on a company sale. You are making assumptions about motives without any evidence. It is also very fact specific. Are you sure they haven't been segregating people every year but just haven't gotten to you? There is an order often times regarding who gets segregated first. I have plenty of ESOP that segregate the terminated people with the oldest termination date first and work their way towards the current year. They are years behind getting to the current year. If they can show that is the pattern for years and it was simply your turn to be segregated that alone could change the whole analysis. You need to know a lot about an ESOP before you can go off making the claims you are making.

You are most likely not going to like my answer. This is a very complex subject and I am hesitant to opine much on it. As a general rule they have the power to make all the changes you noted. I can't help but notice you are speculating on the takeover part of the fact set. So I am not going to go there.

The TPA I work for has different rates for positions that do the work and bill accordingly. We would most likely not bill for this kind of situation. It is penny wise pound foolish. As HarleyBabe notes they are upset already. A few hundred in revenue isn't worth making them madder. The cost to market a new client is pretty high. The cost of one lost client is higher than all the revenue you will collect billing for 10 or 15 people. I know very few management groups in the TPA world that would risk that.

My guess is if you get a letter you can explain it in a letter. I know I have explained the wrong EIN once years ago that way and the IRS was fine.