ESOP Guy

You don't say what kind of business was the sponsor. Was it a corporation, LLC, sole proprietor? All plans have to have a sponsor, trustee and plan administrator. So does it have all of these? Just because the owner doesn't work doesn't mean he got rid of the corporation and there are threads on this board where people discuss if a sole proprietor really ever goes out of business as long as the person is alive. So, I think more information is needed to fully answer you question. Although at some point all plans have to be formally terminated has always been my understanding. You can read threads about the headaches having this person die and not leave anyone behind who is legally able to make decisions for the plan. So some thoughts about how to terminate the plan and get the assets out ought to happen now it sounds like.

I am asking not debating when I ask this. is this plan terminated? There is a resolution to terminate but in order for a plan to be fully terminated you have to have a resolution and all the assets have to be gone. My first reaction is you can't file a final 5500 because this plan still has assets in the form of a contribution receivable. You have to resolve this issue and then you can say the plan is terminated. Happy to be told otherwise but that is my first reaction.

You want to talk to an ERISA attorney that knows the VCP process well. I have seen a number of times where if you can show the intent was all along to exclude bonuses and show that was how it was communicated to the employees all the time the IRS will allow a retroactive amendment. i am not saying it is 100% and VCP filings aren't cheap so you need to look at the choices but I have seen the IRS sign off on it. I would see if you know an attorney that has gotten this done to review the facts.

Back when I did balance forward PSPs what we would have tried to get everyone to agree to would be the following if the amount wasn't very material. We would allocate it on our systems now using the correct basis that OUGHT to have been used in 2018. So that way it was allocated correctly and in people's accounts correctly if a distribution is paid in 2019. But we would show it as an adjustment (if real small maybe just net it with the 2019 earnings) on the 2019 statements. That way you don't go through the trouble and expense of new statements but it was done correctly. That is one of the nice things about balance forward work. You can still go back and figure out how it ought to have been allocated in 2018 still. But it need be not show it on statements until 2019. But I would set it up so if someone gets paid in 2019 they still get their share of the earnings. That way you can show anyone who questions the fix everyone was made whole correctly you just didn't go through the expense of new statements. I guess if you have already paid a bunch of distributions and this idea is going to cause large number of small checks people will have to decide if the small checks are worth it or not. I don't see how this error effects testing so I don't see why any of that would need to be redone. I would make allocating it in 2019 on the 2019 basis my 2nd choice always. With balance forward work you ought to be able to do the allocation on the 2018 basis but show it in 2019.

Yeah, I am thinking too much ESOPs. It has been over 9 years since I last worked on a 401(k) plan.

One other thing you might want to look at to see if the change in the vesting schedule applies to this guy is when the plan says a person who is 0% vested forfeits. I have a number of plan documents that say a 0% person is deemed to have received their full distribution of their vested balance on the date of their termination. The plan goes on to say anyone who receives a full distribution of their vested balance forfeits as of that day. Under those plan provisions you could make a case the person had no balance and wasn't a participant as of the day the amendment was adopted. I still think a well written amendment is better but you can look into when a person forfeits if needed.

This is where a well drafted amendment is needed. If the people doing the amendment were good they wrote it with language that said something to the effect: Anyone who works 1 hours on or after this date....(the amendment goes on to talk about that change). If it doesn't have any such limiting language my default answer is it applies to all participants. It sounds like this person is a participant so it applies to him. I would go back to the attorney that drafted the amendment and see if they can justify any other reading if the client doesn't like that answer.

Not a DB plan guy I admit. But you seem to not answer the question that I think is universal to all plans. At the time of the plan termination did the plan think she was due a benefit? If so, what was done with her benefit? If not, do you have any idea why not? It would seem like that ought to be the starting place.

They charge a per head charge on a declining rate for larger groups if you want their confirmed service. You can get a quote from them pretty easy.

At risk of beating the dead horse given that many people move and never change their cell phone number, we do find co-workers often times have their phone number. I have had good results with this company. https://www.pbinfo.com/ I will admit the best results we back in the day when the IRS would forward letters. They made that part of their service for you. But still in the past few years they have found some hard to find people and found people who were dead (which I think you can do on your own if you know how). The thing I like the most about them is if you ask for a letter from them they will send you one outlining the process of the search. That helps document you did your due diligence in case the DOL comes a knocking.

Maybe I am not understanding the question. But if a 401(k) plan has $200,000 in assets are they a liability to the participants also? The assets in retirement plans are going to be paid to the participant at some point. So are you asking if the repurchase liability ought to be shown on the 5500? No it shouldn't shown on the 5500 for the same reason you don't show a liability on the 5500 for a 401(k) plan knowing all the balances will be paid some day. Or are you just looking for Internal Revenue Code Section 409(h) which says a non-publicly traded ESOP the sponsor has to provide a market for the stock? https://www.law.cornell.edu/uscode/text/26/409 I quote: (h) Right to demand employer securities; put option (1) In generalA plan meets the requirements of this subsection if a participant who is entitled to a distribution from the plan— (A) has a right to demand that his benefits be distributed in the form of employer securities, and (B) if the employer securities are not readily tradable on an established market, has a right to require that the employer repurchase employer securities under a fair valuation formula. If I am not answering the question let me know and maybe clarify. This might help??? https://www.nceo.org/esop-repurchase-obligation-insights/c/overview-esop-repurchase-obligations

The missing link to IRS website. https://www.irs.gov/retirement-plans/pre-approved-plan-program-expanded-to-include-cash-balance-plans-and-esops

Not trying to point out the too obvious but the defaulted loan counts as a loan still so if the loan policy limits a person to one loan at a time they couldn't take another loan. Or at least that is my memory of the rules as it has been over 10 years since I last did a 4k loan.

You are leaving a lot of facts out of your description and question. However, if the amortization used to compute the 2017 release wasn't an accurate amortization than the wrong number of shares were released. That would be an operational failure. The plan document and loan pledge agreement are going to require you to use an accurate amortization every year. If the company involved doesn't have lots of turnover in their employees the way you report the fix to the participants is to compute what everyone's balance should have been at the end of 2017 vs what was reported to them. You make an adjustment to their 2018 balance for that difference as your first transaction to their accounts. The sticky people will be the people who were fully paid out. If that leaves you with people who were overpaid you have to correct for that. Obviously, if people were underpaid that is easier to fix.

See this IRS announcement.

Sorry if you have already done this but can't the people who sent the check tell you who it relates to? I am assuming this is a daily plan not a pooled plan. If it is a pooled plan that is a pretty different answer.

Here is an article from 2007 about it. https://benefitslink.com/articles/guests/participant_statements_erisa_law_group_200707.pdf It says: The value of each investment to which assets in the participant’s account have been allocated, Most people I know have taken this to mean even a pooled account has some kind of requirement. The question was always how much detail.

The reason there is widespread noncompliance is because there is so little guidance. So anyone's guess is good as another person's regarding what you need to do. Many years ago I worked for a place where I still did some 4k work. For some of the plans with a large brokerage account with lots of investments we were sending a quarter inch of paper to every participant as we were photocopying the 12/31 statement showing each stock, bond... investment the plan had. The firm I work for now we make a simple statement that tells what percentage is in various asset classes. As far as I can tell no one call tell me which is correct. So I think a number of people simply gave up on the whole thing. I have never seen anyone get called out on this issue.

I agree with this. I don't think I have seen a plan that has a provision that allows for a legit distribution to be just "cancelled" because the person changed their mind.

My understanding has always been "yes" and "yes". No rollover and you have to withhold taxes since it is the estate being paid. In fact depending on the size of the estate and state law it very well could mean they are supposed to have the estate apply for an EIN as that is what you are supposed to put on the 1099-R and the estate pays the income taxes. That can be a real problem/pain for small amounts.

I know there have been long threads in the past on this forum regarding this topic.

I don't recall ever seeing a definitive answer to this question.

It depends on how the money was moved to determine if a 1099-R is needed. If it was a trustee imitated transfer of the assets and the participant had no choice there doesn't need to be a 1099-R. This would be some kind of plan merger. I get in this case the trustee and participant are the same but how the paperwork matters. If this was done in a way there was no option to roll the money over to an IRA or take the money and pay taxes than there doesn't need to be a 1099-R. If they had the husband and wife complete a distribution form that gave them the option (even if it was never going to be taken) to roll the money to an IRA or take it and pay taxes there needed to be a 1099-R. This would be a distribution with a rollover to the new plan. The only way you can know for sure is if you see some of the paperwork that authorized the movement of the money. Was the payment some kind of plan merger (no 1099-R) or a distribution with a rollover (yes to the 1099-R) is the question you need answered.

This is going to get into the finer points of words is my guess. When a person does work for Division C are they employee of Division C or is there merely a cost transfer being made for that person? I think it is possible for a person to transfer from C to A or B on a day or even hour by hour basis but that is just an opinion. Does the plan say exclude pay while an Employee of Division C or merely paid by Division C? You might have to go back the client to work out exactly are they employees of Division C when working for it or is there merely a cost transfer on their books for their pay?

Doesn't 401(a)(11)(B)(iii) make the spouse the default beneficiary in a PSP? So, I don't see how the current spouse doesn't have a right to the benefit unless there is a QDRO issue.