ESOP Guy

I don't think we would count a person paid on the last day as being a participant on the last day. I see how you can make the case for it but I don't think we would do it. So "no" I don't think I have ever seen a case where the beginning count is lower than the prior ending count outside of an error. The harder situations are the plans that say everyone enters on 1/1 if they meet the entry requirement any time during the year. I have a plan that if you meet the requirement on 12/31/2018 your date of entry into the plan is 1/1/2018. Once again you don't get too worked up about this if you are well above or below the line for a plan audit. You spend way more time on it if the person who met the entry requirement on 12/31/2018 is the person who puts you over the line and you now need to get an audit. Does that person get counted as being a participant as of 1/1 or not for audit requirements? What I have seen is that person doesn't count for this purposes but if you have a count over the limit on the 5500 and don't attach an auditor's report you will risk the letter asking why.

We add the 1/1 entry people. On the other hand once you get past the audit requirement I have not seen anyone care. As you say if it goes from 30 to 32 I have not seen an issue during an audit. I am more likely to see 500 to 502 but same thing. The number I see IRS auditors zero in on is the number of terms not 100% vested and vested with balances. They are looking for a partial termination and want to see the 8955-SSA match the other number. I don't think you can make the link they do on that 2nd set of numbers but I have seen them make a huge issue of it.

Our firm also sends them in batches. The few times we have had a client get called on the extension we send the cover letter with that client's name listed and proof of mailing and the IRS backs down every time. Although since you do have time to re-send I don't see any harm in a re-send.

It has been about 10 years since I last worked this kind of very small 401(k) plan with these assets but I think we always knew. We didn't just take the client's word about the assets and values. We asked for bank statements. We had a client once that had a diamond ring as an "investment" in the plan. We were able to detect its purchase by seeing cash leave the bank statement. We asked the client to get appraisals for the ring every year. To not know a TPA would have to just be getting some kind of vague already prepared financial statements from the client. I have never worked for a TPA that would use just that.

To me you had it in your original comment. It says comp paid while not a participant. Your description of the facts says it was paid while a participant. It doesn't say earned but paid.

Doesn't help with the current problem but sounds like they aren't equipped to have 401(k) loans so amend it out of the plan going forward sounds like a good idea also. That might not be a realistic thing for you to recommend but sounds like the right thing to do.

You might want to ask your ESOP TPA if they can do electronic beneficiary forms. We have the ability to allow your ESOP clients to get internet access to ESOP data to our clients and that includes electronic beneficiary forms.

Technically, a KSOP is one plan so one form is all that is needed. It is common for the way they are run they look like two plans but they are just one happy little plan.

It is important here to have distribute the shares to the participants first then do the buy back. While it is legal to have the share to be bought back directly from the plan to fund the payments it is way more difficult to do it legally. You have to make sure the purchase has to be at FMV. You can't use the prior year end price if it is months old or you risk a Prohibited Transaction problem. If you are going to have the shares bought directly from the plan to the sponsor please get a lawyer to help you. As I said in my previous comment a good TPA can guide you though this.

The short term solutions are: 1) Pay a dividend/S Corp distribution which can be added to the ESOP and isn't an annual addition to the plan so you can put as much cash into the plan as you need. The down side to this is dividends are allocated to the people who have the stock. So the people with the most stock will get the most dividends. This to create in the long run a have/have not issue where those who have stock keep having most of the stock and new people having not as much. If this is an S Corp make sure this doesn't create a 409(p) testing issue. 2) Distribute the shares from the plan as part of the payments and have the company buy the shares. It can be set up the sale of the stock to the company is mandatory. Talk to your lawyers to make sure your plan document and other documents are set up to do this before you start distributing shares. This will tend to make the problem of your stock price going up worse as there are less shares outstanding while your enterprise value is mostly unchanged. Long run you need to work with your TPA, trustees and lawyers to releverage your plan. ' You start by doing #2 above. You then have the company sell the shares to the ESOP on a long term note taken back by the company. The goal is to move a good amount of your shares into suspense. If the shares are in suspense they don't have to be repurchased. This slows down the churn. Currently, your problem is you are giving such rich benefits everyone has huge balances when they terminate This helps slow down the growth of those balances. I think you will be stunned what doing this for 2 or 3 years in a row will do to reduce what your repurchase obligation will be over the next 15-20 years will be. A good repurchase obligations study ought to help you determine the right amount to releverage. If you stock price is really high there might not be much you can do but do some of all of the above and you will still have a rich benefit. That happens in some ESOPs whose stock price has done very well. A good ESOP TPA ought to be able to guide you through all of this. I also recommend you start attending conferences put on by your local ESOP Association conference or listening to NCEO webinars and going to their conferences. There breakout sessions on a regular basis on how to handle this issue. Not trying to be mean but it sounds like you could use more information/education and you can find it on the cheap at these sources.

Yes, it is common for an ESOP to do what you are describing.

My daughter owns a property that has an HOA to mostly take care of the common grounds. It isn't in her mortgage payment but she did set up auto payment from her checking account. That is the closest thing I have ever seen to what you are talking about but my sample size is 1 person.

It will be interesting to see if any of the lawyers have an opinion on this. I have not studied the law on this so I am not sure I can cite anything. I guess how do you handle something that would most likely be rare but as to be thought about? I am thinking what if they want to make the spouse the beneficiary for one plan and someone besides the beneficiary for the other plan? Would the spouse being signing it to cover things? I guess I haven't found getting two forms that hard once you have moved to electronic formats for both of them. We have clients were we handle the 401(k) and ESOP. We just don't seem to struggle to get one but not the other. It is more often the struggle is to get even one. However, once we get one the person is willing to do both.

I once lived in a townhouse that was part of an HOA. If I remember the documents correctly they could foreclose to recover a fee. Having said that it is far from clear their claim is senior the secured lien holder's claim. I think that would be one of the risks of going full nuke on the owner. They property could be sold the bank gets paid and there isn't enough left to pay the HOA.

I would make a separate account for the Alt Payee funds. There is most likely different rules regarding how the money will be treated. The most notable would be when the funds can be paid out. Most likely the Alt Payee can take the funds at any time but if restricted it is linked to the former spouse's age/date of termination. There could be different tax treatment when paid depending on the age of the Alt Payee. The times I have had this situation we always put them in a separate account and keep them separate.

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.