ESOP Guy

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.

I found an example of what I am talking about in one of my client's documents.

Double check your definition of compensation in the plan document. Most of mine are pretty clear on this point. It says something to the effect you exclude compensation if in an excluded class or group. If it is silent on this point it is going to get more difficult so I would start there.

The answer is all depends. One needs to know a number of facts. Did your last participant certificate say your account was in shares still or cash? Some ESOPs do what is called segregation to their terminated employees. Segregation is when the accounts shares are sold and your balance is put into a cash investment. If that happened you don't have any shares in the plan. If that didn't happen you do have shares. So go back and find your most recent certificate and see if it says your account balance is in shares or cash. I will say if your account was still invested in company shares at the time of the sale all shares have to be treated the same. It is just having a balance in an ESOP doesn't mean you always have shares in an ESOP If you can't find your most recent certificate from the plan you might want to make inquires to find out if the plan puts the account balances of terminated employees into cash investments shortly after people terminate or not.

Although as I think about it there is a possibility there is an IRS audit that happened around the time of the plan termination. If an IRS audit is happening they can be very long. You might want to see if it is an actual IRS audit or an IRS determination letter filing they are talking about. If they come back and say it is an actual IRS audit you might as well sit back and relax. There is no getting the IRS to move quickly on an audit.

They might have used the term IRS audit but what they most likely did was file with the IRS for what is known as a determination letter. The IRS will review the plan and give a letter saying they believe there are no issues with the plan at termination. It protects both the plan sponsor and you from the IRS raising issues on the plan and any payments you get years after the fact. Getting this letter is a good thing and standard practice. So most likely that part is basically true. The IRS is running VERY slow on the determination letter process and it is taking a long time to get those letter. I will admit 21 months is on the long end of things but not unheard of too happen. I am working on a few ESOPs that have been trying to terminate and get fully paid and we are in year 2. I am working on getting another one where the company was sold in April 2018 and it is just now we got the IRS letter and we are gong to pay in a few months. So the range of time can be long gap. I would try and go back and see if they can give you any better information. They are most likely not wanting to give you a date as they really don't know when the IRS will produce the letter. When you say you got the first half was it really 50% or more like 70-80%. If it was closer to 50% see if they are willing to pay another 10-20% but realize that will increase the plans expenses which will decrease the total amount you get. If you got closer to 70-80% you might want to wait longer. The money is in a trust so it ought to be safe and there when the time comes for you to get paid. I understand the frustration but it can be a slow process.

This is NOT my area of knowledge but I really thought the successor plan rules ONLY applied to 401(k) plans. Yes, all 4k plans are PSP plans but not all PSP plans are 4k plans. The law regarding this is found in IRC 401(k)(10)(A) . I am thinking (but happy to be told I am wrong) that applies only to a PSP that has 401(k) provisions.

I can't decide if I made too obscure pop culture reference or not but Marty McFly is the main character in the Back to the Future movies. If by chance you haven't seen them you need to binge watch all 3.

Well if creative is what you wanted here you go! Just find Marty McFly and take her back in time so she can terminate her plan before she turns 70.5. She puts all the money in an IRA and she is free to do what she wants! Too creative maybe??

I stand with the others. There needs to be some kind of correction to fix the fact there needs to be an RMD for 2019. As others pointed out the regulations are very clear on this the 1st dollars from the plan in the year a person 70.5 terminate is the RMD payment. Read Q7 of these regulations. https://www.law.cornell.edu/cfr/text/26/1.402(c)-2 Everyone I know agrees these rules require the 1st dollars leaving the plan are the RMD in the year a person terminates and is over 70.5. It doesn't matter that at the time of the payment the person was working Once the person terminates and it happens in a year a payment has already happened the first dollars paid change to the RMD and the person needs to fix the fact they are in their IRA. So money needs to come out of the IRA to account for the fact they are RMD dollars that can't be rolled into an IRA that are now in the IRA.

I strongly disagree with this view. I see no way to reconcile this with the IRS rules and regulations. In fact the math/logic doesn't work. Since the IRA RMDs that need to be taken by 12/31/2019 are based on the balances in the IRA on 12/31/2018. This money wasn't in the IRAs on 12/31/2018 so this money wouldn't have an RMD amount taken for it. So there would be no RMD taken on the money from the 4k plan in 2019 if the IRA RMDs are done correctly and you don't take the RMD from the 4k plan. Not trying to be harsh here but don't see how this can be done.