ESOP Guy

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.

As written "maybe". I would want a lawyer to opine on that. We see versions of this problem in the ESOP world. Two different TPA/lawyers write the documents for the 4k and ESOP and they don't coordinate them well. Both of them will say 415 excesses are fixed in the other document so neither document needs to fix the 415 excess as written!?! We see the plans have different definitions of compensation and the client only wants to send one census file to both the 4k and ESOP TPA kind of problems. I would think it would be safest to amend one or both plans to make it clear which is responsible for the TH contribution but I don't know of any cite that says they both can't say they will but only one does it. Like I said I would get an attorney to fix the problem.

Yes has always been my understanding.

The one thing you don't say is if you think people's balances are actually wrong. I get bad reporting is annoying but if they forf people and reallocated them correctly for example what is the issue in your mind? Maybe the reporting is so bad you can't tell???? If the amounts are wrong I agree there is an issue but not sure what you expect the DOL to do. I guess my thoughts would depend on if you thought people's balances were wrong or just or poorly recorded. My guess is also this is a contract issue not retirement law. A recordkeeper presumably agreed to do a job correctly and failed to do so. That strikes me more as a breach of contract than an ERISA problem. Not the clearest answers.

I can't decide if I am not reading your reply correctly or if you aren't reading pmacduff and my answers correctly. If there is nothing in the plan document authorizing the RMD to the lady and no in-service provisions I don't see how you can keep sending payments. pmacduff's answer presumes there is a provision that allows anyone who is 70.5 can elect an RMD. But if no such provision exists I think you have to stop the payments. There is no plan provision allowing the payment and you would be operating the plan contrary to the plan document.

No, I don't know how to reconcile the IRS website and their own Rev Rule. I am just telling you what I do know.

I must disagree in part here. Read what the IRS website says here: https://www.irs.gov/retirement-plans/partial-termination-of-plan I quote under the heading "Applicable Period": Typically the period is one plan year, but can be longer if there are a series of related severances from employment. If there is a short plan year, the period includes the short plan year and the immediately preceding plan year. In the above example, the applicable period may include plan year 2012, since the form indicates that 22 were dropped. So if the early 2019 layoffs are part of a related series of severances I think you MUST include those people as part of the partial-termination. I believe the courts have upheld this position of the IRS' that you don't just look at plan years. You look at the layoffs in total. In fact as I have understood this if 13% were laid off in late 2018 and another 15% were laid off in early 2019 if you went by plan year you would say no year had 20% and the IRS would object. They could say they are a related series of severances and you have a partial termination in both years. Maybe someone else can give other cites but I think you should do more research. But if the terminations are basically caused by the same down turn in business I think there is an excellent chance you have a partial termination here. The amendment (which it sounds like they don't want to do) to make them 100% vested would be safe.

To me the flaw (problem) here is you are linking hours to the job classification seasonal. I think that is an illegal back door hours requirement. Or you are not describing how the document is really written. I doubt an attorney or a prototype would link the two. Either a person is or isn't seasonal. Either seasonal employees are included or excluded. I do seem to recall the IRS isn't too keen on the seasonal thing but I am not 100% not sure. The better way to write the plan is to exclude lifeguards as a class for example. But if a person is in an excluded class they never enter the plan. If they work >1,000 hours they will be a factor in things like coverage testing but they simply never enter the plan. I think you need to go back and re-read the plan. Are these people really an excluded group? If so, why do you think they would enter the plan if they are in an excluded classification? How is the excluded group defined? I really think all of your problems are back at that step. Once you solve if these people are in an excluded class or not it solves all your questions. It might add the problem the plan struggles to pass coverage but that is a future conversation. To some degree I am not sure you aren't mixing up the coverage rules that say when a person is a factor in the test and rules/plan provisions that say when a person enters the plan.

I agree if the plan says a person can choose to start an RMD if 70.5 and active they can't stop once they start. I was reading the question as meaning there was no provision under the plan that justifies an RMD given the facts.

1) Yes. If they are a 5% owner for Key Employee purposes they are a 5% owner for RMDs. 2) I don't have a specific cite but I would say "no". You don't have a distributable event. In fact it sounds like you have an operational error on the prior payments unless the plan allows for in-service distributions.

Prior threads https://benefitslink.com/boards/index.php?/topic/50562-illegal-alien-with-false-identification-in-profit-sharing-plan/

An illegal alien is entitled to their account balance unless your plan some how excluded them. I have never seen that provision and you would have had to factor the exclusion into the coverage test. The is the law. An illegal alien can get an ITIN for tax purposes. They don't tend to do so as they fear the IRS is going to tell other parts of the government about them. You can search on this board there have been other threads on this board regarding this topic. before. https://www.irs.gov/individuals/individual-taxpayer-identification-number

It has been a very long time since I did participant loan work but this was the catch back then. Many payroll systems it seems like the employer just tells the system how many payments of $x to take and unless someone shuts it off early in the case of prepayments being made too much is taken from someone's checks and goes into the 4k plan by mistake. I agree it is a pain but based on what you have shared I am not seeing the ability to say "no". Maybe someone more current on loans can give you ideas.

You might even want to check the note to see how pre-payments (if allowed) are handled. You would think it would simply shorten the amortization but there are about as many different ways to handle a pre-payment as there are people writing loan notes.

I agree with duckthing the primary problem isn't a retirement law issue but an employment law issue. It is next to impossible for a person to have be a 1099 contractor and W-2 employee. Once that issue is solved most of your issues are solved would be my guess as this person is most likely either all W-2 employee or all 1099 contractor. If by chance this person is a mix I like door #1 but can't cite anything to prove it is correct.