ESOP Guy

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.

ESOPs are odd in they are the one retirement plan that can borrow money to buy investments- in this case the company stock. So in an ESOP it is possible to have the following showing on the balance sheet, 5500 Sch H....etc Assets of $5,000,000 (and to keep it simple assume the only assets is the company stock). Liabilities of $6,000,000 and it is the acquisition loan on the stock and you stock price has gone down since the loan was taken out. This is very common. So you obviously have a ($1,000,000) net asset amount. If you come out of the 401(k) world the first time you see a negative net asset number on a 5500 you really do stop and take a double take. Now let's say you have only allocated $100,000 of that stock and the rest is in suspense. This is another unique feature of ESOPs. In a 401(k) plan it is almost unheard of having assets in the plan that aren't in someone's account. A large suspense account where most of the assets aren't in anyone's account can easily happen. So in this case if you add up all the participant accounts and they would equal $100,000. The other $4,900,000 in stock in not in anyone's account and the $6,000,000 isn't reflected in anyone's account. Like I said if you come from the 4k world this looks very odd. I used to do 4k plans and the idea there would be such a huge gap between the sum of the participant accounts and the net assets of the plan is unheard of. The stock could be worth more than the loan and still most of the assets aren't in the participant's accounts. So for TH do you use: The 100,000 as your denominator? The $5,000,000 in total stock value? But most of it isn't in anyone's account. or the ($1,000,000) which make getting to the 60% an interesting math problem. And once again most of it isn't in anyone's account. You almost have to use the $100,000 number as you can see. That number is what is allocated so do the Keys control 60% of that number. The reason the question gets asked there is an ESOP test where you have to do a hypothetical allocation of all the stock in suspense and do the test. Sorry, if that was more answer than you wanted.

You ignore the suspense account. TH is asking in this case do the Key EEs control 60% of the allocated assets in the plan. You ignore the ESOP loan also. So you aren't using net assets on your trust accounting as the denominator but allocated balances.

If there is a 1099-R, by the summer following the April filing date. That assumes the 1040 was filed and no extension. It takes them just months, not years, to compare 1040s to the W-2s and 1099s they get for people. It is one of the few computer systems the IRS that does its job mostly well.

That long term part-time worker rule just sounds like another pain in the rear rule. I guess software can be programmed to help you spot those people. But I am just willing to bet if it passes there will be in the future a bunch of threads asking how do you do the correction because we didn't give some part-timer the right to defer a couple of years ago.......

I think you have left out some important facts. What is causing your concern? Was the loan over the limits? Were the hardships not legit?

Truth hurts at times.

I think Duckthing hits it correctly. There are rules regarding terminations knowing the person is going to be rehired to just get a distribution. Look up the term "bona fide termination" and retirement plans. http://www.employeebenefitsupdate.com/benefits-law-update/2015/2/12/when-a-termination-is-not-a-termination.html If this person comes "back to work" shortly after they are terminated this blows up. I also agree a sole proprietor can't fire them self in my mind.

I am not sure I have seen a self-directed brokerage account that allowed options. They might exist but I haven't seen one.

While it might be legal I have never seen a plan that allows it. Plans aren't required to allow all legal investment choices. If this plan does, great but I wouldn't hold my breath.

Is there no way to pay the AP with lost earnings or adjustment that works in the context of a DB plan? You called it a pension so I am assuming DB plan and I am a DC guy. Because if there is a way to do that why worry about responsibility? If there is no plan or plan assets I get the concern but otherwise I see whose responsible as the wrong question.

I think you need their CPA or someone like that rule what if any was his wages and then you can decide what the plan says. I used to do income taxes and if he had constructive receipt of the pay it is taxable to him in my mind if he gave it back. I am happy to be told I am wrong on this point as it has been many years but that is my reaction. I am serious the client needs to have one of their tax people produce W-2 if any. The plan's TPA shouldn't be guessing or giving advice in this case. It simply isn't the plan's job to decide if he had compensation or not. It is the plan sponsor's job to decide that and the plan decides what that means under its terms.