ESOP Guy

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.

Even if it isn't a PT like shERPA says it is a clear fiduciary breach. The last time I heard anyone try this was in the '90s. Here is a link to an IRS website on fiduciary duties. https://www.irs.gov/retirement-plans/retirement-plan-fiduciary-responsibilities The first thing listed is: acting solely in the interest of the participants and their beneficiaries; They aren't acting "solely in the interest of the participants and their beneficiaries" if they are doing this to get the company a lower loan rate. I am actually shocked there is a bank still trying this. Any sponsor who does this and gets caught is in a world of hurt.

Just curious do you remember if the D's were submitted back when you filed on paper or electronic? I assume someone had to input the data when paper with all the issues manually inputting large amounts of data and numbers.

The simple fact is ERISA puts the burden on the plan to prove the person was paid not the other way around. It pays to send in those D codes on 8955-SSAs. My motto is: when in doubt D. For some clients I have gone back and gotten every old SSA and put anyone we came to be unsure if a D code was filed back in the days when it wasn't required. I have had a lot of luck simply writing a letter to someone telling them the plan shows they do not have a benefit any more. But if they push it the burden is on the plan. The plan sponsor ought to keep records that can prove they paid someone forever is the thinking of the lawyers who come around here and I am sure they will tell you that in reply to your question.

It is all allocated in the year contributed. This is all about the deduction and excise tax only.

The excess funds stay in the plan. They can deduct those excess amounts in future years which reduces the amount of the excise tax in future years. Example (kind of an extreme example in fact): Total payroll for deduction purposes is 1,000,000/year. So max deduction is $250,000/year (25% of the compensation for the limit) They deposited $600,000 in 2018 for 2018 Excess for 2018 is $350,000 (600,00 - 250,000) Excise tax is $35,000 In 2019 the excess is $100,000 which is the $350,000 excess - the $250,000 they can deduct in 2019. so the excise tax for 2019 is $10,000 As long as they don't deposit more than $150,000 in 2020 there would be no more excise taxes due. Hopefully, the excess amount isn't actually so large it creates a multi-year excise tax but it can do so if bad enough. I believe the IRS publication I linked to give these details also.

If you aren't familiar with the excise tax here is the instructions for the form used to file and pay the taxes. https://www.irs.gov/pub/irs-pdf/i5330.pdf

The correction is pay the excise tax and stop making contributions to the plan until the excess is worked off. The other thing they should obviously do is stop prepaying the contribution so close to their estimated maximum. Putting some in can be fine but large amounts of pre-paid contributions end this way too often. But if you are looking for a way to get the money out of the plan and not paying the excise tax it isn't going to happen. Sorry, I know it isn't the answer people want to hear but it is the correct answer.

I agree That is why I asked which kind of language the op has in that document. The answer here really could hang on a pretty subtle bit of wording regarding entry in a document.

That is interesting. Here would be an example of it by the way. This is from one of the plans I work on. An Eligible Employee shall become a Participant as of the first day of the month next following the date the Employee met the eligibility requirements of Section 3.1, We had a person who was hired 3/2/2017. It is a 1 year and 1,000 plan. They had the 1,000 hours met by 3/1/2018. In most plans it is clear you would enter on 3/1/2018 but this one it seems rather clear they enter on 4/1/2018. So, I really think the answer to the original question is in the document. I have seen the provision Kevin talks about entering once you hit 1,000 hours but I would never describe it has 1,000 hours and 1 YOS provision. But the guy who taught me this business stressed over and over 99% of all questions can be answered in the document.

I am assuming since you didn't bring up age this person is 18 or older the whole time. The requirement is 18 AND 1 YOS. Based on what you said this person had the 1 YOS on 12/31/2018. The only date you really could argue about with immediate DOE is 12/31/2018 vs 1/1/2019 in my mind. The intent was most likely 1/1/2019 but intent and document aren't always the same. That debate could be cleared up by looking at the definition of Date of Entry. Does it say you enter upon meeting the requirements "immediate on or next following" or "next following" DOE? Hope the document isn't sloppy on this point. But this person doesn't have 1 YOS on 7/10/2018 so that date is out.

Are you saying the ESOP loaned money to the plan sponsor? Are you saying the ESOP wasn't getting a formal appraisal of the share value? If yes to either there are problems but you seem to know that. If yes to the 2nd question how was the appraisal question on the 5500 answered?