ESOP Guy

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?

Not 100% sure how much this matters with someone working this infrequent but every time I have quit a job I get certain notices. Everything like a COBRA notice to a notice saying here is how you can take a distribution from the company's 401(k) plan. Assuming the person is covered by one of those types of benefits and the company is or isn't sending such paperwork to this person would that strengthen or weaken one of the arguments for or against saying they retired?

You might want to check both the plan termination amendment (if one exists since no one was told about the sale) and plan document. Some of my documents say a person fully paid forfeits on that day. I have seen a few that don't say when they forfeit. I have seen a few that say they forfeit on the valuation date. But I do have lots of documents that actually say what day the person forfeits when fully paid. If it says forfeit on date of payment I think your fine. If it says forfeit on the valuation date I would say this person got a windfall. If it doesn't say when well I lean towards Bird's answer but you can see how the issue could be raised. This is one of these issues where a well drafted document can help a lot. I love when it says they forfeit as of the day they were fully paid. It gives you a nice bright line to look at in this situation.

Yeah, it is looking like I didn't pick up on that fact. It is just I have seen the error of saying all union employees are excluded a few times to some people's regret.

You need to be very careful. First, not the plan does NOT exclude union employees. Read the document again carefully. It excludes union employees who have bargained in good faith regarding benefits. Until they have done that bargaining it isn't clear to me they are excluded. I am not an expert on this but it is very easy for a company to violate the rules regarding unions and union breaking. They need to talk to a lawyer who knows both sets of law. I will let others comment on some of the other issues as it has been a while since I last worked on 401(k) plans.

Just curious do you normally ask for birth certificates in this situation? In all the decades I have been doing this I haven't worked for a firm where that would be the a part of the normal procedure if a person died without a beneficiary form and the plan said the children were next in line. If the employer and everyone else was saying to us this guy said I had two children named S and D and S and D were saying this is all the children we would move on.

Here is a related discussion with outside links that happened in 2018. There are discussions of to what degree an employer is obligated to accommodate religious beliefs under the law. There was a lot of disagreement you will see. But it might help you start the research and decision process I hope: https://benefitslink.com/boards/index.php?/topic/62193-refusal-to-participate-in-dc-plan-maybe-religous-reasons/

I agree the facts are what they are. I merely pointed out the idea of a person might have multiple retirement dates as a possible side consequence of saying this person terms every year. Since I wasn't sure what the goal of the employer was I just thought I would point it out. If one was trying to do planning such side issues rightfully ought to be part of the planning process. If you are dealing with the facts it is less important.

If the work is real I don't see a problem with this person being called active and no RMD needed. If they want to get a payment to this person amend the plan to allow in-service payments after a given age. I would add treating this person as having terminated- ie retired- every year in a DC plan could cause unexpected results. I have this happen every few years. An employee who meets the NRA definition terminates and is treated as a retiree. The plan has an exception to the last day and 1,000 hour rule for retirees. So they get a contribution allocation in that year. The person comes back and works a little bit during some future year and terminates again. It is clear this person just retired again and didn't have to work on the last day or 1,000 hours to get a contribution. So they get another contribution via the exception. So if you treat this person as termed every year to make an RMD and they have a last day and 1,000 exception do you have to give them a contribution every year? In my mind in order to be consistent it would be a "yes". I don't work on DB plans so not sure what would happen there and you put this under general retirement plan category.

See Q7. It is very clear the 1st dollars from the plan in the year they are 70.5 or older are the RMD. https://www.law.cornell.edu/cfr/text/26/1.402(c)-2 There is no debating it once you read those regs.

Until you have to do the takeover work!

Back when I did balance forward 4k plans and now doing all ESOPs we would show the count with the receivables in people's balances. To BG's example we would show the rec'ble in the assets on the Sch I or H also. I get daily plans tend to think differently. I think consistency might be more important. I haven't seen an IRS agent get too caught up in this level of details.

I have to look up the PTE but if you Google 80-26 loans you can find the rules to see if it fits or not. Not that this helps but add this to the long line of threads on here about why you don't put illiquid investments into plans.

i agree with jpod most likely the 1099 isn't valid. It could be you need to know more about it. If the S corp rented a building off of the owner a 1099-misc is correct but not plan comp. Ask more questions about what the 1099-misc is all about would seem like the correct first step.

The EFAST filters aren't very smart. You can attach a pdf saying there is no report at this time and will amend when you have the opinion. Their filters will see there is a pdf and assume it is the report. They will catch on after time and you run the risk of having the filing declared late with the related fines. But many TPAs do this if there is no opinion on tome.