ESOP Guy

Also, there are companies that offer 1 or 2 day ERISA basic classes that would cover controlled groups.

And at risk of beating the dead horse this is just another reason to always start your thinking with the 415 limit is what it is and then next ask yourself are any of the deferrals at catch up. That catches what Kevin is warning about vs thinking the 415 limit for a 50+ year old is the 415 limit plus catch up limit.

I always find instant water too dry.

C. B. Zeller has the main point. Stop thinking of the 415 limit as something that changes. I see this kind of questions all the time when people say the 415 limit is $55,000 for under 50 year olds and $61,000 for over 50 year olds. They seem to get confused what this person can do in terms of a maximum. No, the 415 limit is $55,000 and catch up doesn't count for that limit. It sounds like I am saying the same thing but as your question and C,B's his answer show they aren't saying the same thing conceptually. I think you will have less trouble in the future if you keep in mind the 415 limit is what it is and you then ask if I am over it are some of the deferrals catch up money.

The whole transaction matters. . If you were correct my taxable income would be higher if I took out a 4k loan vs if I didn't but it isn't. (Except for the interest). Here is an extreme example but it proves my point. No 4k loan: On pay date 1 I earn gross income of $10,000. To keep it simple I put 100% into may 4k. So my taxable income is $0. On Pay date 2 I earn gross income of $10,000 once again I put 100% of it into my 4k. So my taxable income is still $0. One day after Pay date 2 I take a full distribution from my 4k account. My taxable income is now $20k. With a loan On pay date 1 I earn gross income of $10,000. I put 100% in my 4k plan. My taxable income is $0. One day after pay date 1 I take a $10,000 loan (ignore limits they don't matter for taxable issues). My taxable income is still $0. On pay date 2 I earn $10,000 and pay back the 4k loan. So my taxable income is $10,000. One day after pay date 2 I take a full 4k distribution of my $10,000 balance. That increases my taxable income by $10,000 to a total of $20,000. The exact same result as situation 1. The only thing missing is interest. That would be the part that would be taxed twice. The math just showed you were wrong. The flaw in your logic is you think the payments to the plan increase your income only if the loan exists. It doesn't it increases it if you loan or don't have a loan. Your logic is flawed and if you bother to do any set of numbers you like you will see you never pay taxes twice on the principal on a 4k loan.

I would say most of my clients the sponsor pays the locator fee not the plan. I have never seen the plan pay the fee and it is part of the general fees. I think my current firm has a few clients have the plan pay and it is charged against the account. I want to say it is disclosed in several places most notable the distribution forms regarding what happens if you postpone your distributions. These fees just aren't that big so I just see too many people get too worked up about them. The most expensive firm we use has a sliding scale that charges for a few people is around $20/person. I think for lots of people it can drop to <$10/person. It is for more than a search. They will do a search using multiple sources. They send a confirmation letter. They check the government's database of SSNs reported of people who are deceased. They send you regular reports on people found. They send a summary report describing all their methods and efforts so you can build a case you have done your due diligence to find the person so you can justify whatever the plan document says you do to lost participant accounts. As noted Millennium Trust this is part of their service if you send the balance to them to set up as an IRA. They do a regular search for the IRA owner.

Yeah, maybe I over assumed but I assumed you meant dividend in the second part of the question and not contribution. While dividends can pay a loan it isn't a contribution for testing purposes. This is the way to get lots of money into an ESOP. You pay dividends. It can come back to bite you. For example the largest shareholders get most of the dividends it can cause 409(p) testing issues in a S Corp ESOP if they are using that cash to buy more and more shares. So while Shot is correct in saying that is how you meet the cash requirements make sure the plan isn't being set up for other problems. Large dividend payments can cause have/have not issues also. That is the problem where the new employees have little to no stock because the long term employees are getting most of the allocations that favor dividends allocated on shares vs contributions that use comp for the allocation. I guess what I am saying dividends solve a number of testing problems like all of life there is good and bad with any idea. I guess as long as we are getting in the weeds don't forget if you use allocated dividends the FMV of the shares released have to equal the dollar value of the dividends allocated to the person. There has to be a provision in the plan describing this requirement as it is a legal requirement. And if you really want to get into the legal weeds S Corps don't legally speaking pay dividends. They pay S Corp earnings distributions (I think that is the legal term). And there are some rule differences. For example you can't pass through S Corp "dividends" like C Corp dividends. In fact I know some lawyers that would object to using S Corp dividends for loan payments as some of those rules seem to be in the part of the IRC that applies only to C Corp dividends. They are a minority.

The first question is easy and it is a "yes" and the document will tell you how to allocate it. It is most likely comp over comp but it doesn't have to be allocated that way. So check the document for the how to allocate. There can even be a difference between the allocated and unallocated share "dividend" in the document. I have even seen some pretty odd allocations where you allocate shares equal to the dividend dollar value on comp over comp and any share value in excess of the dividend dollar value as an earnings allocation. That is just a pain. I know everyone I know likes it deposited in the year it is for. I don't know if there is a good reason or it is just cleaner. I am not sure I am confident enough to give an answer off the top of my head as it has been many years since I have seen a dividend declared in year x and paid a few days into x+1 used for a loan payment.

You have left a lot out of your question. Since you got an attorney maybe you are sure when it is due. I ask because all I do is work with ESOP companies and ESOPs work at their own pace and it is much slower than 401(k) plans. They can require you to wait years to start payments. They have to have the stock appraised each year which can take months. It isn't uncommon for ESOP payments to for a 12/31 plan year end to happen in late summer to early winter following the 12/31 the stock price is paid on. I am serious most of what I do in Nov-Dec time frame is help ESOPs make payments. For this last Nov-Dec we were paying people their 12/31/2017 balance. Yes, however if you are sure the payment is late I would communicate with them and see when they are going to pay. The awkward thing is if it is a 12/31 plan year plan they are supposed to now pay based on the 12/31/2018 stock price now that we are in 2019. That means wait until the new appraisal is done. However, if they aren't ever getting that done timely you would get stuck not getting paid which can't happen either. Do you have a copy of the Summary Plan Description (SPD)? If so, it should give some description of when you are to be paid. It also towards the end gives a description on how to make a formal written claim which they are required to give a formal written response to your claim in return. You don't really need a lawyer to start that process. You just need to follow the procedures carefully as outlined in the SPD.

Oddly, my thought were like Tom's. Not sure if that is a good thing or bad thing. But my first thoughts were Rick is dead need to put Daryl picture as an avatar. But I didn't give in to that temptation. But now that Tom started the silliness and answered the question......?

Well this explains the slowness regarding the termination. No way anyone would agree to terminate and close the plan when it was under audit. That mystery is now explained. You will just have to wait to see what the DOL does.

Also, if people are getting a benefit in the ESOP and the plans are TH the SH plan's protection is blown but that was true before the split I guess. But a any benefit outside of the SH plan and all the plans are TH means you have to provide TH minimums. That is my understanding. I don't have very many TH ESOPs as I deal with larger plans most of the time.

I can think of some possible fact patterns that would account for a rule like that being in an SPD. But without having knowledge of the facts I would be just guessing. It is safe to say however the shares inside the ESOP don't count for 5% ownership.

It sounds like in this plan there can't be a 5% owner for RMD purposes. That isn't uncommon with ESOPs where the ESOP owns 100% of the shares of a company.

The other people are correct that isn't a universal rule. There a plenty of ESOPs with outside owners who are participants.

The stock in the ESOP account does NOT count for ownership purposes for most rules including the RMD rules. Legally speaking the trust owns the stock not you. You are a beneficiary of the trust. So that stock does NOT count to determine if you are a 5% owner or not for the RMD rules. That was the long answer. The short answer is: no, as long as you don't own any stock outside of the ESOP.

Our firm is like Bird's we simply put on the RMD form. If we don't get a form it is 10%. It is easy to get right.

Duckthing nailed this one by the way. There is no such thing as an employee paid using 1099s. if they were employees they are required to use a W-2 to report their wages. If they were independent contractors they are required to use a 1099 to report the income. If they were employees the service can count. If they weren't it can't count. My guess the "original sin" is they were employees not treated as employees but that is just a guess.

You may be reading the original question incorrectly as I think no one would agree if they took a 100% in-service and after that point terminated their services not having an RMD taken if fine if they are 70.5 in that year. The timeline is as follows as I read the question. Plan terminates on 12/31/2018. But the assets aren't paid from the plan until 2019. The people in question are 70.5 by at least some time in 2018. The plan pays 100% of the assets to the participants in 2019. The people terminate in 2019 but after all the assets are paid. Must an RMD amount be taken from the IRAs in that case based on their 12/31/2018 balance in the 401(k) plan? I don't see how the answer isn't "yes".

So is your thinking that because the plan doesn't exist when the termination happens there are no RMD requirement for the year?

I have sent letters and gotten the penalty waived. However, most of my experience pre-dates the DFVC program. The key was to make the case it was unintended and it really is the first and only time it will happen.

Just curious what does "UNIK" stand for?

I think the answer to the first questions is no as long as they are employed at the time of payment. I think the answer to the second question is "yes". I don't have a cite for you.

If you know someone who does ESOP stock appraisals you might want to hit them up for a favor to see what they think. Since most ESOPs are not publicly traded this comes up in just about all stock appraisals. I have seen some as large as 35% but I have seen plenty smaller. I know not very insightful was that last sentence. I am not sure what goes into the determination by the appraisal firms.

Is it possible to use their title instead of the person's name? I have seen that and it would set it up so you don't have to amend the plan when person leaves the company and is replaced. Maybe the thinking is that won't happen very often so the amendment won't be done very often. Just a thought to make things a little easier down the road.