ESOP Guy

I don't think Lou needs a cite in this case. If someone wants to claim the terminated over 55 exception applies to this plan and not the original plan the burden is 100% on them to prove it. The plain reading of the rules gives no reason to think that exception "sticks" to the money.

Some other discussions on this kind of topic.

I think what you are describing is legal but wouldn't the document have to say the 2nd part of your fact pattern. To be specific that they enter the year following working 1,000 hours. I guess it could be hidden in the base document but it has to be there some place in order to do what you are suggesting might be the case.

I don't know how that can be legit. I would find the author of the restatement and ask them to explain how that can be done.

Yeah let me be clear when I said they could amend the plan I wasn't recommending that as the best option merely it was an option. I have plenty of clients that issue 2000-3000 W-2s that has 7/1 entry dates that use comp from 7/1 to 12/31. They do wash BG says here. They send me everyone's 1/1 to 12/31 comp and their 7/1 to 12/31 comp. We determine who entered on 7/1 and use vlookups in spreadsheets to get their 7/1 to 12/31 comp. But if the client finds all of that too much of a chore they can amend going forward.

The client choose that provision. If it is too much of a burden to get you the partial year data they can always amend the plan.

Before you decide to use this comp you might want to ask why he is getting a 1099MISC. It has been a long time since I worked with 1099MISC so I am happy to be told I am wrong but it can be issued for a lot of reasons. I believe if the company is paying him rent on building he owns he can get a 1099MISC. If it is something like that it seems like it would be much harder to say that is includeable comp regardless of the plan document because it isn't for services rendered.

I can't tell you how many times this is how I have done testing. I tested until we knew it passed no matter how the unknowns turn out.

Glad it turned out well.

Yes if you are talking in-service distributions I have seen a fair number that allow people who are over age 65 take a fixed amount (say $100k). It is a little more common in ESOPs than say PSP but I have seen it in PSPs.

Not only did almost all my non-ESOP plans only allowed a lump sum the few that allowed installments or annuity you could count on one hand how many people to something other than a lump sum. I am talking about a period of time of over 20 years. Yet, you would often times have to fill out some kind of disclosure that told them about the annuity options and so forth. A lot of work for so little value.

I fully admit I am not a QSLOB expert but I thought one of the requirements of a QSLOB is the separate business has to have 50 employees? That is what kills most small business QSLOB ideas. Code section is here: https://www.law.cornell.edu/cfr/text/26/1.414(r)-1

The plan can exclude the compensation. it just needs to pass all the various non-discrimination testing. It sounds like the primary test to look at is the 414(s) test but you are a bit thin on details. So you might have to do other tests. I have never seen a plan exclude some hours and include other hours. I am thinking that isn't allowed. If the plan can pass testing I guess they could exclude these employees. You seem to imply there are no HCEs which obviously would make passing testing easier.

As an aside if it is determined an estate is the beneficiary that starts a whole new set of issues. If this is a large amount of money than the estate will most likely have to get an EIN. You pay and 1099-R the estate. The estate has to pay the taxes on the income. It is my understanding the beneficiary(ies) of the estate can not roll the funds to an IRA. That alone is one of the biggest reasons to always complete a beneficiary form. So once you get past who gets paid your work might just be starting.

1. If you are a TPA it is your job to make recommendations to the Plan Administrator. You don't want the job or liability of making this determination. As far as I am concerned the issue of who is the new PA is the first order of business. Until that is settled this plan can't move forward on the issue of who is going to be paid this benefit. My guess is some of the lawyers that visit this site can give you better advice than I can on how to help your client move forward getting a new PA. It is their job to determine who is the beneficiary. It is your job to make recommendations to the PA to help them to do their job well.

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......?