ESOP Guy

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.

I have worked mostly with larger plans in my decades in this field. Most of my clients are in the 500+ and have had plenty of 2,000+ clients. Many of them actually set up the plan to be a benefit. They cared a lot about their employees and their retirement. To the point were some (not sure if it is most or not) were rather paternalistic about the whole thing. They didn't allow their people to take loans or put other restrictions on the things that allowed leakage from the plans. As you move to the ESOP world that is even more true as many ESOPs are set up by small business owners who have decided they wanted the employees to own the company vs selling to Private Equity fund or large corporation. Having said that I have had my share of companies that simply offer a 401(k) plan because that is what it takes to compete for employees. My guess is if they could unload the the job of helping their employees to prepare for retirement onto the state they would. In fact one can't help but wonder if this wouldn't be an unexpected consequence of this if it became viable. Would the taxpayers just be subsidizing the least caring and responsible employers? As an aside I also seriously question if the government is really more competent that the market to do this job well and efficiently. After all Sanders see the fact you have 23 choices of deodorant as an impediment to helping the poor. I guess I see it as the market trying to innovate to get me what I want at the price I want. I am not sure I want people who think wanting choices in my retirement is an impediment to helping the poor running things so I need to take their one size fits all answer. I would say history isn't on their side when it comes to providing benefits to the masses.

Wow there is a lot in there! I can only talk as general rules as so many facts are left out and with all retirement law there are exceptions to just about any statement. And in ESOP rules those exceptions seem to be more than many other areas. As a general rule the TPA sounds correct. If they paid the loan off early all the shares will have been allocated. They are released as the loan is paid. You now have the classic have/have not problem in this ESOP. I know it doesn't help now but someone should have been talking to the company before now. This was very predictable and could have been avoided. Yes, the most common way to get shares to the new people is to wait until someone terminates and recycle those shares. There are OTHER ways to get shares to the new employees besides new shares. You can do what is known as reshuffling IF YOUR PLAN DOCUMENT ALLOWS FOR IT. In reshuflling you adjust everyone's balances so everyone has the same ratio of cash and share every year. For example if the ESOP assets are 90% company stock and 10% cash everyone's balance would be 90% stock and 10% cash. This isn't popular with the people who currently own all the stock if the price is going up. You are forcing them to sell stock for cash in their account. However, it will mean everyone has some stock in their account if that is important to management. Adding new shares to the plan is possible but there can be issues. If the ESOP owns 100% of the stock adding shares outstanding is going to put downward pressure on the share price for example. Is the TPA that does the work one that specializes in ESOPs or is it mostly a 4k shop that does a few ESOPs? At the risk of sounding like a snob but ESOPs need the focus of a specialized firm. It sounds like the current TPA is getting the allocations right but it doesn't sound like they are in a place that can help the client plan and look forward. Also, there is so much more to ESOPs than allocations and firms that don't specialize in ESOPs often times miss those rules. If you want to private message me I can put you into contact with people in our business development group as our firm specializes in ESOPs. I am not putting a hard press here as this board is one that frowns on selling your services on it. I would also recommend people in this situation look to organizations like the NCEO. https://www.nceo.org/ I would recommend they join and look to their publications and articles on the topic of "mature ESOPs" which will talk about how to solve the have/have not problem. Also, if the timing isn't such you have to have solutions by 12/31/2018 I would strongly recommend some of the people involved go to the NCEO spring conference in Pittsburgh. It is one of the best conferences for ESOPs in the country. There will be multiple breakout sessions where they can learn more about these issues. If people don't have time to go to conferences for most of the year the NCEO has one hour webinars that are very good also. They are around lunch time in most time zones. It is a still morning on the west coast. They are free to members. (Maybe I should ask for a commission from the NCEO if people becoming members after this. ?) You can also look to the ESOP Association for resources. https://www.esopassociation.org/about-the-association The great thing about the ESOP Assoc is they have chapters around the country that put on smaller conferences all though the year. Since the chapter conferences are across the country they don't require as much travel. The chapter conferences tend to be very high quality. The one I am on the Executive Committee for gets great reviews for our breakout sessions. So find the chapter in your area and start to reach out to them and go to their conferences. Hope that helps.

I have always understood the answer to be the RMD has to be paid this year if the beneficiary is being paid this year. I believe if you read very carefully the plan document it will get you to that point as the document simply repeats the law on this subject.

A bit of an odd question as I don't see anything in this conversation that is really unique to ESOPs. I have experienced what you are talking about however. We have had ESOPs that terminated and were under audit. The audit put the D Letter process on hold. In fact in one case that happened just a few years ago it took around 2 years to get the ESOP closed. It took that long to get the audit resolved and than get the D Letter. Kind of a pain as the company was sold was the reason the ESOP ended. People were not happy it took so long but there really was nothing that could be done. The audit did find issues and correction has to be made. So it was good the trust was still around. Although if you are looking for ESOP TPAs I believe this webpage has a professional list and so do organizations like the NCEO.

Here is a link to a discussion of if a person worked the last day or not. I offer this because to me the question is really is this person terminated in 2018 or not or put another way are they an employee on the last day or did they term before that date. This discussion gets into the idea when does a person terminate. I hope it helps but it might not. Since I am a DC person and this is a DB plan I am willing to be told there is something about DB plans that changes this. But I think the answer is the employer needs to decide is this person an employee currently or not

I am with Kevin. I have always been a firm believer in "when in doubt D". I have never had an issue with them coming back saying there were never an A or had been D before. So I guess you problem might be scope of problem if you do everyone going back what could be decades. But just doing a D for anyone in doubt shouldn't be a problem in terms of the system.

Been there done that and know your pain.

To get back to the primary point of the question you are entitled to a clear explanation of what distribution options are allowed so you can plan what is best of you within those parameters. I would keep asking questions until you get good answers. If need be start going up the org chart. Like I said before the SPD has to describe a claims procedure if you want to get real formal about it. They will either have to grant you your claim or give specific reason for a denial. You can make a claim for a partial withdrawal and see what happens. You just have to follow the procedures on how to make the written request. Outside of time this doesn't cost you much to do.

Depends If in fact they did make a mistake in the past they are not required to keep making that mistake. It is also possible the plan was changed to no longer allow these kinds of payments but that should have generated a notice so that seems unlikely. The fact the Summary Plan Description (SPD) is silent doesn't bode well for you. In plans the basic rule is the right to take money out has to be described. So most of the time silence means you can't do it. If you took it all out and put it in an IRA you would have this kind of control If you really wish to push the idea you should go to the part of the SPD that spells out how you make a claim. That should spell out how to make a written claim. The plan would be obligated to either make the payment or make a written explanation why they are denying the payment. These procedures are most often found towards the end of the SP.D.

I don't see a coverage test issue either. Way back when I was taught that as long as a person received any benefit they benefit for coverage. So you could give $1in match to everyone but the owner who gets $1 for $1 match and pass coverage. You would fail nondiscrimination but not coverage. I am trying to think if this has to pass anything besides ACP? As a general rule ACP is the discrimination test for match.