ESOP Guy

The plan doesn't HAVE to be revalued but it might be smart to do so. Here is one of many discussion on this board about the pro/con of this idea. The RMD must be paid. It is always the first dollars out of the account per regulations. As an aside this is NOT my area of expertise by a lot but I thought the rules for paying to a charity from a qualified plan are very different than an IRA and most of the benefits given to an IRA don't apply to a qualified plan. I could be wrong on this so if anyone wants to say I am wrong I fully accept your word on it.

Not my area of expertise either but some thoughts: 1) Like jpod I think you need to look beyond ERISA to the IRC. 2) You might want to look to state law or contract law. For example this holding the cash until they vests means the benefits could be subject to creditor claims if the organization declares bankruptcy. But such a thing could cause the plan to be terminated and everyone becomes 100% vested. How does this conflict get resolved?

This has come up a few times at the firm I work at. Typically it depends on the amount involved. Once it was around $80. The employer was more than happy to take that risk to get the benefit paid. Once it gets into the thousands they are talking to an attorney. I have seen a few do this in the $1k-$2k range. I don't recall anything larger even being asked about. So I guess the answer is the conversation starts with how much risk are you willing to take without much research or guidance from a lawyer. After that a lawyer gets involved and they assess the risks more and a decision has been made.

I think an "A" is the correct answer. I can't cite anything. My opinion is the people who wrote the instructions to that form didn't bother to ask anyone who actually works in this field to see if their instructions even come close to covering all the possible situations that could come up. But to me the point is to let the government know, so they can let the person know, they are due a benefit and an "A" does that.

When I read about things like that it makes me really wonder if there was ever really a golden age of pension coverage like people talk about. They go on about how people used to have pension and now they only have 401(k)s. As far as I can tell in heavily unionized industries and the government there were pensions (although we are starting to find out they were not being funded well) but not sure the rest really had a pension coverage as a practical matter. I mean you heard stories in the '80s of pension with 15 year cliff and a lot of terminations at year 14 for example. Did retail employees really have pensions? I have heard Sears and other large retails had them but my guess is most in the industry didn't or they never vested as a practical matter. Off soap box for now.

Like I said find out if the Trustee's reason is legit or not. As others have pointed out the trustee's reason are not legit. The plan has to pay.

You need to find out if the reason is a legit reason or not. But if the person needs to be paid per the plan document and the trustee simply refuses that is a plan disqualifying defect. They have failed to operate the plan according to the terms of the document. There might be other ramifications but that one ought to be enough of a reason to make the payment unless there is a valid reason to not do so.

If management has on the ball advisors the amendments that terminate the plan cover this. If they don't these discussion will start as soon as their TPA catches wind of the sale. It depends on if the shares are worth more than the loan that has them in suspense most of the time. Some of the shares will be used to payoff the loan by exchanging the shares for the note. If the shares are worth more than the loan most likely the excess will be allocated. The next question is how. Will it be treated like earnings and allocated on current value or like a contribution and allocated on current compensation? All these decisions will have to be made and announced sooner or later. If the loan is worth more than the shares in suspense most likely the shares will not be allocated. This is because 100% of the shares in suspense will be used to pay the loan.

There are a lot of areas in field where that is true and the answer really is because the law says otherwise. The risk simply isn't worth the upside to try and argue the results are the same. The fix seems so easy as others have pointed out.

A death of trustee could slow things but I agree with Luke knowing how long that was could make a difference in terms of how reasonable it is.

If you are talking about actives what happens if you wipe out their account and they start to defer later on? Their balance could go over $75 and you just took a benefit from them they would have had.

And the clear answer is "yes" the distribution used for a housing allowance can do double duty. The fact it is not taxable is irrelevant.

Actually, this is a complex set of rules but once the person becomes a "leased employee" the service can count. I stand by the link I gave as it starts with this: Once a temporary employee meets the criteria for becoming a leased employee (one year of service on a substantially full-time basis), must s/he be included in coverage testing for a subsequent year in which s/he works less than 1,000 hours (our Plan's definition of a Year of Service)? Section 414(n)(4) seems vague. I guess I could have been a little more clear that the person asking the original question needs to decide if this is a temp employee or leased employee. But what I was going for was the idea you include service for leased employees.

The only reference I see to a 30% rate in the instructions are here: In the absence of a tax treaty exemption, nonresident aliens, nonresident alien beneficiaries, and foreign estates generally are subject to a 30% federal withholding tax under section 1441 on the taxable portion of a periodic or nonperiodic pension or annuity payment that is from U.S. sources. However, most tax treaties provide that private pensions and annuities are exempt from withholding and tax. Since he is talking about a US citizen this person isn't any of those types of people. Did I miss something in your mind?

The 20% federal is correct. I almost never feel qualified to speak to state tax withholding issues.

https://ttlc.intuit.com/questions/4232259-how-do-i-enter-minister-s-housing-allowance-as-a-retired-minister-when-i-do-not-receive-a-w-2-form It is my understanding Rev Ruling 75-22 allows under the correct conditions the retirement plan payment to be a non-taxable housing allowance. See link above. I can't cite anything but I don't see why such a payment doesn't meet the RMD requirement. I have always understood an after-tax (not Roth) distribution can satisfy an RMD requirement. Or at least the part that typically is non-taxable since most after-tax distribution have a mix of both taxable and non-taxable.

This might help. https://benefitslink.com/cgi-bin/qa.cgi?db=qa_who_is_employer&n=20

I have been a Midwestern boy all my life and a grinder to me has always been served in "fast Italian" places. it is a meat (most common ordered is meatball or Italian sausage) on good Italian bread with a marinara sauce and cheese all baked together. The bread gets crusty and a little hard on the outside but is still soft on the inside. The best ones I got were in the Chicago area. I don't know if it is still there but there used to be this place in Hoffman Estates, IL called Garibaldi's. My wife would get the Italian beef or turkey sandwich and I got their meatball grinder. You would wash it down with their frozen Italian lemonade. That was a meal for a young couple on a budget back in the day!

Just exploring it here a little more if you don't mind. I agree merely holding real estate isn't a business but an investment. But the original question says they are going to flip the house. That means to me they are going to buy, pay to have upgrades/repairs done with the intent to sell for a profit. That sounds like a business to me. If I did that to one house as a year just as a person it ought to show up on a Sch C not on the Sch D. That is because I am taken an active role that is outside what you do for an investment.

I am not an expert but I thought any income subject to UBIT over $1,000 meant there was a tax due. Or are you saying that isn't a business with just one house?

The Prohibited Transaction (Pt) rules are the first set of rules that need to be looked at. If this is a PT in any way that will blow this up. I THINK there could be a way to set this up so it isn't a PT but this isn't my area of expertise so I could be wrong. Assuming this isn't a PT if they run a for profit business in a plan or use debt to purchase the property the 401(k) plan has to pay taxes on the profits. Oops I am betting they thought this was a clever way to avoid income taxes on their business didn't they????? Look up Unrelated Business Income Tax (UBIT) on a plan. I forget the name of debt financed but like the UBIT if they use debt they have to pay a type of income taxes on the income. Here is the thing. They have to pay UBIT on the profits and the after tax profits are ordinary income when they take a distribution. If they run this through a regular S Corp the income flows through to their 1040 and they pay taxes only once on the income. Even a C Corp if they pay the after tax income as a dividend that is at a lower rate than a 4k plan distribution. In short there is a good chance this is going to cost more in taxes than outside the 4k plan. My guess UBIT is the silver bullet you are looking for. If there are participants in the plan is this investment prudent in terms of fiduciary duties? What happens if the deal loses money and they have to put more money into the plan to cover the loss? What if that exceeds the various limits? If they have most of the money in the property and need to pay a RMD where does the cash come from? If one takes time you can think of other practical issues that make this a bad idea. But strictly speaking it might not be illegal just really stupid.

Isn't this a question only the employer can answer? Are they saying this person is terminated or not? I don't see how a TPA can answer this kind of question. There are signs that can point one way or another but I would not claim they are full proof in determining if the person is terminated or not. But as a general rule they have to give COBRA notices to terminated employees. Have they given such notices or not? I am not sure how unemployment works but are these people reported as terminated for those purposes? Once again these are all something the employer needs to tell you and it isn't determined by pension law.

Well the new 415 limits might influence which party will win!!!!

(1) Is it acceptable to treat her as a contractor vs employee is a facts and circumstances question. What I can tell you is the law determines if you are an employee or a contractor. Too many people think this is something you can agree to or decide by contract. That isn't true. There are tests to determine if you are an employee or not. You should recommend they get an attorney to review the situation. There can be a large number of bad consequences if this is gotten wrong. (2) Assuming she is a contractor she can have her own plan as that is her business. I don't do many husband/wife business controlled group plans any more but yes there are a number of traps waiting there.

Can you get or have more details? I have seen some pretty slow ESOP termination wind downs. Some of the time they are having issues getting a Determination Letter from the IRS. A Determination Letter from the IRS is their way to saying we have looked at the plan and it is qualified at the termination. I saw one drag on for years becasue the money market fund the trustee got the plan into had an embezzlement and that put a lot of things into legal limbo. The trustee was a well know bank and everyone got blindsided. You can make all kinds of arguments about how the trustee needs to make the plan whole but that still is going to be the result of lots of lawyers doing a lot of talking. As QDROphile said if the total dollars are very large getting the DOL or IRS to come down on the plan might simply be spending your own money because all the professional fees to defend the plan might get run through the residual assets. I would have to look again which of those costs the plan has to pay vs sponsor. Although at times even if it is the sponsor if the sponsor sold and the cash is being held at the corporate level until the proceeds go into the ESOP the fees are really the ESOP's money in an economic sense not legal sense. I would see if they are willing to give you more insight into the situation and decide if you think they are delaying for a reasonable reason even if you aren't happy about it.