ESOP Guy

If you have the information contact the plan administrator and ask them how your mother files a formal claim of benefits as the beneficiary. It will start a process where they will have to tell her they are going to pay you or why they are rejecting the claim. If either of you have a copy of the Summary Plan Description it would have this information. The other thing this does is put the plan on notice there is a spouse at the time of death. There are rules regarding when someone besides a spouse can be the beneficiary. If they think there is a spouse they are going to make sure those rules are followed.

I am not sure either of the answers given are addressing the heart of the question. I am not sure the question is asked well. (Back when I worked on 4k plans we never talked about a loan being cancelled vs defaulted/paid/distributed for example.) For the below I am assuming cancel means the person defaults on the loan as the payments have stopped and the person doesn't appear to be terminated. To me the answer hangs on the following issues and since I don't do loans any more I am not going to give an answer: 1) Can you really say 100% of the loan is coming from JUST the after-tax source vs pro rata across the sources? Back when I worked on 401(k)s it seemed like we always did pro rata but that could have been a system or firm decision as I don't recall this question being addressed. 2) If you can take 100% of the loan from the after-tax source when a loan default happens can you really say 100% of the loan is basis vs a mix of basis and earnings? Given my memories of the after-tax rules I don't think you can say basis comes out first but it has to be a mix of basis and earnings unless the after-tax money is very old after-tax money. If it is a mix of basis and earnings than there is a taxable amount. I guess I could be reading the original post wrong but to me those are the heart of the question and I don't see that being answered. I would add even if you could convince me only after-tax basis was involved in the loan default you would have to 1099-R the person it would simply show no taxable amount. But there would always be a 1099-R.

I don't think an S Corp can take both. As you say the paragraph (C) precludes the extra principal and interest deduction. I have seen C Corps take some huge deductions well over 25% while staying within 415 this way but not S Corps. (9) Certain contributions to employee stock ownership plans (A) Principal payments Notwithstanding the provisions of paragraphs (3) and (7), if contributions are paid into a trust which forms a part of an employee stock ownership plan (as described in section 4975(e)(7)), and such contributions are, on or before the time prescribed in paragraph (6), applied by the plan to the repayment of the principal of a loan incurred for the purpose of acquiring qualifying employer securities (as described in section 4975(e)(8)), such contributions shall be deductible under this paragraph for the taxable year determined under paragraph (6). The amount deductible under this paragraph shall not, however, exceed 25 percent of the compensation otherwise paid or accrued during the taxable year to the employees under such employee stock ownership plan. Any amount paid into such trust in any taxable year in excess of the amount deductible under this paragraph shall be deductible in the succeeding taxable years in order of time to the extent of the difference between the amount paid and deductible in each such succeeding year and the maximum amount deductible for such year under the preceding sentence. (B) Interest payment Notwithstanding the provisions of paragraphs (3) and (7), if contributions are made to an employee stock ownership plan (described in subparagraph (A)) and such contributions are applied by the plan to the repayment of interest on a loan incurred for the purpose of acquiring qualifying employer securities (as described in subparagraph (A)), such contributions shall be deductible for the taxable year with respect to which such contributions are made as determined under paragraph (6). (C) S corporations This paragraph shall not apply to an S corporation.

This points to why repurchase liability studies are so important and having a plan to pay the benefits. You go to an ESOP conference and there are multiple breakout sessions on this topic at EVERY conference. it doesn't matter if the conference is small or large this is one of the big topics. If you think about it an ESOP will most likely in a 15 to 20 year period require most of the outstanding stock to be purchased. I know that doesn't help them now but I thought it was worth mentioning. You don't really define very large. However, have them check the document to see if it has the rule that allows the payment to go as long as 10 years if all the conditions are correct. Currently, the break point is if the balance is over $1,105,000 you can add 1 year and than another year for every $220,000 over that up to 10 years. So if this person has say a $3M balance it could be more than 5 years. I would have to do the math when it hits 10 years with these break points. These amounts adj for the CPI each year. These rules are typically some place in the distribution section of the plan document. If the person isn't retiring for a few years they could put in an in-service provision for people this person's age group (I am thinking he is like 62 to 65 or older for this to work) and allow him to start taking payments now to help stretch things out. So if he is a few years from retirement and they allow him to take a few hundred grand out a year now it should help get the balance down when the installments start. Of course if they have a bunch of people in this age group and they all start taking payments it might be worse. They would have to look at the facts. I would add it isn't uncommon for a person with these kinds of balances to be a long term employee who has a fair amount of loyalty to the company. A conversation of the situation and setting something where he chooses to take something less than a full payment (might require some kind of amendment once again) has happened before. it isn't really in his best interest to cripple the company with his first few payments either. In the extreme there are stories of ESOP companies that have to sell themselves because they can't fund the repurchase obligation.

Yes, while the law seems to say you can do this as a practical matter I have never seen a company meet all the rules regarding adequate security.

I think wording of the amendment carefully helps a lot in this question. The vesting changes are more common. It helps a lot to right the amendment to say things like, "A Year of Service for vesting will be 750 hours worked in a 12 month period after 1/1/2019" for example. Same with the service write into the amendment when the new standard applied clearly. Off the top of my head I don't see any rehire issues but think of them. Had a client recently amend the plan to say anyone hired after X date was on a 2/20% vesting instead of the old cliff vesting. Had I been asked I would have told them to make it clear how you handle someone hired and terminated during the old time period and rehired after the new period. Constantly amazed people don't take a little more time and ask these kinds of question and spell them out. You don't get extra points for using the least number of words in an amendment.

I thought an PTE 80-26 loan was a loan to the plan the original question says it was a loan to the sponsor. Am I missing something here?

Not full of real clear guidence but we had this conversation last fall. Here is the thread for your reference. My guess is anyone who wants to give additional thoughts or idea should as this other thread doesn't give any clear answers. It might be the nature of the problem.

So are we to understand the jokes go like this: What is 2+2 equal? Actuary: What do you want it to equal. Attorney: If I am being paid I have some interesting things to say about those numbers. If I am not being paid it is 4.

A document can be signed and executed after the effective date. You can sign a Profit Sharing Plan or ESOP on 12/31/2017 to be effective 1/1/2017 for example. My understanding is you can't sign a 401(k) plan on 12/31/2017 and have been putting deferrals into the plan all year long. The document has to be signed before deferrals can be put into the plan. You also can't sign the document in 2018 going back to any time in 2017. So the exact timeline and type of contribution is important. If you want to give the exact dates the attorneys on this forum ought to be able to give you better answers than mine. I am pretty sure in my answers although.

I am the first to admit daily 4k has never been my specialty. I have however worked for TPAs that have daily 401(k) practices and what I can tell you is the tech to allow daily trades has existed since some time in the mid to late '90s regardless of size. Once the internet got to the point you could upload deposits quickly and easily the idea trades didn't happen within the next business day they had the funds seems unusual to me.

.What MIGHT be interesting here is they are only a controlled group for employer security reasons. Maybe everyone else sees that right away but just to be clear does that mean they aren't a controlled group for testing (like coverage testing) purposes? I fully admit controlled group rules aren't a strength of mine so I wouldn't mind learning a bit here.

Regarding the fair/unfair concept the problem is laws and regulations like objective rules. So you as a rule can't have things like two businesses that aren't "related" as the main test. (note even the QSLOB rules have more than that) In your example does the real estate business ever help people invest in real estate? If so, is it related to his RIA business? I think you find it would be hard to find a good definition of Controlled Group that keeps separate the business you like and not allow the types of abuses these rules were designed to stop from happening some of the time.

Do you mean 12 months not 12 hours by chance? It is my understanding the service spanning rules still apply even when a document says "continuous" service. And maybe the definition of "12 month service fail safe" means that. That is the term I am not sure what they mean. Is that term defined in the Base Document?

I am curious why do you think he is owned a benefit? Do you have some statement that is recently dated? He told you so? You not sure but want to check? I mean if he retired 32 years ago why don't you think he took his balance a long time ago? I guess if these are too personal questions I don't mean to offend but it would be unusual for someone to leave money in a plan that long of a time.

We take scans of QDROs all the time. They do need to have the various court markings and we like to see a cover letter by an attorney. Since they come to us via our clients they have at least talked to the employee whose account it going to be separated. If a participant were to send me a QDRO I would send it to the client to know they want it processed.

Now you seem to be mixing topics. Can you have allocation conditions that require 1,000 hours to get an allocation? Sure, as long as you can pass coverage testing. One question is asking are you a participant? The other question is asking do they share in an allocation?

Yeah you need to read your document again and very closely. I have seen a few documents that say something about part-time employees are excluded and they define the term part-time like you have written. But to over come the concerns ETA is bring up it clearly says if they ever work 1,000 hours in a 12 month period they enter the plan. The practical effect of this "class" exclusion is it is another way of saying you don't enter until you work 1,000 hours.

Is this an S Corp ESOP? I ask becasue we have a few clients around here that are C Corps and are fine staying that way. The have started PSPs and done the odd allocations of the ER stock. They only have stock in them. There is strictly speaking nothing in the rules that says a PSP can't have ER stock as its only assets. That is how they then do the more creative allocations. PSPs as you say don't have the limitations on testing an ESOP has. Most companies however don't do this as the value of the 100% owned S Corp ESOP benefits are too great. Although we have some ESOPs that pass the general test around here and have some pretty creative allocations. They mostly are looking at adding a service component to reward the long term employee-owners. Also, if this is a group of companies and the desire is to only allow some of the companies to be in the ESOP you could set up an ESOP and a PSP and give similar benefit levels and pass coverage with an Average Benefits Test for example. In these cases parts of the Controlled Group don't adopt the ESOP or PSP as needed. As long as you think you can pass the combined testing you are good with doing this.

The reason I didn't use my real name when I first started coming around years ago I feared my answers could be interpreted I was speaking for my firm which I am not authorized to do so. It has been clear that isn't an issue. So now it is just what it is.

I work for a company with plenty of people. We tend to come here and ask questions when: 1) We want confirmation we are right/wrong on tricky questions 2) The area is kind of gray or there is unlikely there is clear guidance 3) The facts are rare to get other insights 4) Insight to practical problems- it never hurts to hear what others are doing. There might be more but those come to mind. Besides there are some real characters on this board so you might just get a good laugh out of it also.

I am not trying to dodge the question but I would recommend they go talk to an ERISA attorney that knows ESOP law. I am constantly shocked based on how plain that language in plans/law is written how often an attorney comes back and says there doesn't need to be a vote. When and how much you disclose can also depend on the at what stage in the sale process the company is at. For example most of the time management is rightfully reluctant to tell about a sale if it is still in the negotiation or due diligence phase as the deal could still fall apart. It seems like there is no duty to tell the people at those stages. It really is a vote to accept a valid, binding offer or not is what the rules are about. As an aside and you might know this but it is always worth pointing out. Be careful making any kind of distributions to people if the sale price per share could be larger than the last appraised price which is often what people are paid at. There have been court cases over this issue where the people paid claimed had they known they could get more they would not have consented to the payment. All of these issues need the help of a good ERISA attorney who knows ESOP law. No one likes to pay attorneys but in this case it is cheap insurance in my mind.

I don't understand. You aren't very clear on type of plan and type of contributions. If this is a DC plan and the non-deductible contributions are Discretionary Employer Contributions then why would there be any refunds? If this is a DB plan I don't know enough to opine. But if a DC plan.... Wouldn't the correct result be simply to keep paying excise taxes until they can be deducted? I have to admit I am not sure how one allocates this money since there was no compensation. Or the theory this money ought to have been refunded as a type of excess Annual Addition? If so, why wasn't that done back shortly after the plan year ended? Maybe I am not understanding here but I don't see why there are refunds. I see plenty of problems and a big mess but refunds aren't part of it. Happy to be told I am wrong so ignore me if you think I am way off base.

I did misunderstand the question. I agree with you. You don't have to use the FMV of the share released if they are higher than the cash contributions for the loan payment as Annual Additions. In your example the $700k is the Annual Additions.

Or am I not understanding your question? What is the $700k vs the $800k? What is the $100k? I guess that might not be clear. I was thinking it was the difference between principal and total payment.