ESOP Guy

Does this IRS guidance from 2009 help? I am NOT an expert on it but I remembered there was some old guidance and I got this from Google. You now know 100% of what I know but this might or might not point you in the right direction. http://www.retire.prudential.com/media/managed/PruPA-UnusedPTO.pdf https://www.irs.gov/pub/irs-drop/rr-09-31.pdf

You might want to do a search on this board on the term "real estate" to find the many discussions of all the problems having real estate has in a Qualified Plan. I know not answering your actual question but I will let one of the topic experts tackle that one.

I would also recommend you look at the Transamerica statements (or online) and see if you can see the deposits for the loan payments and/or 401(k) amounts. If they are clearly not there you have a pretty serious issue. I would recommend you speak to your employer and see if they can provide clear answers. If not, be aware the Department of Labor takes this issue very seriously. They don't move fast and the fines they issue could easily put a struggling company out of business which means turning them in to the DOL could cost you a job. A job were you aren't getting paid regularly might not be the best job in the world either. Feel free to ask follow up questions of the people who work in the industry here as you get more information.

In my mind too many people are confusing issues here. The first issue that needs to be addressed is this person an IC or an employee. Please note that determination is a legal one not one done by agreement. It doesn't matter what the guy thinks or the person paying him thinks. You don't agree to be an IC. You either are an employee or an IC under the law. You hear people say this all the time- I signed a contract saying I am an IC. This isn't an issue you can settle via contract. Likewise merely paying them and issuing a 1099 means nothing. If the person is an employee and you give them a 1099 all that mean is you have given them the wrong form and failed to withhold the legally required taxes. I can not stress this enough these two parties do NOT get to negotiate if this person is an employee or not. It is a legal question based on facts and law. So step one is determine if these person is in fact an employee or an IC. Step two is then decide if this person is in the plan or not. Yes, if the person is misclassified the Microsoft language might still keep them out. But that language was supposed to be about you really think the person is an IC and much later you find out that isn't true via a court or other legal ruling. It wasn't supposed to be a weapon to allow you to declare people IC incorrectly. You might say intent doesn't matter but as Larry points out misclassifying people has it own legal problems. So I would advise these people to go back to step one and get a legal ruling if this person is an employee or IC. If an employee then work on getting the plan amended to do what they want to do if the rules will allow it. If an IC than clearly the person can be kept out of the plan. At risk of beating a dead horse but in the OP this statement is legally incoherent. As of 7/1/18, should the former owner be considered an employee given that he is still doing mostly the same work as before even though he is being paid via 1099 and considered himself an independent contractor? There is no such thing as an employee who gets paid via a 1099 and what they consider themselves to be is irrelevant. And if a person is being given a 1099 properly then they aren't an employee. That question is at the heart of your problem. You are being given a set of mutual exclusive choices and are being asked to make them work together.

This covers your concern but it is always worth noting. https://benefitslink.com/src/irs/revproc2003-23.html

CuseFan in one sense I get your point but SSI disability isn't normal disability where you get it based on being disabled. SSI is a poverty program that is limited to people with limited income and assets. You either are or aren't in that group. You do have to draw a line otherwise you will be giving poverty benefits to people with the means to care for themselves. I don't have a problem helping those in need but I would like to limit it to those in need.

I agree I would look to medical expenses.

You are not fully grasping what GMK and QDROphile are saying. The document and form should say the Put back the company is immediate and MANDATORY. Since it is mandatory there is no signature. I mean what happens if they refuse to sign? The stock still goes back to the company. I would change the form to disclose that fact. It should say something to the effect, "by signing this form you consent to the distributions and acknowledge the shares will be immediately sold back to the plan sponsor via a required Put Option." Once again in this set of facts I don't think there needs to be any signature for the Put Option to happen- it is required and it will happen.

As others have been saying if we can document intent via operation and communications we can get the VCP filing approved to fix it.

Kevin is correct you need to read the document. Although I have had a surprising large number of plan documents that cause an infinite loop in this fact pattern. The document says the person gets a contribution. They get a forfeiture allocation same as a contribution. They get a deemed distribution upon termination or end of the year they terminate. So the newly given contribution and forfeiture allocation creates a need for a new forfeiture allocation as the funds in their account are forfeited. This person would share in any such forfeiture allocation. This gives them a new balance that is forfeited and needs reallocation which they share in....... infinite loop is here. I find we just have to cut this off at some point and say these types of people don't share in the forfeiture allocation. Then in the long run you amend the plan to say either: 1) Any one who forfeitures in the current year doesn't share in the current forfeiture allocation This allows the person to share in the current contribution which sets their balance in case they get rehired and need to be restored. However, it allows you to then forfeit them allocate the forfeitures and they have a zero balance. 2) Anyone who is eligible for a cont or forfeiture allocation in the current year doesn't forfeit until the year after they are elig for that allocation. Everyone else forfeits in the current year. This should stop an infinite loop. It just means some people forfeit one year later then their termination while so do forfeit in the year of their termination. There maybe other ways to break the infinite loop with the amendment. But in the year you find such a loop it is often times too late to amend the plan so you simply have to decide how to deal with it. I always favor giving the problem to the attorney who wrote the document (ESOPs are always attorney drafted) and didn't think of this problem while writing the document. They made the problem they can come up with the fix. They tend to ask me what I think and I say the above. They agree to the above.

I would suggest you search this board using words like "real estate" to get a good idea of all the practical problems this kind of investment can have. Real estate has lead to many threads on problems over the years on this board. So can it be legal? Sure Has it caused lots of headaches and problem also? Yup

Like I said I was commenting from memory. Maybe the firm I worked for made it harder then it needed as I don't think we ever used generic examples. That would have made it easier.

While Mike's date is correct don't forget the first dollars paid from the plan has to be the RMD.

It has been a long time since I had to prepare a DC plan's distribution forms with J&S provisions but I seem to recall the hassle was more then just one piece of paper. I seem to recall the forms had to be a lot longer. There had to be examples of how much the various annuity amounts were. Which meant we had to take the person's balance at the time and find a good annuity factor to get the monthly amount. That had to be merged on to the form. It seemed like we had to have all kinds of warnings about how those amounts were just estimates just in case the actual annuity bought was different- which seem certain. Maybe with better computers now then back then we would find an easy enough automated way but my memory was it was a pain to create complaint forms to send to people. I would add the few times someone actually asked fro annuity. Then you had to do a bunch of fiduciary work to make sure the insurance company picked was a good one. Not being a lawyer it was never clear to me how much liability the plan had if the company went bankrupt and the annuity became worthless. But that risk seem to hang in the air when talking about those purchases. I for one see nothing but hassle.

Not sure if it will help or hurt but here is the IRS' take on this issue. See question 7 https://www.irs.gov/retirement-plans/retirement-plans-faqs-regarding-loans#7 The one thing the IRS leaves off the end of their example is when they say the person can take $23,000 they leave the math implied that this person just spend $18,000 to pay the old loan off. So the next cash to the person was only $5,000.

We had the 29th vs 31st conversation recently. Here is the tread .

I agree if the size of the assets are large this is one of those times where spending some money on a lawyer who knows QDROs is worth it. A little up front can save you a lot of headache and heartache in the future.

So your employer won't take the deferrals out of your paycheck based on the reported tips plus wages? I ask because my daughter worked her way through nursing school as a waitress. It was in MO not CA where she worked. They either had to or did cash out tips nightly also. But I convinced her to get into the habit of saving for retirement and she agreed to put a few percentage points of pay into the resturant's 401(k) plan. There were times where she got a zero dollar pay check. It was caused by the fact when they got done taking out taxes and everything and applied her 401(k) deferrals to her wages plus tips there was no money left to pay her. In fact as far as we could tell if she had good weeks with tips she should have had a negative paycheck based on the math but obviously they cut off the deferrals at the point her check reached zero. I point this out to see if it is happening or as an idea to take to your employer to see if they can and/or will do it. At least then you are getting a deferral on some of your tips. As pointed out my guess is what they are doing is legal but hard to tell for sure based on the limited facts.

It has been a long time but if memory serves me correctly the TH cont would only apply to the compensation the person was a non-union employee during the year.

I am not sure about your question. But put in the positive way I know the following: A plan fails fail to file both the 5500 and 8955-SSA. If the plan files a DFVCP and pay the fee and follow the IRS instructions for filing the late 8955-SSA they will accept the DFVCP for the 5500. There will be no fine for the 8955-SSA. I have only done that once and we did both forms and followed the IRS' instructions and it was painless. I have never tried to DFVCP the 5500 and ignore a missed 8955-SSA. But given how painless it is add the 8955-SSA to this whole thing to make the IRS happy I would do so. I guess if an 8955-SSA is just not due I will have to prove that if the IRS asks why no such form with the DFVCP.

They don't check for accuracy unless the IRS audits the plan. Every IRS auditor now checks to see we are putting the right people on the 8955-SSA. I have had to read the 8955-SSA instructions to more then one IRS employee to prove we were putting the right people on the form in the correct. year.

Oh sorry I misread your first reply to me. I get it now.

Just curious how would you folks write a plan provision to let people enter after they work 1,000 hours and have no months requirement? That is in effect what this client is saying they have. How could you write that and be clearer?

I didn't think I said not run the plan according to the terms. I said read literally the client is correct. It says if you work 1,000 hours WITHIN the first 12 months. So if six months after someone is hired lets say they worked 1,000 hours. How is that not working 1,000 hours WITHIN the first 12 months? The odd part of that sentence is the word "within". By using that word I don't think the sentence requires me to work 12 months, just 1,000 WITHIN those 12 months. Those 1,000 hours are "in" those 12 months so the requirement has been met. I see that as the literal reading of that sentence. This is why most plans do define it as saying you work a Year of Service. They then define YOS as a 12 month period and you have to word 1,000 hours during that time. By the way I didn't say this is a good definition so yes it has its problems like do they have to be consecutive or what happens if you don't work 1,000 in the first set of 12 months. I do think an amendment would help clear things up.

I am with MIke here isn't the question backwards? As a general rule aren't plans allowed to have any allocation method that can follow the rules and pass the tests? If so, you don't have to find a rule/test that says it is allowed you have to find a rule that says it isn't allowed. If you can't find a rule that says it isn't allowed go for it. I think there are some interesting questions that might say it isn't allowed- is a CODA for example is interesting.