ESOP Guy

The reason for this is becasue of this: (ii)Employee stock ownership plans to which the special exclusion applies. An employee stock ownership plan meets the requirements of this paragraph (f)(3)(ii) for a limitation year if no more than one-third of the employer contributions for the limitation year that are deductible under section 404(a)(9) are allocated to highly compensated employees (within the meaning of section 414(q)). If you look at 401(a)(9) it excludes S Corp ESOPs (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.

You are confusing the C Corp rules with the S Corp rules. A C Corp can ignore interest payments an S Corp can NOT ignore interest.

I have an ESOP that has a provisions that allow several things: 1) Once a person reaches Normal Retirement Age and terminates (ie retire) they can start receiving distributions. 2) However, if they return after such work they can still keep receiving distributions 3) As long as they work <1,000 hours they can not receive a contribution for the year. The plan says you can only get the waiver of conditions for retirement once. You don't have to give retirees a waiver. They did this because they have a few position that are highly skilled but they only employ one person in that position as they aren't a very large company. So when this person goes on vacation they bring the retiree back for those week(s). The retiree would only agree to earn a week or two's worth of wages if he can keep getting his annual ESOP installment. So it has been a win/win for all so far. So far no one has challenged this as an objective classification.

I had an ESOP paid the final benefits in April of 2018. So the final 2018 5500 is due 11/30/2018. We obviously don't have the 2018 forms. Something in the back of my mind says you can use the 2017 forms. I guess I can extend and by early 2019 we will have the forms but since the company was purchased no one wants to hang around to sign the forms almost a year from now. I just can't seem to find it in the 5500 instructions saying we can use the 2017 forms in this case. Is my memory faulty or does someone know where it is written saying we can use a 2017 form? Thanks

I agree with Larry on this one. DL are cheap insurance in my mind.

The remaining money will go to your brother's beneficiary. Hopefully, he completed a beneficiary form. If he didn't the plan has rules to determine who is the beneficiary.

I would advice you get a little help from a professional who can help you with the limits. I would recommend someone beyond a mere investment advisor/salesman. As ETA says you can't put any more 401(k) deferrals into any plan you start. However, there are other types of contributions you can put into these kinds of plan. There are a number of limits and they can interact with each other. It can be expensive if you go over a limit. The short answer is "yes" there is room for more to be put into some type of plan.

This might help.

To stress something Larry said I would have the plan adopt an objective test of when to do interim work or not. The last thing you want to have the plan to be is in a position where in down years you don't do one and a former own gets paid but in up years you are always doing one to the former owner's benefit.

The answer to your concern is to do the interim valuation. Yes, if one isn't done then any earnings/loss is forced on the remaining people. That is true every year in a balance forward plan with pooled investments. It is just in most years the amounts aren't material. I would be very hesitant to allow an ex-owner to put material losses on the rank and file participants. That is why people keep telling you to do (or recommend to your client) an interim valuation.

I guess I am at a loss for how the others in the plan suffer any kind of loss once an interim valuation is done. Are there assets in the plan that are illiquid that could cost a lot to sell or have to be sold at fire sale prices? (I see Begarath is asking the same question as I write this)

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.