ESOP Guy

Your facts are a little confusing. It might be you aren't sure of all the facts. You say a QDRO was done in 2017. Was if brought before a judge and made official? Did the plan accept the QDRO as qualified? One of you might have to talk to the attorneys who helped do that QDRO. They might have records from the judge and plan. If the DRO was accepted by the plan as qualified and thus a QDRO and they failed to split the accounts the plan has an problem as they didn't do their job. If there was in fact a QDRO in 2007 then your ex-spouse doesn't need another QDRO to get her funds she needs the plan to do its job and split the account. It is their problem to get the needed data. If the 2007 DRO was never accepted as qualified then there are other issues. I would advice to the plan administrators and see if they have any records regarding if the DRO was determined to be qualified by the plan and thus a QDRO. If so, then find out why the account wasn't split. If not, see if they have any records why not. Also, if not then there is no need to modify anything as there was no previous QDRO to modify. There is a good chance you are going to need an attorney in my opinion.

I don't know if you are thinking of mostly south of the border or north of the border as source but there are plenty of credible stories of bad/fake pharmaceuticals from south of the border. Mexico doesn't have something like the FDA. Canada at least you can trust more in my mind in that regard. Does the plan have any liability if they send someone to Mexico to get a prescription on the cheap and it is fake or bad? Nothing above is an endorsement of the idea just an observation and question.

This reminds me of back in the '80s people who would market trips to Mexico in late December. It included a quick divorce on December 30th and remarriage on January 2nd. Back then if you had a high enough income each the saving by undoing the marriage penalty in the married filing joint status vs single could more then pay for the trip. There is now an IRS regulation about this and sham divorces for tax planning reason. I was working of the IRS back then and the cynics would always joke but what happens if one party doesn't agree to get remarried. It would be interesting how these people manage that risk. How does it stop the : Thanks for 100% of your million dollar 401(k) plan but I am not remarrying you and going to the tropics with my 25 year old lover says the Alt Payee!

If the buyer is buying the assets of the old company then the old company still exists. It will be a company with nothing but the proceeds from the sale. The person who owns old company needs to wind down the PSP before he fully liquidates the old company. So until old company is fully liquidated there is a sponsor.

I am not sure it is as clear cut as Mike says. Here are the regulations about non-discrimination in regards of amendment and there is a facts and circumstances rule. https://www.law.cornell.edu/cfr/text/26/1.401(a)(4)-5 I think there is a risk making a one year amendment that clearly benefits a person who will become an HCE and then get rid of that amendment. Not saying it is a slam dunk no you can't do it but it isn't a slam dunk yes either.

Do you have a Partial Termination? We tend to mostly think of that with the 20% rule but the actual rules are broader then that. I quote: Whether or not a partial termination of a qualified plan occurs (and the time of such event) shall be determined by the Commissioner with regard to all the facts and circumstances in a particular case. Such facts and circumstances include: the exclusion, by reason of a plan amendment or severance by the employer, of a group of employees who have previously been covered by the plan; and plan amendments which adversely affect the rights of employees to vest in benefits under the plan. The 20% rule is just a presumption. Is this a plan amendment or a severance by the employer which will adversely affect the rights of employees to vest? You might want to talk to an ERISA attorney to see and make sure you aren't setting some kind of precedence you don't want to set. I know not a direct answer to your question but it really was the first thing that came to my mind when I read the fact pattern.

In fact I would say you have been told at least twice at this point that if this is a Qualified Plan then the whole distribution would be rolled to a Roth IRA- it would just be part of it would be taxable at that time. The part that is the earnings that have never had taxes paid on them would be taxable upon being rolled to a Roth IRA. That is simply the law regarding qualified plan rollovers.

I think QDROphile hits it. You can always roll a distribution from a qualified plan to a Roth IRA. The NEXT question is how much of it is taxable when that happens.

I think the easiest way to explain why it can't be done is this: Before the loan this person had $50k in pre-tax IRA and $50k in pre-tax 401(k) money. A total $100k he will need to pay taxes at distribution. They take a loan and have no taxable income. The use the $50k in IRA money to repay the loan. So now they have $0 in pre-tax IRA and only $50k in pre-tax 401(k) yet they received $50k in cash without paying any taxes. Clever but I don't think it works for the reason Tom says. A rollover is a rollover. They would have to take an IRA distribution and then pay the loan. A rollover can't be both a loan payment and a rollover by definition. I think that is why you can't find a cite. it is embedded in the very definition of the words.

I worked for the IRS back in the '80s and my impression back then was if they got a W-2 and you did not put it on the 1040 they had a problem with you. If you put a W-2 on a 1040 they didn't have a record of they didn't care. They figured no one is going to report income they didn't earn on a 1040. So if is still true I would say no they didn't care when they got 1040s with W-2s listed they had no record for the W-2s a few years ago.

Oh I do think you have the answer. If you can do the General Test on dollar amount then giving the same dollar amount to everyone means you will always pass the General Test. So it doesn't matter if it is Safe Harbor or not you pass the General Test 100% of the time if you give exactly the same dollar amount to everyone.

I can't help but point out but "following the close of the plan year" doesn't mean right after the close simply at some point in 2018. As point out by others there are deadlines but it doesn't have to be within days of 12/31.

I am replying to your duckthing question below even though it isn't directed towards me. I guess I would have to read that provision carefully. What I can tell you is back when I did balance forward PSPs and now with ESOPs that would be 2018 compensation for every plan I can think of . In fact if the person was over NRA and the plan didn't require retirees to work 1,000 hours and be active on the last day of the plan year we would give such people a 2018 PSP or ER discretionary contribution in the ESOP. I see that all the time in my job. A retiree gets a small cont in the year after they termed if they termed during the last week of the prior year. I know way back when I did 4k plans (all balance forward) I would see these small checks hit in the following year (2018 in this case) with a small amount of deferrals. We always treated them as comp and deferrals in the year they were paid not earned- ie 2018. I agree a plan can be written such that is income in the year worked (2017 in this case) but you can always count it as comp in the year it is taxable per the law has always been my understanding. And most people I know think it is a pain to have the census comp to not match up with the W-2s for any given year. So I can't recall the last time I saw someone who treated this as 2017 comp. Most plans I have seen over the decades starts the definition of comp as either gross comp or W-2 comp. If it is W-2 comp as the starting point I don't see how it can be anything other then 2018 comp unless it then specifically says in this case to push it back to the prior year. But that seems like a mistake waiting to happen. It will always be easiest to have your plan comp starting point to match the sum of the employer's W-2s as that is easy to reconcile to. . Even gross comp was treated as when paid for that definition. But you could go back to the year earned but once again that meant the census didn't match the payroll system so I know of no one who does that. In that regard I agree with Tom you can pick one or the other but you do have to pick.

I think you should read example 1 again. I quote the question: EXAMPLE # 1: 7/31/2005 falls on a Sunday. If an employee's last day of work was on 7/29/2005 and the plan sponsor is closed on Saturday & Sunday, would the employee be considered to be employed on the last day of the plan year ending 7/31/2005? E I quote the answer: So, your example 1: as long as the person wasn't terminated, he is still employed on 7/31 even though it's a Sunday and not a work day. Note the question says "an employee's last day of work" so he did not come back to work on 8/1. So to me this is exactly the situation you have. Maybe I am reading this wrong but to me terminated has to mean more then quit otherwise none of the questions matter. If the IRS' answer mean as long as the person doesn't quit the Fri before that Sunday he is still employed they didn't answer the question as far as I am concerned.

Was this post severance comp? Or was this money paid in 2018 because that is how the last payroll period in 2017 fell? If it was that then I think it is 2018 compensation and the deferrals were good and you test it in 2018. Or was this say vacation pay and other items cashed out? Or was this some kind of severance pay? I would add I once had a plan that excluded all pay in the subsequent year even if it was like my first example and we determined that a safe harbor definition of comp and in theory had to test via 414(s) test. It was just this plan had 10ks of employees and this was never more then 100 to 200 people so no on believed it would ever fail that test so it was never done.

Just a simple prediction here that doesn't really help answer this question. Anyone who can't take more loans and needs to play these kind of games to pay bills is going to not pay it back 60 days later. So while your advice needs to be correct obviously it is all academic most likely.

It is the Plan Administrator's call. I think the PA has the ability to interpret the plan as saying last day includes last work day if 12/31 falls on a day not normally worked. We would not make the client change the census we would tweak our system to conform with the PA's wishes. We would document this whole thing as you just set precedent (as david notes) and make sure the client is consistent after that. As a general rule I find most client will call this the last day of the plan year. I had one client years ago whose union contract was very clear the plan had to treat the last Fri of the year as the last day if the 31st fell on a Sat or Sun.

It sounds like the accountant is confusing IRA rules with Qualified Plan rules.

I want to check my sanity. I am taking over an ESOP and I think the prior TPA didn't handle vesting for rehires correctly via the Rule of Parity. I know of no exception to that rule. If the person had any vested amounts prior to termination upon being rehired they get all their Years of Service for Vesting is my understanding. This is regardless of the number of BIS. For example: There is a person they are telling me had 8 YOS when they terminated. As such he was 100% vested with that money. His money is still in the ESOP even. The person was rehired well after 5 BIS. They show him as having earned 3 YOS since they were rehired and thus 40% vested on the new money. Am I missing something or is that a clear violation of the Rule of Parity?

https://en.wikipedia.org/wiki/A_Planet_for_Texans Quote from summary in article: Silk is welcomed to New Texas with a giant barbecue, where he sees a trial and learns that assassination of politicians is a legitimate part of the New Texan political process as long as the assassin can show that his victim “needed killin'” If I recall correctly one such assassination and trial was when a politician proposed an income tax. The defendants were found innocent. The jury decided that politician just "needed killin". Other interesting science fiction books that can get you thinking about political systems/philosophy regardless if you agree or not with the author would include by Heinlein: The Moon is a Harsh Mistress (Also an excellent read in my mind) Starship Troopers (book not that crime against humanity of a movie)

Can't agree more there. I wish more plan documents were written by attorneys that had TPA experience or talked to TPAs and a few HR people.

I am not sure the way the QDRO is set up in the original question is "smart" thinking but it appears to be legal thinking.

The key here is to note the QDRO did NOT order to pay the benefits BEFORE the person became vested. It says once the person becomes vested THEN the Alt Payee has a right to those benefits. So the Alt Payee has to wait years to find out if she will be paid a benefit or not. So the DRO is qualified. See Larry Star's quoted material for additional information and examples.

I came to love Omni+ once I mastered it. I loved the flexibility of the custom calculators and the system over all. Its flexibility can be its draw back as other systems will do some of the work. I learned the 4k business on Pentabs and if you set up the plan specs right and loaded a good census 90+% of the time the first results you got from it were the correct results. Omni+ doesn't hold your hand like that but there was no allocation issue we couldn't program to solve once out group mastered teh custom calculators. I found their distribution system to be excellent.

The beneficiary has to take an RMD based on their age using the Single life table in 2018 unless they elect the 5 year rule. The RMD section of your document covers this situation. If you are using a prototype it might be in the base document but this is covered in it.