ESOP Guy

Maybe I am being dimwitted but I don't see how this can't be accomplished. You build a spreadsheet doing the initial divide. You keep the AP's unvested assets in the original account. Every year you compute the amount the AP is do (if any) and do another transfer. To me the hard part is making sure there are no distributions made out of the original account without a final accounting of the AP's share. I understand why this would be seen as error prone as it is that. But not doable I don't see that at all. But I admit it has been over 5 years since I worked in the 4k world and it was mostly balance forward even back then. But I did do some daily work and that is how I would have solved this problem.

Could be I was never a member of ASPPA I just thought it would make an interesting question.

Sounds like we have an ASPPA question for the IRS.

Are you saying you have NOT filed the required forms since 2015?

I have not seen a cash incentive to take a distribution. On the other hand if you do all the documentation correctly I have seen plans that charge certain fees to terms that leave their balances in the plan. These fees aren't charged to the actives. It has been a while since I have worked on such plans but I seem to recall the SPD had to be clear about the fees. The distribution forms have to be clear about the fees. That seemed to help get the balances out of the plan.

Always nice to have a happy ending.

I agree giving him a full allocation is the safer route.

I suppose one could ask the question did this person really terminate in each of those years. That is a more difficult question in my mind. But if it was a bonafide termination in each of those years he retired each of those years.

Glad it helped you serve a client better. This is what this forum is about!

I have never seen a limit either. it tends to be age and/or mortality that limits this- ie- the person just decides they are too old to keep going back and doing projects or they pass away so they can't be rehired. But I have never seen a limit via plan provision.

It is driven by the plan document. IF your plan document is like ALL the plans I see then this is true: I have this conversation with clients all the time. It doesn't matter if the client thinks they retired or not. It doesn't matter if they give him a party and a gold watch. It doesn't matter if they fire the person or they leave voluntarily. In every plan I have read if the person separates from service and is at or beyond Normal Retirement Age they will have a Normal Retirement Date. As such they have retired. All that matters is age and if required by the plan service and they are no longer employed. I have even seen examples where the person is rehired to do a small project a year or two later and then they leave again. They just retired again and will another profit sharing contribution at least (in this case it is rare the person makes any 4k deferrals so match wasn't an issue) is due. So read your document very carefully and see what the definition of Normal Retirement Age and Normal Retirement Date is. Then read you allocation sections about allocations to someone who has reached either their Normal Retirement Age or Normal Retirement Date. You will most likely (about 99.99% sure) you will find out this person retired per the plan document and is due a contribution. Not trying to be mean but this is a classic example of the answer really is in your document.

I would give serious thought to 2nd choice. When was the dist form signed by NHCE? Can you still use it as the basis of how to pay the person? I forget is a form good for 180 days? Too small dollars to set up an account and send forms if it can be avoided.

That might be an understatement! I was amazed how long it took us to get a person ASSIGNED to use to START the process to upload ESOP data so it could be added to the 401(k) statement. (Months to get a contact person to start the process!) I won't even bother with a discussion of how long it took to actually get a simple data transfer set up! I wish I could give my clients that bad of service and keep my job! Life would be easy!

So was this an ESOP of shares that are publicly traded or not? I would point out you have mostly speculation instead of facts at this point. Courts care about facts not what you think is true. Also, mere bad timing of a sale you agreed to is not actionable.

I agree he turns 70.5 in 2018 so as long as he has a zero balance at 12/31/2017 the plan doesn't owe him an RMD. If things don't go as planned and he gets any payments in 2018 the first dollars leaving the plan are RMD dollars.

While he can delay taking his RMD until April 1 following remember if any money comes from the plan the year he turns 70.5 the 1st dollar paid from the plan is the RMD.

In most plans that do this the trustee determines the percentage of the payout. This allows the people to get some of their money while the plan gets the D Letter and other final actions happen. It keeps the people happy while the plan can do what it needs to do to make sure all is good.

In fact in some of my richer ESOPs we have to do several iterations of the allocation because of what you describe. That is to say on the first pro-rata there are a people over the 415 limit. So I reduce them to the 415 limit and allocate on a pro-rata basis the remaining amount. This puts a couple more people over the 415 limit. So I reduce them to the 415 limit and allocate the remaining pro-rata. I think the most I have ever done is 5 iterations. Most common seems to be 3 iterations.

I disagree and I think this person needs to take the RMD. The question isn't is this person still working some place but is this person still working for the sponsor of the plan. The answer to that question is clearly "no". I think the ASPPA question should be interpreted as the sponsor terminates the plan but is still an operating company and that person works for that company still. The point of that question is a plan termination isn't' the same as a job termination. But in this case there is both a plan termination AND a job termination. If I understand the facts X who is over 70.5 was working for Company A. Company A's assets are sold to Company B and X now works for B. You would have no problem paying the RMD to X if he left A and went to work for B and there was no sale. The sale doesn't change the fact X now works for a new company and no longer works for the old company. Treat it the same way you would regardless why the person is working for a new company.

I don't see any obvious issue with hiring him. The plan should try and recoup the money from this person. I guess you could see if he is willing to pay the plan back as part of the negotiations of hiring him for the work. The plan does need to be made whole as BG5150 says.

Maybe it is jut me but your facts and questions don't make any sense. Please re-read it all and see if you think it makes sense. Here are some observations: 1) You make it sound like you forfeited 3 people who were still active employees. 2) You say you sent a notice to the 4th person about repaying the forfeitures. Why did you do that? Was this person rehired? If so, then why are you asking now about them being a sub-contractor? If the rehire was this person as a sub-contractor then why did you send the repay notice as that would only apply to a person who is rehired as an employee. But otherwise why would a person who termed and was paid ever repay a forfeiture? 3) You ask if there is any implications regarding "future payments". Payments from the plan? If so, does this person sill have a balance in the plan? (Not sure it matters) Payments as a contractor? I will make this observation right off the bat. If an IRS or DOL auditor comes in one of the issues they will raise was the termination a bonafide termination or done to merely get the person a distribution from a qualified plan. Likewise, if this person is doing the exact duties as they were as a former employee they are going to ask is this a legit contractor relationship Someone might want to look into those issues. Like I said it might just be me but I am more confused as to what your question is now then before I started to read your post.

The humor is it is 2018 and the government is just now getting to this kind of security with this kind of data. I mean it is going to be just this year they are no longer going to print SSNs on people's Medicare cards! In many states if you put a person's SSN on such a public form it would be a crime and has been so since the late '90s but the Feds are playing catch up!

More importantly the plan should have NEVER allowed him to take 100% of his balance and put it in an IRA in the first place. The plan needs to check/change its procedures. The regulations governing RMDs are very clear on this point. In a year an RMD must be paid the FIRST dollars from the plan are the RMD. The payment in July 2017 should have been two checks: 1) for the RMD amount 2) the amount made payable to the IRA. Not trying to beat anyone up but had that rule been followed and two checks cut in July 2017 the whole problem would have been avoided. Fix the procedures to conform to the regulations and going forward your life will be easier.

I read it your way also.

This plan is odd but the plan language is very clear if you do a regular termination and then AFTER that are ruled disabled (not retro back to the date of termination) that triggers a faster start of payments. Very rare but very clear in this case what the plan says.