ESOP Guy

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.

I have an ESOP client that normally makes you wait 5 years in order to get a distribution via 5 installments. They however have a provision that if a person terminates and then is ruled disabled they can be paid the year after the disability ruling. I just took over this plan. A person terminated in 2012. They were ruled disabled in 2014. They got their first payment in 2015. The firm that prepared the 1099-Rs in the past gave this person a code of 3. I am just not finding any guidance on this. Do you have to terminate because of disability or merely be paid because of disability in order to get a code of 3? It matters as the person is <59.5. Back when I did 401(k) plans if a person terminated and refused to take a distribution for years and then became disabled I don't recall making such a person a code 3. Thanks

You can talk to the plan administrator and see if they are willing to look into it. This would be an informal process. If you don't have any satisfaction via that conversation the Summary Plan Description ought to give you the details you need to make a formal claim. That will set in motion a process that will require them to give you a written response as to what their position is regarding your claim. What you describe is a difficult situation. If the disability was ruled as being in effect as of the date of your termination you MIGHT have a point. If the disability happened after the date of termination then it will be irrelevant.

Don't forget the look back year for ownership. So if the stock was sold in 2017 those people could by HCEs in 2017 and 2018. In 2017 as a current year owner and 2018 as a look back year owner.

If there needs to be testing or not is a complex issue. It is true that if an ESOP owns 100% of the stock there are no individuals who are shareholders. The trust owns the shares not the individuals. If the stock was sold during 2017 as long as a person owned the stock for 1 day they were a shareholder in 2017 for this purpose. You can be an HCE by compensation also. It is hard to imagine there are no officers in a company so it is a question of compensation for Key Employee. Oddly, this could mean you have a bunch of former Key Employees for the TH test also.

I haven't seen it from a court but I have seen plenty of states that are trying to collect child support demanding nothing get paid until they get a QDRO to get the child support in place.

Your confidence wasn't misplaced it turns out.

As you just found out with the loan question it depends in the end what the plan says. The law would allow it assuming you have a hardship that qualifies. So ask Vanguard the question.

To make sure you understand what Austin is saying the law defines the maximum amount a loan can be from a qualified plan. The plan document can always set a lower limit. The most common example of plans doing so is they never use the $10k limit for the reasons he stated.

it seems like they did not bother asking their ERISA experts what they think of this provision before writing.

It would be interesting to know if those D's that didn't work are from back when all SSA's were entered manually by the government. It really hasn't been all that many years it seems like that there was a good way to electronically submit these forms. I know I had some large clients that there SSA was many pages of paper someone had to enter. Easy to see a typo to someone just not bothering with all those D's.

As another side note you are talking HCEs but it is my understanding a divorce doesn't make the ex-spouse a former Key. Or put another way you can't make a TH plan not TH by the owner getting divorced and splitting their assets with an Alt Payee.