ESOP Guy

To answer your question I know of no source besides the plan sponsor or the old TPA (if any). I also find we have no issues if we keep with my philosophy of, "when in doubt D" on an SSA.

You found the right place to find people who can help but your question is kind of a mess. So allow me to start helping by asking some basic questions: 1) You say this plan is a ROBs but it has no assets. That doesn't make sense it would seem like the plan has to at least have the company stock in it as an assets. It might not be worth very much given the facts you are saying but it seems like it ought to at least have one asset in it the company stock. Is that true there is still company stock in the plan? 2) You talk about filling out a census for every employee. So you have employees on your payroll? If so, are there any employees that are NOT family members? Let's start there and you might find others will ask a few other questions. But based on those answers we can either start to answer your questions or have a better sense what the follow up questions need to be. I would also point out this forum is mostly populated with people who work in the retirement field. I just so happen to stop by here this weekend. You will get most of your answers Monday not on the weekend as most people (myself included) rarely stop by on the weekends.

I once had a client where both the 5500 and 8955 was late we filed the 5500 under DFVCP and followed the instructions for the 8955 and it went smoothly. I have never re-filed the 5500 and then the 8955. I do know the IRS does check to see if you file the 8955 if an auditor comes out to look at the 5500. However, since it is possible to not have an 8955 due for any year they can't know if the form wasn't filed because it was missed or there was no one to report. So there is always opens up the idea of playing the audit lottery and report the missed people on the next 8955 and call it quits. I guess there is a chance that will leave the client open to a fine but if you can show they are on the next form some auditors might take the no harm no foul position. It is known costs vs unknown level of higher cost but also no cost is possible out come.

No Here is cite:

Sorry wrote that last sentence wrong: If someone thinks you can't force out <$1k to an IRA please speak up. There wasn't any doubt in my mind you can force such a person out.

It might be due to the fact all ESOPs are custom documents but 99% of all ESOPs I deal with get a letter upon termination. I was always taught these letters were cheap insurance even when I worked on 4k plans. I always thought there were reasons to believe a plan that had a letter was less likely to be audited after the termination then one that didn't get the letter. There used to be a question on the 5500 way back also.

It seems to me there are a lot of answers here but almost no one is directly answering the actual question. Can you write a plan provision that say anyone with a balance over $0 and <$5k be forced out to an IRA? We are assuming they got a form and did not reply. I am not aware of anything that say you can't do it. I haven't ever seen it done but all the law I have read say if you force out $1k - <$5k it has to be an IRA but I have never seen anything that say you can't force <$1k to an IRA. If someone thinks you CAN"T force out <$1k speak up please.

Actually the comment about the Key is interesting. If there is one Key and one non-key HCE and the Key gets 60% of the assets is the other HCE due a TH minimum? Might be a fact set that doesn't happen much but seems like it is "yes" the one HCE would be due a TH minimum.

Just curious does he really make the IRA limits too low? If not that seems easier but I don't see any law that stops this from happening.

Can be done sure. Is it prudent is the better question? Those small amounts and the IRA fees need to be thought about. If the plan is confident they have a good address for the person what is better for the participant sending them a check to an IRA that is going to eat the benefit up in a matter of a few years in fees?

I am not 100% sure what you mean by all of this. So you can't fund the payments from operating cash flow? That happens at times and in effect the company/ESOP are forced to find an outside buyer as there is no other way to fund the repurchase obligation. Unless what you are selling is a sinking fund. But isn't the fact you are currently taking the stock out of the ESOP and putting it into treasury anti-dilutive?

You might want to go to the ESOP Association website or the NCEO website and look at their service providers sections for an ESOP TPA if you don't already have one that specializes in ESOPs. They could help you with running projected tests. Since you are a C Corp one other idea you could look at but would need to run projections on is dividends. It is possible to make C Corp dividends tax deductible when paying them to an ESOP. You didn't say if the ESOP owns 100% of the stock or not this won't be cash efficient if there is a lot of outside shareholders as they have to get their share of a dividend. The thing is to make the dividends deductible you would have to give the 10k participants a choice to keep the cash in the plan or get a the dividend as a check. Obviously, if most of them ask for the check you have your deduction but the money isn't in the ESOP to repurchase the shares. But a lot of the testing doesn't apply to dividends. Once again I think you are going to just need to get someone who can look at all the numbers.

If you are talking about NOL carry forwards does that mean you are a C Corp?

The reason you might not be able to reopen (I kind of like the defrost comment!) the ESOP is your are not going to be able to pass required testing. You have to show the plan covers enough people. If most of your Highly Compensated employees are in the ESOP from before it was frozen and lots of rank and file employees are "frozen out" of the plan it will never pass the tests. The only way to know for sure is to do what RLL says talk to an experience ESOP professional and they can run testing projections. Also, they could run projections on what would happen if you start letting people back into the plan and giving them contribution allocations. I am more convince now then my first reply you can't get quality answers without spending some money to get some professional help from someone who knows ESOPs and can see all the data. JUST SAW YOUR NEW QUESTION WHILE TYPING THE ABOVE: As I stated above most likely you can't make contributions and not let people in. You will most likely fail critical nondiscrimination testing.

My guess is you need to find a good ESOP TPA and/or attorney to get the best answer but here are some opening thoughts. What do you mean by frozen? I really think the answer to that question is going to matter a lot. Frozen is not a word normally used to describe an ESOP. The few times I have seen it used it means no more new employees can enter the plan and become participants. Is that what it means or does it mean something else?

Full auditor's report. This might be the first time I have even heard of someone just putting the letter out there. We tend to repeat the attachments. It might be we take the report's version of the attachment and just use those if they are real long to save time but we repeat them.

I agree it can be up to 100% and the example given was my parents in reverse. My father had a solid income to get a mortgage but feared he was too old to rebuild his retirement savings if it too a large hit. My mom had low income and needed to know she would have a roof over her head. So she agreed to take none of my father's retirement funds and she got a house that had almost no debt on it. As long as all parties knowingly agree to the way it is divided there are no rules saying how the Qualified Plan balances have to be split. I can't remember a 100% QDRO but I know I have seen some that were around 75%. I even saw one once that not only defined the amount but which assets were to be paid to the Alt Payee. It was a Dr plan and he had crazy assets in his plan. The wife wanted nothing to do with the diamonds and other alternative assets in the plan. She wanted cold hard cash and the QDRO said she was to be in cash only no in kind payments. Also not an attorney but I don't see how a QDRO and divorce decree can't sync.

When I said I have seen "way more" payments back from IRAs vs taxable payments it might be something like 5 to 7 vs 1. So my experience isn't very large either. It is just with the money in an IRA the person at least has the money to pay it back. If the person took a taxable distribution that money is gone by the time they get rehired and their desire is moot.

Just to cover things I would never recommend doing the egregious. By that I mean get all the HCEs hired and 100% vested and then amend the plan to make the NHCEs need to wait. I had a start up do that. All the owners got hired and since they were owners they were HCEs from day one. There was only 1 NHCE working at first. A few months in they amended the plan to make it a 5 year cliff (This happened a long time ago) and they started hiring more and more employees. So at the end of year one they had 3 HCEs 100% vested, 1 NHCE 100% vested and about 5 NHCEs 0% vested. I am not sure I can cite anything but I wouldn't want to defend that fact pattern.

Obviously, she gets credit for the withholding when she files on her 1040. The real question is how does this person account for the money paid back to the plan? Is it after-tax money with a basis or not? After all she is paying money back to the plan that has been taxed once already does she pay taxes a 2nd time? It has been a long time since I did this when the person took a taxable distribution and then actually paid it back. I have seen way more pay backs when the person put it in an IRA and then took the money from the IRA and sent it back to the Qualified Plan. But something in the back of my mind says in this case she pays taxes on the distribution and you now have to track a basis. I am willing to be told I am wrong on this as it has been a very long time! If that is true then she pays taxes now on the distribution so in a sense doesn't get her withholding "back" if I understand your question. But she doesn't pay taxes on that money again in the future either. You might want to do more research on if this money has that basis or not. My guess is if I am wrong someone here will gladly tell us I am wrong.

You might want to see if you can get help from someone who knows the plan in your company or plan service provider to help you model what the maximum is if you pay 1 or both of the loans off. The rules can be a bit quirky and if you can get good help (the good part can sometimes be the hard part) regarding this it will help you make a better decision.

Not my field of expert and I doubt you will find any specific guidance on this specific situations. Here is the law: https://www.law.cornell.edu/uscode/text/29/1106 What i find interesting and ironic is the bundled services are described as selling insurance to the sponsor and fiduciary services. i quote from the law: Transactions between plan and fiduciary A fiduciary with respect to a plan shall not— (3) receive any consideration for his own personal account from any party dealing with such plan in connection with a transaction involving the assets of the plan. I am assuming the company and/or person offering this is making a commission off of the insurance sale. I suppose someone can make the claim the plan isn't buying the insurance but by making themselves a fiduciary they sure seemed to have added to their risk. And is "any party dealing with the plan" include the sponsor? If so, it seems like then it meets the definition of 3. What I can tell you was back in the '90s banks were trying to make as a condition of granting loans to companies they move all their plan's assets to their trust departments and that was quickly stopped as a violation of the PT and maybe the fiduciary rules. The thinking was the decision to move the plan assets was influenced by the fact the company was benefiting from the loan and it wasn't for the sole benefit of the participants. I can't point to anything but the law quoted but I would be worried. It will most likely take an ERISA attorney to sort it out.

Either I am not understanding the question or I think it is moot. You seem to be saying that the plan is terminating in 2017 and the last day of the plan year was a day in 2017 when all the assets were paid from the plan. So are you saying as of some day in 2017 everyone's balance was zero because all of the assets were paid out of the plan in 2017 correct? To me then there are no RMDs due for 2018 from the plan as everyone's balance in the plan is zero. If they rolled their 2017 payment to an IRA in 2017 then there would be an RMD payment from the IRA using the 12/31/2017 balance in 2018. The payments made in 2017 from the plan ought to have had any needed RMDs for 2017 done as you were paying the plan assets from the plan based on the 12/31/2016 balance. Am I not understanding the question or does that seem to answer your question?

This is the sentence I am stuck on. What does this mean? How the first payment was processed doesn't dictate how the following payments are processed. She was either a spousal beneficiary or she wasn't and those facts plus the rules determine how she is paid. I am just guessing here but it almost sounds like some platform is saying they processed the payment the first year as if this person was not a spousal beneficiary and now that mistake dictates they get to keep getting to do it wrong year after year. What does that sentence mean?

I have only worked for one TPA that charged pretty much all deconversations. It included a few calls with the new TPA and client, and getting the data they new TPA wanted in a spreadsheet or text file format. Because we charged for the service we always made it a priority to give transition services. Most TPAs I worked for don't charge and you are entitled to a basic file with the census data and balance data and copies of the pdfs of important plan documents.