ESOP Guy

I would suggest re-reading the document. I can't remember the last time I saw a document that didn't address this some place. As noted it might be on the compensation definition or it might be in the definition of an "active" participant or in the allocation section. Failing that I agree this one be one of those areas the PA can use their discretion.

I agree the max new loan is $20k. I hadn't thought about the fact that nets him zero.

He has a $5,000 asset in his account called "unpaid loan" for lack of a better term plus $20,000 in cash investments for a total of $25,000 balance. So when he is paid he gets a check for $20,000 plus the $5,000 loan in kind is the way to think of it. Since he paid taxes on the $5,000 already he doesn't pay again. That is the easiest way to describe it in my mind even if I am playing a little fast and loose with the legal terms.

I have been out of the 4k world for 5 years now but I don't think I have seen or heard of #3 before. I have seen plenty of #2. In my mind if you don't like it you can change once the blackout lifts. As long as that is kept to a minimum I am not so sure it is too bad. I know my own money has been moved via a #2. I have seen and did some #1 types back in the day.

Ok, we are entering an area of law that I am not an expert on. All I can tell you is when our clients use bank trust companies to have the check paid the EIN we always see is the trust company's EIN not the plan's on the 1099-R. I have done enough 945s to know the 1099-Rs and 945s have to reconcile. If you have differences between the 1099-Rs and 945 taxes withheld you get a letter from the IRS. Maybe one of the lawyers who read these posts can give a deeper look at the law as to why the trust company's EIN is used. The trust company is the payor and the plan's Form 5500 reports the EIN of the payor on the Sch R is what the plan does in these cases. I hope I am helping more then hurting. But at this point for me to give any more advice is to give advice out of my sphere of competency.

So are these payments for the bank's plan or are you being hired by a plan completely unrelated to the bank to make the payments?

The Form 5500 asks for the Sponsor's EIN. The tax withholding and reporting forms ask for the payor's EIN which is the trust's EIN. Unless of course the plan hires a bank (or other service) to do the paying and reporting.

The hard part of your question is the part about the old and new contributors and I might not be helpful because there are a bunch of debates on that topic on this board: As a practical matter I am not sure I have seen anyone who is sure they can track the old/new money vesting well enough to make it worth doing.

Maybe it is me but my guess the reason this never got answered is because that questions is hard to understand. Can you clarify what it is the plan wants to do?

I have looked into this question before and there is no de minimis rule for paying benefits. No matter how small the law says you have to pay them. Now if the plan has in the past charged a distribution fee which would exceed this a case can be made the fee takes up the payment and the person gets nothing. But if you are looking for a rule that says you don't have to make a payment of small amounts it doesn't exist. As a practical matter I don't know how much trouble you would get by not paying it. I know I have had plans where the PA was willing to risk it and we wrote off the balance but the law does not say that can be done.

soc sec calculator (for fun, of course!) You and i clearly have different ideas of what is fun!

Not only is the cumbersome but I find the service spanning rules and how they relate to rehires to be some of the hardest rules to apply at the practical level. Unfortunately too many documents get written by people who don't have to do the day to day work on them. I once had an ESOP that had as its date of entry every day of the year with a 6 mo wait. Bad enough for all the reasons you have given. They then added on that the plan uses compensation from date of entry. There is no payroll system that can give you a person's comp from a particular day to 12/31 efficiently. This company had a lot of turnover so there were hundreds of people who entered every year. They finally had to amend the plan to change entry to 1st of every month because their own HR was complaining about me demanding all this crazy data.

I was taught that way back also. Not sure if something changed in the law or it that was simply taught as a safe way to not have a problem. However, the other two answers are the current thinking on the subject.

Leaving aside the question how you get HCEs and NHCEs like this- or put another way for sake of my comment assume you can get what you are saying. You then have a problem. All Benefits, Rights and Features (BRF) have to be non-discriminatory on their own. So vesting has to be shown to be non-discriminatory on its own. it doesn't matter the HCEs might have had less time to put match in. You simply look at the fact you have a group of HCEs who have 2 YOS that are 100% vested and a group of NHCEs with 2 YOS that are 0% vested strikes me as a problem. For testing the BRF you might be able to test all HCEs and NHCEs so it might pass the test. I am not even sure what the non-discrimination test for this BRF would look like. But I can not imagine an IRS or DOL agent not having a problem with this fact pattern and not raising lots of concern. But I agree if the fact pattern given above can happen you need to be concerned.

There is no way to accurately answer your question via this board. What makes up your final tax bill is complex. The only way to do it would be do a draft 2017 tax return putting all of your information in it. You are correct the withholding on the withdrawal would be 20%. Can I suggest you go and pay for some tax advice from a CPA or tax prep person who can look at your whole situation, all your data and give you sound advice. The amount of money you are talking about a couple hundred dollars is a small investment in advice that could more then pay off in the long run. I would also recommend not taking it all at once (which could be enough money to put you in a higher tax bracket) but put it all in an IRA say at a local bank. You can then take out what you need month by month. It wouldn't be a taxable event until you take it out of the IRA. There is no mandatory withholding from an IRA which might be a bad thing as you could owe a lot the following April 15th. This way if you need less for any given month you can leave it in the IRA and not have a taxable event- might also make it less tempting to go to Vegas and blow it all! But a good tax advisor could help you work out these kinds of details including how to not have any surprised come April 15th.

Glad to hear it you finally found someone who can champion the right answer and are getting results.

How does the plan define hours? I am with acm_acm read the document and make the PA decide how this works out if the plan isn't clear. All plans have a provision that says the PA can make reasonable interpretations of the plan document that are non-discriminatory.

Is there any cash in his account? The way the OP reads he is borrowing 50% (ignoring max loan issues for now as that seems covered) of his account balance that is nothing but a large AR to the plan from the sponsor. Or is there cash in his account and he is going to in effect put that into the other people's accounts with the loan? Are the ER cont mandatory? If not, why is he declaring cont he can't fund? All of that aside most (if not all) of these cont count for the current year's 415 limit so make sure he doesn't blow that also.

So are they doing this to generate a 1042 election? If so, let me know if it works. I have my doubts but can't cite anything. I am not sure based on what you said there is an allocation issue. For example let's say the part not owed by the ESOP is worth $1,000,000. If the ESOP buys it and sells it 1 second later for the same amount there is nothing to allocate to the people. There is no gain and no net proceeds. But the fact the participants can't benefit is my problem. While tax law allows you to factor in tax savings into any transaction the IRS is allowed to challenge any transaction whose sole purpose is tax avoidance. To me the sale to the ESOP serves no valid economic function besides save taxes. Maybe I am missing something here but that is the question that comes to my mind at least.

My guess is the only way to do it is call the DOL. The few times I have done that with 5500 issues they were very helpful. But I am not aware of any way to delete the information yourself.

And you could have an E&O claim if you calculated the test incorrectly but still not a fiduciary liability

I am not so sure there isn't a compelling reason for some of these types of compensation. If I understand this change it will do away for all practical purposes things like SARs, Phantom Stock and Stock Options. Stock Options can be broadly based plans one should note. But in the ESOP world SARs and Phantom stock are often times to compensate management for company performance without giving them actual shares. To give people shares for a 100% S Corp ESOP changes the nature of the ESOP a lot. In closely held family companies they might want to give equity based compensation without giving actual stock outside of the family so they give SARs and Phantom stock. That seems legit to me. These kinds of programs can be better at aligning compensation to company performance better then annual bonuses for example Don't get me wrong are there bad plans out there? Sure. I have seen NQP that mirror a company's old pension plan they froze but allowed the CEO and a small group still get the benefits. It seems like I have seen some that allow just the C level execs accumulate millions and doesn't seem to be tied to any performs it is just tax deferral. I don't have much sympathy for those plans. But plans that seem to link performance to pay should have a place in good public policy. Likewise, maybe the better fix to stock options is some kind of rules/test to assure they are broad based I can see as being good public policy also. In the end these changes are really about revenue to offset other reductions from a group of people some of these comment show aren't going to have enough popularity to win vs say people who defer into a 4k plan or take mortgage deductions. In the end sometime number of voters who benefit is the deciding factor.

In fact ever since I started working in this industry one of the things consistently drummed into me is don't do anything that makes the TPA I work for a fiduciary. For example we never say a DRO is a QDRO. We recommend the PA accept the DRO as a QDRO. We don't authorize a payment we send the PA the information they need to make the payments or ask for authorization to make the payments. Back when I worked on 4k plans we recommend the PA accepted the hardship as one of the safe harbor reasons and recommend the payment be made we never accepted the hardship request. The difference may seem small but it is my understanding legally the differences are huge.

It has always been my understanding the answers in order are: No Yes, but you have a professional responsibility if it is wrong. It would be an E&O claim not a breach of fiduciary claim.