ESOP Guy

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.

And why should it? The pro-life position is the taking of an innocent human life is wrong and has been the moral and legal position of humanity for a long time. In all the cases where this issue comes up we have an innocent human life. Therefore, the same protections are due those lives. It is far from obvious quality of life issues ought to justify taking another person's life. Even with end of life issues there is clearly a huge moral and legal difference between suicide and euthanasia.

And by moral issue you mean actually expecting people to follow the law? Which I would add is a conservative value. One of the biggest fallacies in political conversations comes in ridiculous claims of hypocrisy. This is a classic example. A person takes just one value of the other side acts like that is their only value that has anything to say on the topic and runs with it. Like I pointed out conservatives believe that the law ought to be obeyed and you seem to think the AG ought to just ignore the acts of congress based on an idea of federalism- sorry there at a minimum there needs to be a balancing that needs to happen. Sure the AG could abuse the idea of prosecutorial discretion like what happened with Obama and the Dreamers but one can't help but think the same liberals who liked that idea would oppose a GOP AG saying he is using proecutorial discretion to stop enforcing all federal gun laws. They would rightfully be pointing out that is the executive branch not merely using executive discretion but simply in effect making new law without engaging the other branches of government. Which would be an abuse of power. You in fact would find there are plenty of people on the right that would have no problem with congress engaging in federalism when it comes to pot policy but the power to do that is in congress not the AG acting alone. I would add the whole framing of it as simply a moral issue is a strawman. The pro-pot legalization side does in fact down play the extensive health issues that comes with pot and its legalization. So there are in fact valid safety issues and not merely "moral" issues.

This has always been an interesting question. For a slightly different version from the ESOP world... If the ESOP offers as one of the diversification choices the company's 401(k) most people seem to understand you have to offer fee and ROR notices to people as that is a DIA choice. But what if they choose to do nothing? Is that still a choice? Do you have to get them some kind of fee and ROR notice for the ESOP? Even if the ESOP has nothing but company stock? Most people I know say "no", but I know a few people who say "yes". So is failing to go to a SDBA a "choice" by not making any choice? It isn't obvious the answer is "no" and Rather might be on to something.

it is interesting to see how the internet has made making being a little creative work. We recently found a beneficiary be searching out the obituary from the small town paper where the participant lived. We got the name of the church where the services were held. We called the church told them the basic idea of who the plan was and asked if the participant had any family in town. The pastor knew of the family and helped them get in contact of the plan. We worked out who ought to be paid the around $60 at very little cost. Just the time of a quick internet search and a couple of phone calls.

What type of company is B's graphic design business? Corp? LLC? Sole proprietor? If I remember these rules correct (and I am doing this from memory) it matters.

ESOP are always attorney drafted and most say you can forfeit after a diligent search that determines they are actually lost. Back when you could get D Letters they always got D Letters with that language.

We send force outs of this size to the various companies that set up roll overs for such people. Shocked the document is that restrictive to forfeit lost participants.

As long as the corp that is owned by the ROBS is a C corp then the tax on the business income is taxed at the corporate level. So if any cash moves from the C corp to the 401(k) that is a dividend. In this case that would be investment income. It would be treated no differently then if 401(k) plan got a dividend from its IBM stock. In this case the plan is NOT running a business but investing in a business. If someone were to make the mistake of putting S Corp stock into a ROBS then there would be UBTI due on the pass through income from the S Corp. ESOPs are the only type of qualified plan that can own S Corp stock and not pay UBIT. The key here from a practical point of view is the income taxed at least once. As goldtpa says the point it to put the all businesses on equal footing. In fact if I remember my tax law history UBTI started not with qualified plans but not for profits. I am thinking it was a university was running a manufacturing business and claiming it did not have to pay taxes on the profits which it used to keep the university doors open. That was seen as an unfair business advantage to not pay taxes. I once worked on a PSP plan for that owned land and cattle directly. That is to say the title of the land and any ownership papers of the cattle was in the PSP trust's name. This guy thought he was being clever becasue he was running a cattle ranch in a non-tax paying entity. His prior TPA had not thought of the UBTI. In this case the plan is running a business and UBTI was due to put this business on equal footing with other ranching businesses. Hope that helps clarify when and why UBTI is due. I am pretty sure I have it correct but it has been a while so if someone wants to make the claim I got it wrong I am willing to listen. This might be more answer then you wanted also!

Not only would I do what My 2 cents says but it has always been my understanding that if you do NOT separate the accounts by the 12/31 the year following the death iit changes how the RMDs work. So there is an incentive to separate them in my mind.

That has always been my understanding if you could not get a match you are not in the ACP test. That is how I used to train people when that was my job. The more common example is if the plan has last day language for a match those people are NOT on the ACP test. To note what might be obvious but you still have to pass coverage for that source. In fact in the extreme I noted if you allowed ONLY the HCEs to get a match you would pass the ACP test because they are the only people in the test but you would obviously fail the coverage test for that source. On the other hand if you limited all the NHCEs to a $1 match you would pass coverage for that source as they all benefited. You would fail the ACP test however. That is how I have always understood how the law stops you from getting too abusive. Any one test allows abuse but both combined constrain you.