ESOP Guy

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.

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.