ESOP Guy

Has your non-loan balance experienced an investment loss during 2024? A vested balance is simply your total balance times your vested percentage for any given source. Your deferrals are always 100% vested but match money could be subject to vesting. So don't study what is happening with your vested balance study what is happening with your total balance and then apply the vesting to that to get your vested balance.

You need to go talk to a tax advisor who can look at your total financial situation. It is very hard to give good advice online. It is worth what you pay for it: nothing. This is one of the cases where a good tax person is worth the cost. They might see a way to make plans that save you more in taxes than you pay them.

Personally the times we have done used an employee number it was an all or nothing. Everyone came with the EE Num and when it was distribution time they had to give us SSN or people didn't get paid.

We have a few clients that refuse to give us SSNs unless we are doing distribution work. They however all agreed to give us an Employee ID number that was unique to just that person with each census across time. They were responsible to assign the number and make sure it is only used for one person. We loaded it to the SSN field in the software. In the end the reason you want SSN is you need a unique and consistent number to match up data over time for and from the client. As long as they can give you a number that does that I am not sure why you should keep objecting.

Yup I worked for a bank's trust department doing the recordkeeping for the plans the trust department had the investments. It was common back then for the bank to pretty much make it a condition of giving the company a badly needed loan to move the 401(k) assets to their trust department and we did the recordkeeping. I was 100% convinced this was a breach but the bank was pretty open about how the deal needed to happen in their mind.

The IRS has all your answers here: https://www.irs.gov/individuals/international-taxpayers/pensions-and-annuity-withholding

At risk of telling you something you already know but I would stress to your client while sending the new rules that the determination of who is an employee or independent contractor is (and always been) an objective determination. It isn't always easy to make the determination but it is always been about objective tests. It isn't something you get to decide or negotiate with the people who you do business with.

We don't put plan name on any of our tax notices. I am not the person who has the authority to decide if we can share or not but someone here played with the fonts and so forth and it is down to landscape 2 pages. You print it back to back obviously 1 sheet of paper. We do have a Roth vs non-Roth version but can be printed on 1 sheet of paper.

I am happy to be told I am wrong but wasn't there a recent changed announced that is like this? https://www.dol.gov/agencies/ebsa/about-ebsa/our-activities/resource-center/fact-sheets/changes-for-the-2023-form-5500-and-form-5500-sf-annual-return-reports I quote (bold mine): Change in Participant-Count Methodology for Small Plan Simplified Reporting Options Phase III revises the counting methodology for determining the 100-participant threshold for certain small plan simplified reporting alternatives, including the conditional waiver of the IQPA annual audit. The counting methodology for defined contribution retirement plans will be based on the number of participants with account balances, rather than the current method that counts individuals who are eligible to participate even if they have not elected to participate and do not have an account in the plan. This change is intended to reduce expenses for small plans and encourage more small employers to offer workplace retirement savings plans to their employees. Once again feel free to tell me I am wrong. I have NOT studied this at all. I just remember seeing something in my email box mentioning this so I did a quick search. Hope this helps.

My reaction to this are as follows: 1) Why are you involved? It sounds like you did your job and helped terminate the plan per their instructions. 2) I don't see how the plan sponsor has legal authority over the IRAs to direct anything. The IRA isn't part of any plan of theirs. That is the point of doing the force out to an IRA. They trustee no longer is responsible for the funds becasue they no long have any authority. I really question of the plan sponsor has a legal right to direct someone's IRA. You might want to ask a lawyer if you could be legally liable if you help them do this. I am shocked the IRA custodian is agreeing to do this. 3) I would not put any assets back into the old plan's trust if the old one has been fully paid out and the final 5500 was filed. The plan is gone. This sounds like a mess I would not want any part of if it were me.

I think they need to change the age to start RMDs a few more times! 😁 Part (not the only) of the reason I do ESOPs is I couldn't take 401(k) work any more. All the notices and if you read the law the liability if you are late! The work just wasn't fun any more.

Yes, the WSJ had a rather extended article on this and how the tax benefits could be a major reason for the structure. It was an interesting read.

I do not think the above is correct. https://www.finra.org/investors/learn-to-invest/types-investments/retirement/managing-retirement-income/taxation-retirement-income I quote: Smart Tip: Taxes on Pension Income Vary by State It’s a good idea to check the different state tax rules on pension income. Some states do not tax pension payments while others do—and that can influence people to consider moving when they retire. States can’t tax pension money you earned within their borders if you’ve moved your legal residence to another state. For instance, if you worked in Minnesota, but now live in Florida, which has no state income tax, you don’t owe any Minnesota income tax on the pension you receive from your former employer. I think a number of high tax states tried to tax benefits earned in their state but after you moved and congress stopped it as it was very unpopular.

At least in the ESOP space so much of the competition is national that I don't see a lot of regional differences. The firm I work for has business development people working the whole country and if a regional difference that got large happened the national firms would grab the business. I concede ESOPs is a much smaller world than 401(k)s people are more willing to have their professional not very local. On the other hand a dentist or other small firm most likely expects their TPA to be in the metro area. So I can see more of a regional difference happening in that case.

My guess you are correct the plan document is the main thing. I am NOT much of a 403b expert but in a PSP, 401k, or ESOP my default answer would be no unless I find something very clear in the document that said otherwise. All plan documents I have read make it clear you pay a terminated participant which isn't the same as an ineligible participant. That is with the understanding you said there are no in-service distribution provisions.

I haven't heard of any numbers bigger than a few thousand from co-works but yesterday was the first time I recall it was mentioned on a company wide basis.

Anyone else now having clients getting tax refunds garnished becasue of this glitch? We have had a few.

Not a lawyer but all TPAs have E&O insurance for a reason. We are required to act in a professional manner and can't be negligent and just say, "well the PA has the only legal responsibility". But as noted this is for a lawyer to opine on if it is worth the legal fight.

I am with Peter here. I am pretty sure any platform of any size has funds that meet most major religion's needs. This seems simple to solve and not solving almost take a conscious decision on part of the plan administrators to just be stubborn.

There is an IRS ruling on this. I don't have the cite. But the person has to be terminated. If there was an agreement to bring the person back they weren't terminated. While not 100% I would look to other indicators of termination. Did they send this person a COBRA notice for example? If not, and normally a person in his position would have gotten a COBRA notice that points to this person not being terminated. I would have recommend to a client to not pay a person as this fact set looks currently also.

How long ago were these 5500 filed? I have found some of the 5500s don't show the auditor's report for a while. This seems long but are they sure they really didn't attach them?

There is a good chance you got it. Old ESOPs can what is known as the have/have not problem. There are no new shares to allocate to the new employees so getting the terminated employees to take a distribution is a source. They might not even be reallocating all the shares in one year but setting it up so the shares are allocated to employees over a number of years. But ESOP companies tend to not like only long tenured employees having shares and the new employees don't. It can cause work place friction. Joe who has worked at the company for a long time keeps talking about how much his stock is worth and how get it is being an owner employee. Bob keeps seeing he is only get a few shares every year and thinks I will never do as well as Joe why should I care about the ESOP?? While this appears to not be an issue currently many ESOP companies like to get the shares out of the hands of their former employees if the stock price is going up. Why compensate a former employee with a higher stock price? Obviously the point is to compensate the current employees. So getting shares out of the terms and to current employees is good human resources thinking in most cases. You want to pay people for current work not past work. It is a win for you since you want out with the price going down. So win/win at this point. They are most likely limiting you to 40% becasue they don't think they have the cash to fully cash out the terms. Hope that helps.

I haven't seen a pattern yet but I have to admit haven't looked for this pattern also.

I just got a call from a 2/28/2023 PYE client. They got a letter from the IRS saying they approved the extension to 10/15/2023 for the 12/31/2022 PYE. I double check we filed the correct extension done right. There seems to be a bit of an issue going on here.

Bird has the right number in my mind. I haven't had to compute a 401(k) loan since 2012 so I am happy to be told I am wrong but based on this IRS example this is the math. https://www.irs.gov/retirement-plans/issue-snapshot-borrowing-limits-for-participants-with-multiple-plan-loans Example 2: Calculation of the maximum amount of loan when there are prior loans. Assume that Plan B permits participant loans (including multiple loans). Mark has a vested account balance of $200,000 and took a loan for $40,000 on August 1, 2013. On December 1, 2015, when the loan balance is $25,000, Mark wants to take another loan from the plan. The loan balance on December 1, 2014, was $32,000. The maximum amount that Mark can borrow is $18,000. This is calculated by first determining the repaid loan amount for the one-year period before the loan was made. That amount is $7,000. It is the difference between the highest outstanding loan balance for the one-year period ending on December 1, 2015 ($32,000) and the outstanding balance on the day of the loan ($25,000). The $50,000 limit is reduced by the repaid loan amount to $43,000 ($50,000 - $7,000). Therefore, the maximum amount of the new loan is the reduced limit minus the outstanding balance on the day of the loan, which is $18,000 ($43,000 - $25,000). So for the original question: Step 1: The difference between the highest loan balance and current balance is $20,000. That number subtracted from the $50,000-20,000= $30,000 That is the step 1 limit. Step 2: 75,000*50%= 37,500. You take the current loan balance from that number 37,500-15,000= $22,500 Step 2 is lower so that is the max loan and the number you were expecting. Maybe the math of step 1 will always mean step 2 is lower if the balance is <$100,000 as noted above. I will allow someone who cares more to work that math out. However, the error in the original comment seems to be taking 50,000-37,500 vs the difference between the highest loan balance and the current loan balance of $20,000. I guess you might want to send the IRS link to American Funds and ask them why their system doesn't sync with the IRS' example.