ESOP Guy

I am curious why do they want to allocate the dividends on comp? To me it make as much sense as saying in a balance forward PSP let's allocate all the earnings on the investments on comp instead of balances. I can't cite anything one way or another but I am not sure I have seen ALLOCATED dividends done this way. I have seen crazy things with unallocated dividends. The only real question I would have is this causes everyone's stock to have a different dividend rate. ESOPs are supposed to have stock that gets the same dividend rate as any outside shareholders. This would be true in the aggregate but not true by person and that makes me uncomfortable at a minimum.

I am with david if I have to make such an interpretation I question if it is a QDRO vs a DRO. This is why I urge my clients to urge their people to submit drafts of the DRO to see if we have issues that can be cleaned up before they go before a judge and it is final. I understand why people are reluctant to do that. Since it sounds like your past the draft stage the above might not be helpful. We have accepted letters from both parties (we like to have some evidence their attorneys bless the whole affair) to clarify how earnings or some part of the balance is to be split if it is vague.

I agree they should say something that you can have a taxable amount and a code G. That is typically what hangs people up. They have it in their head that a code G means there is no taxable amount. It never says that but given the history of the code I see why people think that. So it would help to say you can have a taxable amount and a G in light of that historical context.

From the instructions: Use Code G for a direct rollover from a qualified plan, a section 403(b) plan, or a governmental section 457(b) plan to an eligible retirement plan (another qualified plan, a section 403(b) plan, a governmental section 457(b) plan, or an IRA). See Direct Rollovers , earlier. Also use Code G for a direct payment from an IRA to an accepting employer plan, and for IRRs that are direct rollovers. Note. Do not use Code G for a direct rollover from a designated Roth account to a Roth IRA. Use Code H

G

I would put any and all D's you think were not reported on the current year's 8955-SSA. I have never seen the IRS really look much at the D's vs now I have had 2 ESOPs under audit from the IRS in the past 2-3 years have questions about our A's. But most important one of the biggest pains is one of those people who have been paid who was reported as an A getting the letter from the SSA saying they may have a benefit due and they demand you prove they were paid. Just search for those threads on this board and the one thing you want to avoid big time is having to search what can be as old as 20 or 30 year old records to find a check or 1099-R to prove they were paid. As far as I am concerned when in doubt if you know the person has been paid but not sure if a D has been done (or you even doubt an A was done) file a D to stop that possible letter. Once again I have never seen someone get in any trouble for filing a D you can show the person was paid. I have seen people spend lots of hours proving to someone they were in fact paid when they get one of those letters. When in doubt D!

I am really glad to hear you found a professional who will work with you pro bono. Let us know if you need any other suggestions and good luck in your endeavors to help this lady.

Now that I think about it maybe that is the reason I don't see it ever is it can't be done. But I have a recollection of having a client that did it. But maybe they were doing it wrong.

It has been a long time since I have had a discussion about allowing non-employees roll into a plan but I seem to recall there are reasons why you don't see it pretty much ever. Can it be done? Sure Is is a good idea? That is less clear to me. So allow me to ask the questions that come off the top of my head. Does this plan get charges a per participant fee? If so, who pays the fee? Does it make sense to add a person who adds a fee if the fees are spread across all the participants? Is the only spouse likely to do this a spouse of a HCE? Will that cause discrimination issues? There might be other practical issues you want to think about.

I can't imagine why I would want one and I always have a balance!

No the person doesn't pay the 50% penalty because the RMD happened. The 1099-Rs ought to reflect that fact. One should show the RMD being made and another showing a rollover to teh IRA. The issue is the RMD is in an IRA. So they can be issues/penalties because money has been put into an IRA that can't be there. I haven't answered your 2nd question because I am not sure I understand it. The one part I think I can answer is a payment to Alt Payee because of a QDRO doesn't count towards the RMD and the first dollars of that payment are NOT the RMD. I am just not sure what you mean by a payment TO a participant as a loan payment or advisory fee payment.

Thanks Tom

I am still trying to see how it could make a difference but I admit SH plans aren't an area I have a deep knowledge about.

I get this is a hard issue and no on wants extra expenses but you need to find a way to encourage this lady to get in touch with a CPA to help her with the tax returns that have not been filed. Does this lady have any family? It sounds like there might need to be some kind of discussion of setting up the legal infrastructure to allow a trusted person to help her with her finances before these issues become even more expensive. And yes the IRS can go after such money so being proactive is best.

The only way I know how to do this right is chart it out in a spreadsheet. You need to keep straight the Annual Additions are plan year based and the 402g limit is always a calendar year limit. 1) So you make the first cell in your spreadsheet 1/1/2015 to 10/31/2015 deferrals. 2) Next is you need a cell that is 11/1/2015 to 12/31/2015 deferrals. 3)You next need a 1/1/2016 to 10/31/2016 deferrals in a cell. 4) You need 11/1/2016 to 12/31/2016 deferrals in a cell. 5) Since you are asking for PYE 2016 Annual additions you need all annual additions beside 4k in the last cell. A) 1+2 = is what is compared to 402g for 2015. Was there any catch up in 2015. If so, we tend to treat them as being part of 2 so it is in the current plan year. I am not sure I can give you a cite. I have been doing it that way for a long time. B) 3+4= is what you compared to 402g for 2016. Same assumption it is 4 where there is it went over the limit 5+3+4= Total Annual additions for PYE are you over 415 limit? If so, is there any room in catch up from B as we tend to use that same thing we use PYE to decided what calendar year to do the shift. I hope I did that right. We have a standard spreadsheet around here we use. I am not sure I can give cites on using those end of the year of PYE as the point the overage happens but we are consistent on it and doing for a very long time.

It has been much longer since I worked on 4k plans but I don't see this correction as a QMAC. I see it as simply a correction and I would subject the correction amounts to vesting. Once again the guiding principle to SPC and VCP corrections are to make the person be the same as they would have been if no error had been made. This isn't the same thinking with ADP or ACP failures. In those cases you have a choice at least at first to refund or add money to get the ratios to work. If you think about the refund option would get the people back (or at least it used to before they made the rule about refunding the person who deferred the most instead of having the highest ratio) where they would have been if no error had been made.

It sounds like you are correcting missed Employer Discretionary Contributions. If so, these aren't QNECs. To me they are simply a correction. I would subject the corrected amounts to the vesting schedule. The point of any correction method is to get a person back to where they are no better or worse off had the mistake not been made. To give them more vesting could make them better off then if the mistake wasn't made. What I just described is how we do it any time we do this type of correction and when done via VCP it has always been blessed by the IRS. As for VCP or SCP it depends on how many people and how many years. I forget the exact words the SCP rules use but the error can't be significant and frequent. So if it a large group of people or over many years I would lean towards a VCP. In the end I would get an ERISA attorney's opinion unless it was just 1 or 2 people over 1 or 2 years.

Link to instructions as I was about to say the same thing as CuseFan https://www.irs.gov/pub/irs-pdf/i5500ez.pdf Page 2

Here are the regs on this: Q-7: When is a distribution from a plan a required minimum distribution under section 401(a)(9)? A-7: (a)General rule. Except as provided in paragraphs (b) and (c) of this Q&A, if a minimum distribution is required for a calendar year, the amounts distributed during that calendar year are treated as required minimum distributions under section 401(a)(9), to the extent that the total required minimum distribution under section 401(a)(9) for the calendar year has not been satisfied. Accordingly, these amounts are not eligible rollover distributions. For example, if an employee is required under section 401(a)(9) to receive a required minimum distribution for a calendar year of $5,000 and the employee receives a total of $7,200 in that year, the first $5,000 distributed will be treated as the required minimum distribution and will not be an eligible rollover distribution and the remaining $2,200 will be an eligible rollover distribution if it otherwise qualifies. If the total section 401(a)(9) required minimum distribution for a calendar year is not distributed in that calendar year (e.g., when the distribution for the calendar year in which the employee reaches age 70 1/2 is made on the following April 1), the amount that was required but not distributed is added to the amount required to be distributed for the next calendar year in determining the portion of any distribution in the next calendar year that is a required minimum distribution. https://www.law.cornell.edu/cfr/text/26/1.402(c)-2 Note it is clear and say if an RMD is required for a calendar year the amounts distributed during that year are treated as having the first dollars be the RMDs. Note is doesn't say amounts distributed after the person terminates and then an RMD is required. If at any time in a year an RMD ever becomes required for 2017- which your facts say "yes" to that idea- any distribution during that year has the RMD in it. It can literally become a retroactive RMD upon the person's termination. So while it is true if you give this lady an in-service today there is no RMD in the amount paid. If she quits any time in 2017 then any payment in 2017 has an RMD in it. So if that RMD ended up in the IRA it doesn't belong there. This idea you might give an in-service not knowing if the 70.5 year old person might terminated later is a known quirk but how I described it is clearly how the regs read.

As a practical matter in the IRS' mind it seems like it is more the a rule of thumb. I am not really disagreeing here (I think) as much as expanding. It seems like any time we have an IRS auditor before one of our clients and the ratio goes over 20% in their mind it becomes a presumption there was a Partial Termination that you now have to rebut. We have had some interesting times with IRS agents with our staffing firm and convenient store clients. When I software calculates the ratio to help us decide if there is an issue or not those clients are often times in the 80%+ range. We have had to go to the auditor's supervisor on some of these to get them to back down on making all terms 100% vested. By the auditor's logic those industries can't have anything but a 100% vesting sch. One last observation: Since this is a facts and circumstances determination you need to at least be open to the idea of a 15% or 10% RIF could be a Partial Termination. RIFs at that level do get looked at less by the IRS as they focus on that 20% level for their presumption but the way the law is written a lower level could require 100% vesting.

What do DOL auditor care if the person benefits or not? it isn't their money there are rules to be followed. At the risk of getting ideological while government is necessary this is big part of why it will never run well. There is no go way to align the employee's compensation to the actual good public policy. You can't have them making up their own policy as the attachment in the original post makes clear as some will demand things like you make all possible effort to find there people. You can't write a rule that covers all situations. You wish you could count on good regulatory discretion by them but there is too much evidence to the contrary.

So is the Sponsor not willing to declare a contribution equal to the remaining forfeitures?

I don't think that solves the issue if you mean you gave her 100% of her balance today. If she terminates in 2017 (even after the payment is made) then she still needs a 2017 RMD. The amount in the IRA that would be the RMD is no longer allowed in the IRA. Which means she has to get it out of the IRA NOW (not next April) and the plan should still prepare two 1099-Rs. One showing a taxable distribution and one show a rollover. The only way that solves the problem is if she moves her retirement date to at least 1/1/2018.

I would ask the Plan Sponsor to go back and declare a PSP contribution for exactly what is left so you can allocate the forfeitures. I agree they shouldn't have any objection to do that.

I would start with talking with your former employer and see what they think happened. It is their duty to get it right and get it fixed. So take some pay stubs to them and ask if loan payments were taken from my check why is Fidelity saying my loan wasn't paid? Make sure Fidelity isn't saying your loan in now in or heading to default because of your termination and something in the loan agreement says upon termination the loan become 100% due. Most plans give you some time to repay if you have the cash but that is a possibility. If they don't give a good answer come back and the professionals here can help you come up with good next steps.