ESOP Guy

Balance forward method of recordkeeping is what all plans were before computers got to the point you could do daily recordkeeping. Typically balance forward is done with pooled investments. That is to say everyone is in the same investments or pools of investments. So everyone in the stock fund is in the same stock fund. Unlike daily where we can tell you how many shares or units of the fund you have this is just a large pool and none of the investments has anyone's "name" attached to is. So when it come time to allocate earnings you have to come up with a method. To use a simple example assume no new money comes into or goes out the plan during the year except earnings. Someone whose account that represented 2% of the pooled account's value would get 2% of the earnings. In the real world there is money coming in and going out. So you have to make assumptions/rules on how you handle those. Typical was Beg Bal - dist - forf + (50% of 4k def during the period) It was always great if these was defined in the plan document but it wasn't always there. So you would use that formula for on each person's balance as the numerator and the sum of everyone's numerators is the denominator. That got you the ratio of any given person's share of the earnings. That is the short balance forward history lesson. I have never worked anything but balanced forward back when I did PSP and 4k work. Now that I work ESOPs they pretty much are all balance forward for the cash investments. Hope that answered your question.

A few observations as we are getting way off topic. I do appreciate MoJo's view and classic views about who should practice law. There is however the theory and practice. With both the law and medicine the licensing requirements are in a large part a protection of the public and in part (only part) a legalized barrier to competition that has created two of the highest paid professions in this country. On top of that because we have a near irrational public policy of subsidizing higher education many of us lower paid taxpayers get to have a good chuck of our tax dollars subsiding those who choose to enter those professions ability to do so. This is via public universities using tax dollars and the various student financial aid. it is true this is has some truth to my profession as a CPA but the only thing we really can do a non-CPA can do that is big dollars is auditing. I have to compete again non-CPA tax prep, bookkeepers, consultants.... So I might be open to a charge of double standard. But law and medicine pretty much you have to join the "priesthood" to practice. And while their compensation has to do with skill, risk and compensation for spending years in school instead of earnings money during their 20's... some of it is simply a legal barrier to competition premium. This even becomes worse when for example I have had to hire a lawyer for a house closing (back in the '80s at least in the Chicago area everyone has a lawyer for a simple home purchase for some reason. I was 23 so I did what all the other adults were doing.) And that lawyer just sent a paralegal to the closing who barely looked at the forms. All the forms were standardize forms and it seemed like the Title Company who ran the closing did most of the work and I had to pay them a closing fee for that service. It screamed out for the creation of something like a license for a residential paralegal that allowed the paralegal to compete with her boss. My guess is back then she was making <$20/hour and I was being billed close to $350 for that hour of work. In that case I think the barrier to competition premium was very high. There are just times when I use a lawyer I feel like I am paying for that service twice. Once to help them get the education to become a lawyer and then again when they use that knowledge on my behalf.

Isn't this the same question in a different thread?

Not the correct fix. My experience is a VCP will most likely go your way since you can show it was a mistake but in the IRS' mind a VCP is the only fix. Anything else and you risk the IRS disqualifying the plan

I am happy to be told I am wrong. A couple observations: 1) In a sense you have to tend it because the HCE average can't exceed the NHCE average. 2) I have never seen a points based plan that doesn't include serviced and comp But reading it again it does seem to say you can skip the points based on comp. So maybe I am wrong.

No

I have seen QDROs that have taken months from start to finish to get approved by a everyone and the court. The lawyers are as a profession they aren't focused on the address but the terms of the QDRO. So the AP has moved out of the family house as noted above. They might have started by moving to a relative's or the first apt they can find. In the time since then they have moved to where they are going to be going forward. So I have seen the QDRO have the wrong address for the AP. Some times the law doesn't care and maybe this is one of those times. And yes I would think when you got the QDRO vs the last address update would be an important factor.

Getting completely off topic now. But my first job out of college was working for the IRS. I co-worker caught a guy with fake travel and entertaining deductions one time. What did the guy in was when my co-worker noticed all the "receipts" from the primary restaurant he took clients to eat at were in perfect sequential order. The guy finally admitted that he got a receipt book (it was the '80s so most tabs were still hand written on a paper form) from the restaurant. He was just using different pens and had different family members list out the order and he had the right costs. He thought of everything but the fact they were numbered. It doesn't matter when doing this kind of stuff you can think of 100s of things to get correct but it only take missing one to get caught. The odds aren't in your favor.

I guess you will just have to have the client sign a bunch of blank amendments and fill in the contents later. The first TPA firm I worked for in the early '90s he did a version of this all the time. People would come to him late in December wanting to set up a plan for a tax deduction as they realize they had made good money. Their CPA had told them the plan had to be in place by 12/31. There were time when they would call him on 12/30 or 12/31. He would fax them the signature page of the prototype plan and tell them to sign and date it as soon as they got it. He would meet them some in in January to complete the rest of the prototype plan provisions. As RatherBeGolfing says were there is a will....

I have worked in this industry in some form since the early '90s. In all the TPAs and one bank the primary way it was there was one person who did almost all the work. At the bank there was a relationship manager. In most of the TPA there was some kind of business development function. But as a rule I was the face of the firm to the client. My guess it has been that way because of self selection. I interviewed one at a firm that all functions were specialized and I was going to be the manager of the distribution group. I did not care for the idea I would not be working on all phases of the plan. The one observation I will make and maybe others can comment on this also. The places I know that have a distribution group, contribution group, testing group...... the one thing they had in common was they offered a very narrow set of plan documents. This was how they kept their costs down. They might have an A, B and C document. If you were in the distribution group you could look up the client and see which of the documents they had. If it was an A document the distribution rules were set and there was a flow chart explaining how they worked. By doing this you didn't have to get people with college degrees to do a lot of the work. So the pay was lower for many of the people. For the distribution group I interviewed to be the manager of the group I was going to be the only 4 year degree person in the group. You didn't need a bunch of accounting majors to do follow one of 3 flow charts all day. I have always worked in the TPA firms that sold themselves as we were willing to give the client pretty much what they wanted if we could agree on a price. So that takes someone who can read plan documents, who can listen to a client and hear when they are saying the participant statements needed to be changed, or they need the firms website to do something new.... I need to be as much a problem solver as a processor. Both models have their strengths. The limited options and highly specialized model can get work done at a low cost my current employer will never be able to match. On the other hand if you want to customize your ESOP benefit program as part of your overall benefit structure the firm I work for now is easily a top tier firm to be working with on that project. (I will stop selling the company I work for now.)

Agree with Tom and at risk of pointing out the obvious what stops you from taking too many people out of the match eligible group is the fact the match in this case has to pass the coverage test on its own. The easiest form of that test is the ratio test. Those people are factored into that test as includable but not benefiting as a general rule. So if you excluded too money people you won't pass the 70% mark on the ratio test for the match.

No one seems to be questioning using the address on file vs on the QDRO is an error. I am not an expert on this but using the address on file seems reasonable. I have seen addresses on a QDRO be wrong if it takes time from drafting to filing with court and the person moves. So has there really been an error? I am happy to be told either "yes" or "no" but to me everyone skipped that step on the analysis. Maybe becasue per the law it is obvious it is an error but I thought I would at least ask the question.

I agree unless this person has great documentation about the conflict of interest parts which if true are look like Prohibited Transactions let the DOL decide if there is something and do the legwork to document. An attorney working for the participants has to go to court to get a subpoena if it comes to that but the DOL can make a company comply often times to document requests. Let's be clear here we have only heard one side's story. While it could be true there can be an other side. But the DOL has the best chance to decide which side the facts line up with. If I thought there was a less extreme action like talk to management that could clear this up I would advocate that like I often times do when people come to this board with such stories. But in this case I am just not seeing what the conversation would look like. I doubt management is going to show ownership documents and leases even if there is nothing going on. That just isn't something you typically do as management.

If what you are saying is true there are issues. It is mostly in the areas of the leases of building they have interests in. These can be a problem. As a rule there is nothing wrong with hiring relatives as long as their compensation is reasonable. It seems to me it would be hard to prove a case here unless it is outrageous. Likewise bonuses in themselves are not a problem as long as they can be found to be reasonable compensation. How much to compensate someone can be as much art as it is science. Let's be clear here just because things go badly isn't a violation of the law. Business is about risk and some times those risks turn out badly. Yes, the trustee is often times the one who is supposed to ask the hard questions on this. I almost never recommend going to the DOL as the first move. It is an extreme action that is very hostile. It can cost the company a lot to defend against the DOL and the money spend doing that is money not going into your pocket often times. But in this case if you think you can document it well go to the DOL. I am not aware of too many private actions you can take regarding what you are talking about. If you can find an attorney willing to take such a breach of fiduciary lawsuit you might have something. I just not heard of this kind of action. We see 401(k) fiduciaries getting sued over fees but there is a lot more objective data to use in a court. I am sure in the morning the attorneys who show here can speak more to that. But my guess is just about the only choice you have is trying to get the DOL to get on your side. Give us further updates as events unfold.

If you are the current spouse then you have to consent for anyone other than you to be the primary beneficiary. Since your other thread question is about a QDRO note benefits covered under the QDRO are the ex-spouses. With a 401(k) plan, a spouse most likely doesn't have to consent for a distribution to happen so if the money leaves the plan and goes to an IRA that can change everything.

You might want to try some informal ways to reach out to the deceased's spouse. I have had great success in the past finding and getting beneficiaries responding to me by doing things like if a former co-worker knows the beneficiary have them know these letters are legit. You don't have to share any confidential information but by having a know person start the process it helps break down barriers. With cell phone now a days people rarely delete numbers so a former co-worker may have been close enough to the deceased to know the family well enough to have a number to call. if the spouse is old and now grieving they might not responding thinking this is a scam (think Nigerian e-mails which promise you money if you give up information) or too confused. So in short maybe try something that comes across as less legalistic and formal as a certified letter to break the ice. Also, we recently had a thread that was similar facts. You might find the conversation about how much duty the fiduciaries have to resolve who is the beneficiary helpful-- or not since there was no agreement on that duty,.

This appears to be an areas of new focus for the IRS. I have had two clients in the last 6 months or so who have ESOPs come under IRS audit. In both of them there was a huge deal of were they making force out payments. In one the plan won because the language in the ESOP document said the plan administrator "may" force the person out if the balance is <$1,000. The IRS auditor backed down in the end saying there was an issue because they hadn't done the force outs. Being DC plans the issue of earnings can't come up. But I think this should serve as a warnings this is appears to be an new area of focus for the IRS. I can't help but think some memo didn't go out about this and the auditors are following orders. By the way pointing out forcing out a lost participant to one of the companies who take such IRAs will often times be more expensive then keeping the money in the plan didn't seem to go any where for my clients either. I know of plenty of such places that charge a flat $50 annual fee on such IRAs. On a $1,000 balance that is obviously 5% of assets. Most ESOPs the sponsor pays 100% of the plan costs.

Can't help with original question but had the same thought. Given the other two options it seems like a way to get out from poorly written policies they have decided in the long run will cost too much vs premiums being paid. The other two options pretty much put more money into whoever is taking over the polices pocket.

So far I am not seeing a mistake of fact. You don' t actually say what year he deposited the money. It is assumed in some of the answers it was before 2017. If in fact it was deposited in 2017 but before the calculations then you can at least delay the problem for a year. Part would be a 2016 contribution and any amount above that is a 2017 contribution. That is of limited use if there isn't going to be 2017 income obviously.

This strikes me as one of those situations were you point to the provision that is in all plan documents that says the Plan Administrator has the authority to reasonably interpret and apply the plan's provisions in a non-discriminatory manner. Based on the debate it is clear there is no set guidance on the issue in plan language or law. So decide what the plan's policy on this is going to be. Document the reasons and thinking. Document the policy as decided and be consistent. I for one if I was a Plan Administrator I would set the policy of one bite at the apple but I see the other sides point.

The relationship between the CEO and advisor isn't prima facie evidence of a problem. It could be a red flag. To become a problem there would have to be something else happening. For example decisions have to be for the exclusive benefit of the participants. Back in the '90s I recall a number of banks made as a condition for the plan sponsor to get the loans the company needed they had to move 100% of their business to the bank. So the bank got the company's checking account and since more banks did 401(k) work in their trust departments the 401(k) had to be moved. Even if you could show the costs were about the same this raised exclusive benefit rules questions. In the end if the investment advisor is helping the company get funding or some other service besides the 401(k) plan and there is some other conditions upon this whole relationship then it would become a problem.

I know nothing about these forms but when I have concerns about letters regarding other forms I call the IRS numbers in the instructions for the form. You know it is a good IRS number and they typically know something about how the IRS follows up with taxpayers if they have an issue. There simply has to be someone at the IRS using an established phone number that can tell you if this is a legit format for a request or a known scam or if something doesn't seem right.

Something in the back of my mind says the number of years without a contribution triggered a presumption of a plan termination but it could be refuted on a facts and circumstances basis. If they have a long history of putting in a contribution and then 2008 happened and they are still working to regain their financial stability can you make a case there has been no plan termination? I could be wrong but something in the back of my mind is going that way.

Note this isn't just 401(k) plans this is all DC plans. So this would include ESOPs which almost never have anything other then trustee directed. There are a few KSOPs and a very rare ESOP that allows for participant direction of their diversification accounts inside an ESOP. Going back to my days when I did balance forward DC plans and ESOP (2009 was the last year) my experience is very few 401(k)s don't allow some kind of direction. Even the balance forward PSP and 4ks we had still allowed quarterly or monthly changes. Primary reason we had any PSPs or 4k plans that were balance forward was becasue the sponsor wanted something about that plan's running the large plateforms wouldn't give them. They had favored investment advisors or some servce our practice was willing to give them if they paid us for the service. We weren't the cheapest TPA by a long shot but we pretty much gave you what you wanted. For example: We had a client that had favored investment advisors. They wanted us to give them monthly reconciliation and earnings allocations that included specific guidelines on the ROI for the advisors within days of the statements coming out. If the advisors missed the agreed upon ROI benchmark too many times they were replaced. On the annual statements it included a life to date break down of the companies PSP contributions by year. For some people it went back to the late '60s. This had a total so the person could see how much of their account was company money vs earnings. They put in a near maximum PS contribution every year for their people. They paid us great money for those services and were happy as can be.

There are plenty of solid, low cost mutual funds that will set up an IRA for $1,000. I would add this program only offered one terrible invest. You could invest US Treas that paid a little over 2%. The cost for one investment option that is the government's own bonds should have been much lower then the numbers we are seeing.