ESOP Guy

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.

This reconciling note in the auditor's report can be used for any difference. It is under used in my mind. While most of my 5500s and the auditor's reports agree there is no rule that says they have to agree. The auditor merely has to put a reconciling note in their report detailing what and why the difference. I see them 1 or 2 times a year.

If you decide I have it wrong because of the nature of the trust let me know. I dislike trusts for payments as they make things too complex. And I for one agree RMD rules are too complex. For one thing it is taking a sledge hammer to kill a gnat. I get the government didn't' want large balances to be taxed at some point but they have made a set of rules that effect all balance sizes that are some of the easiest to get wrong.

I thought the 9/30 deadline is when certain decisions had to be made by not the split.

So a trust is being paid? If so, I believe it is the participants single life divisor in 2016 minus 1. That is the rule for a non-person being paid. I believe you use the oldest beneficiary's age only when the beneficiaries are going to be paid directly (including them doing a rollover) AND the account has not been split by the 12/31 the year following death. It is important in this case the first payment isn't to a non-person like the trust.

The times I have Googled a retirement question it is amazing how many times a thread on this board is the top result!

I am with TPAJake on this one. The union bargained for the benefits provided with the union plan but there was no bargaining with regards to the plan being set up. I would get a lawyer to opine if that is a problem.

I am still not sure your reading of the code is solid as you say. I used the word day here is the exact language from the code: the outstanding balance of loans from the plan on the date on which such loan was made, or Clearly the IRS reads that as meaning before the new loan is issued. It would be interesting to know if the example (or something like it) is in the regulations. (I don't care enough to check as I think Juan is wasting his time this stuff was put out over a decade ago and is about as settled law in the pension world as settled law can be). But if it is my experience as a tax CPA over the decades is unless you can show the IRS' interpretation of the law in regulations is simply contrary to the written law the courts give a lot of deference to the IRS. Maybe this kind of stuff even ties into the recent discussion of the Chevron Doctrine that has come up for debate recently in SCOTUS news. In the end maybe you are right Juan the IRS' postilion is too extreme or doesn't make sense. But I have worked in this field since the very early '90s and before these rules the abuse of loans was rampant and these rules ended most of that. Yes, I understand good intentions aren't law but it is simply true. Back in the day I used to work on a balance forward 401(k) plan for a small employer (back then all small employer 401(k) plans were balance forward). Two weeks after I issued the certificates to the employees the same two brothers would come in asking to refi their loan. They would take the loan up to 50% of their new balance (the plan had a PS contribution every year). They would move the final payment day back out to 5 years from the date of request. It was clear they intended to retire with 50% of their retirement money in the form of a loan to themselves. That for better or worse was seen as public policy to give tax deferred benefits to. In my mind they were adults and they want to spend their retirement money now and eat dog food later so be it. But my guess is those guys now are retired and my taxes are paying for them to live as they are in poverty as they clearly couldn't save. Off my soap box for now.

Getting way off topic but.... I to this day think the late '60s to the late '70s was the golden age of album cover art. To this day one of my favorite one is Rush's Moving Pictures album cover. It has a triple entendre: On the front cover you see the members of Rush carrying art work into a museum looking building. They are moving pictures. On the back cover the band is watching a movie. The old fashion term of that was "moving pictures". On the side of the album cover the band can be seen crying while seeing the pictures. Thus, the pictures are emotionally moving pictures.

Just remember the union exclusion rule does NOT say you can exclude a union member but you can exclude a union member if their benefits have been subject to good faith bargaining. People tend to short hand the rule by saying you can exclude union employee. And 99.99% of the time that works as the union will have done the good faith bargaining. However, has there been good faith bargaining regarding those ad hoc employees not being covered? I am not saying there is an issue as much as I am asking if this is an issue that needs to be looked into?

I would add some rock historians claim Disco Demolition was the first event that marked the start of the death of disco in the US.