ESOP Guy

I lived in Chicago back when Disco Demolition happened and that still doesn't do what happened justice. Watch some of the Youtube videos of it After the DJ blowup and set the disco albums on fire a full fledged riot between pro and anti-disco fans broke out. The game was called and if I recall correctly it this was the first of a double header the the White Sox had to forfeit both games.

I would add if you look at the example Mike P links to one of the quirks of these rules is you are often times better off taking a 2nd loan (if the plan allows) then repaying the 1st loan. In that example the person with an $80k balance and an $18k loan balance could take ANOTHER $22k taking him to the $40k limit. (IRS seems to ignore the 12 month look back part of the rule in the example.) If the person in the example pays the $18k he can take a $23k loan. But that nets him an only an additional $5k and his total loan balance is the $23k. Everyone I know seems to acknowledge this is an odd quirk but also how the rules work.

The problem isn't his cite it is his math or maybe his understanding of the words in the Code. When you write this you are wrong: 50,000- (49,000-49,000)=50,000 The amount of current outstanding loan the moment before the new loan (and moment is a better word to understand what the IRS is means when the say day) is $0 So the math goes like this: 50,000-(49,000-0)=1,000. Look at the IRS example in the link provided by Mike P. If you don't like how the IRS is using the words " the outstanding balance of loans from the plan on the date on which such loan was made, " take them to court and good luck. But what they have consistently said in examples, regulations and so forth is the balance the moment before the new loan is issued is what those words mean. .

Is the term "Bozo No No" found in the regulations?

As for corrections if they don't want to make everyone whole they could file a VCP and try for a retro-amendment. Since the retro-amendment would only mean the HCE stay at the lower benefit level the IRS MIGHT bless it. An experienced ERISA attorney could give better insight on those odds.

Before you go too far down the path this is an operational failure double check the plan doesn't allow some place for everyone to be in their own group. That is this plan's best hope is that provision is hiding in the document some place.

I do think the sentence would read better if it started this way: Under this method, the employer takes reasonable steps to have the Overpayment corrected,

I believe you are looking in the wrong part of the notice. https://www.irs.gov/pub/irs-drop/rp-16-51.pdf On this pdf see page 31 for small overpayments (limit $100) so not your issue but I thought I would point it out. Then see page 37 for corrections overpayment DC and 403(b) plans.

Or the distribution fees which is a place I think one could really complain about. I have seen $100 distribution fees in 401(k) plans charged to the participant. That seems easier and cheaper to get then some loan processing fee on terms.

Ac Actually I thought employers put these plans in place as part of an overall compensation program for their employees. It make little sense to send money on a former employee instead of the current employees. Nice hypothetical, sob story that doesn't represent anything close to a large minority of 401(k) loans much less a majority.

Why isn't the plan's job to get the withholding back? Depending on how the withholding was done it is possible to make a smaller deposit on a later need and make all the forms reconcile. In other cases you might have to get a refund. But so far it looks like the participant did their part for the correction. I wouldn't have made the participant pay back the withholding in case that isn't obvious.

It crossed my mind as being true as I used to be an IRS and this smelled bad. But I am not sure there is anything one can do about it now.

This law firm raises the issue if a state court can't enforce the loan is the loan adequately secured? If not, do you have a technical PT and operational failure. If that happens then it would be a serious repercussion. http://benefitsbryancave.com/florida-stamp-tax/

Was the purchase of the father's business an asset purchase or a stock purchase? Does that make a difference in terms of counting his service as an independent contractor?

Just spit balling here but why can't he count is service as an independent contractor? If he owns a company now isn't his time as a sole proprietor part of his controlled group? I am not sure of this as I can't remember the last time I did a plan for an unincorporated business. But the claim isn't he gets to count the service with his father's business but as his own business before he purchased the father's business. After all he could have set up a KEOGH or a solo 4k plan for the two years he was an independent contractor. Had he done so he would have gotten two years of service in that plan. Maybe the question is can you count service for vesting before the plan exists and I think you can do so. I know he could write the plan for the new company to say all employees employed as of 1/1/2017 (or whatever year he set up the plan) enters on 1/1/2017. So can he count the service before the plan exists for plan entry. I am not sure the rest of you aren't looking at this incorrectly in terms of what business the prior service one ought to look to. It can't be the father's but he had a business for 2 years as an independent contractor. I am ignoring the employees for the father's plan at this point as that seems covered.

You really want to think through the practical issues before you change a plan to do this. How will this person pay the loan back? if by check do you have a system of tracking and controlling the checks so they aren't lost/stolen when received? What happens if the check bounces? How does this cash get transmitted to the trust? Do you really want to spend all this time and energy for a former employee? I have seen exactly one plan that did this and they valued their former employees. It was a very successful management consulting company. They treated their alumni very well becasue they often times became members of upper management of companies. This give this consulting company an "in" to generating new business. Otherwise I have never seen anyone think it is worth it.

If you can make regular and fixed increase payments on the plan loan you MIGHT be able to refinance the loan to a shorter period of time. But you are then locked into the new loan terms. You will most likely not be able to go back to the old terms. There may be a cost. But if what you want is random extra payments that is most likely not going to happen with a plan loan. Retirement plans offer loans but that is not their main purpose/business so they aren't going to have the features of a bank.

Seems like you are getting too tied up by the nomenclature and not looking at the facts. Let's re-label the "profit sharing contribution" they have the choice on to "bonus paid based on profits". If it is a bonus does that make the answer easier to you? it does to me. It is clearly a 401(k) deferral of a bonus based on profits. it is clearly taxable in the year paid and thus that is the limitation year you look to.

The easiest way to know if they did what you recommended is go to the EFAST 2 website run by the DOL and look up the Form 5500 for this plan. https://www.efast.dol.gov/welcome.html In the upper left hand corner is a search function. If you know the plan's EIN or name you should be able to find and see the Form 5500 as they are public filings.

Like so much of this stuff it can be more nuanced. That statement is true as long as the people who aren't fully vested are given the ability to take the dividend and the employer is deducting the dividend. I work with several ESOPs that only offer the ability to elect to take the dividend to the fully vested employees. The non-vested employees simply have no choice the dividends stay in the plan. The employer can only take a deduction for the dividends paid to the full vested employees.

If this is a KSOP you can have pass through dividend payments happen. They aren't supposed to be treated as regular distributions. There are rules on how they are supposed to happen and there is even a special 1099-R code for these payments- it is a "U". I don't know if I have ever seen a specific answer to the hardship question either. Sorry, we aren't exactly helping the OP much. My guess is this isn't a fact set any of the rule makes thought of so there is no solid guidance. When that happens we often invoke the plan provision that give the Plan Administrator the ability to interpret the plan document in a reasonable manner that is non-discriminatory. The fact they have been doing it the way they have been doing it might have set precedent unless you can make the case it is wrong. The fact they aren't regular distributions is the strongest fact pointing to the old method is wrong. Whichever way you go I would get it determined, documented and done consistently going forward. In the end the plan's ERISA attorney (maybe that is you) might have to opine on this.

To be clear when I said treat this like a lost participant to me that means you have some duty to try and find them. Before you can forfeit the balance that is part of the process. The DOL is clear on this point you have to do a search. What I am unsure of what that looks like with this fact set. They aren't lost in the sense of unknown address but lost in the sense no one seems to know who the heir is. That is why I haven't comments before now on what that search would look like but some kind of search seems needed. Not sure it will help much as it seems like you are in contact with of some family. But I have had great success in the past finding missing death beneficiaries by finding the person's obituary online. They often times list surviving family. In one case it listed the name of the church the service was at. The pastor of that church got us in contact with a sibling.

I wouldn't be shocked if you don't start getting letters asking why you stopped filing the 002 Form 5500 however,

At risk of pointing out the obvious one's faith doesn't have to make sense to you or me. I am not being flippant but I live near some Amish communities and they are at times splitting hairs I don't get but it makes sense to them. They will own a restaurant and want to be able to take credit cards and have access to modern cash management. So they will buy a modern cash registrar and hire a non-Amish person to always be the person who takes the customers payments. This might be the only non-Amish person in the whole place. Some how in their views they are not using forbidden technology. To me it is a difference without a meaning. My brother in-law worked at an HVAC/plumbing supply wholesaler. One of their regular customers was an Amish plumber. He pretty much had a non-Amish driver take him around in a pickup truck everyone assumes the Amish guy owned. This allowed him to get to appointments all over the county and comply with the faith's ban on driving cars. I don't get it but they all seemed happy and right with God. As pointed out they will save money and bring lots a cash to land auction but some how 401(k) match isn't saving or wages to them. I don't get it like the other examples but it does to them and I am not sure one will be able to fully explain it more. If someone here can I would enjoy reading it even if it is off topic.

Your verbiage is a bit confusing but if I understand what you are say the answer is "no". The reason is the regulations are very clear on this the FIRST dollars to come out of the plan in 2017 are the RMD. Your timeline suggest the last dollars in the plan are going to be the 2017 RMD. I would add it a rare plan that allows a partial termination payments. So does the document support the two payment idea?