ESOP Guy

As I read the thread you link to with the exception of the 2nd comment the general opinion on there seems to be it would be a problem/discriminatory. That seems to be the prevailing opinion here. Are you reading it differently? The 2nd comment quotes an informal opinion by the IRS that is over a decade given at a conference.

Another take on this issue: I don't think you can "backdoor" the restriction via an indirect condition that seem neutral in regards to all the people. Years ago I knew of a plan that wanted to offer a Self Directed Brokerage Account (SDBA) but really only to the owner. So the proposal was to offer the SDBA to everyone but announce that due to the cost of doing all the accounting for the SDBA there would be a flat $500 fee to any account that did an SDBA. Ever attorney and TPA I knew back then rejected the idea as discriminatory as the owner was the only one whose assets were large enough to reasonably expect could earn enough in the SDBA to cover the fee and not ruin the ROI on the account. He had millions in his account. The next highest account balance was around $25,000 so he would have had to earn 2% a year to break even after this fee. A $10k holder 5%. A guy with say $2M only had to earn a .025% return to break even after this fee. The point being in this case it was offered to 100% of the employees but a seemingly neutral (and reasonable sounding) condition made it effectively available to the one HCE. (I am ignoring for now if the fee was reasonable and so forth. The current question is discrimination and the consensus back then was the $500 fee would fail a facts and circumstances part of the test.) In fact since then the highest fee for a SDBA account I have seen is $50.

Just an observation: I am a CPA and every CPA firm I know that got into the TPA business is out of it now. They found it didn't work for them. They found they couldn't make the money they wanted or needed to justify it. You need specialist to do the work. It is easy to do an EO if you aren't a specialist. Obviously some people make it work as this forum is full of 401(k) TPA people but it was trendy about 10 or 15 years ago for a CPA firm to go into the TPA business and they all seem to have left it that I knew personally.

I have wondered about this before and if it has ever happened. I guess I know now. I don't think you will find clear guidance on this question. I would favor paying the people and issuing 1099-Rs. I am having a hard time imagining the IRS or DOL having an objection that got these people the money they were do and it being taxes the same way it would have been if they had not become lost. I freely admit I am making this up but any other action I can come up with seems overly complex. The only other choice that makes any sense is pay them and some how claim it is 1099-Misc or W-2 comp. W-2 comp seems like a the worse choice. to me.

If this plan doesn't want to get an audit for 2016 and not get questioned about it I don't see how you have any choice but decide if the ending count of 248 is correct or not. Which means do the count over yourself. If it isn't correct you need to amend the prior 5500. If it is correct I think you need to ask the more worrisome questions was the 84 correct? To be clear being frozen is not a reason to not get an audit.

I have always understood it as a G. Code G merely says it is rolled over not that it isn't taxable.

I have never seen a plan get in trouble for failing to pay an RMD to someone it can show they were diligent in trying find. I would add in most plan documents it tells you what to do with a balance of a person who is lost and you have made a diligent search for them. So following that part of the document also protects the plan. In many cases you can forfeit the balance which means there is no balance to pay an RMD from.

Back when I worked in an office and not at home if I got a fax to my office phone number it was easy to forward the call to the office fax machine before the sending machine timed out. I found most often the incoming fax was for me and they dialed my office phone number from my business card instead of my fax number. If I didn't do that I also found the fax machine kept calling me back again and again. It might have happened only a couple times in 14 years but I did get information not intended for me. So it is slim but I have seen it happen....

To be clear on my earlier comment I wasn't saying we don't have secure e-mail. My point was e-mail once you confirm the person's address is correct in your e-mail address book you know the unsecured or secured e-mail is going to the right person. With a fax there is a chance for human error every time you type a phone number. That alone as far as I am concerned makes a fax less secure then just about any type of e-mail.

You mean some lawmakers think that the possibility of dialing the wrong number on a fax is more secure then mail getting delivered to the wrong person? That has always been the reason I hate faxing anything with SSNs. I can get an e-mail address confirmed correct before I send it by calling the person and asking did they receive the e -mail and demanding they send an e -mail back. Now I know it is in my e-mail address book correct. Every time you dial a phone number you have the possibility to make a typo. This person can't go into the office or go out to the TPA's office every now and then? I think I would think about digging my heels in as this can be sensitive data and the IRS does pay mileage for its field auditors (or at least it did back in the '80s when I was a field auditor for them.). This person seems like they are demanding the taxpayers allow them to be comfortable and I am not sure the taxpayer owes them that duty.

To be clear even a terminated plan would have to keep filing Form 5500s until all the assets are paid from the plan. The last Form 5500 has to show there are no benefits due and no assets in the trust.

What you are suggesting is fraud and it is a crime. Please come up with a different solution. Will a 401(k) loan not work/available? Help from friends/relatives/church...?

Part of the equation is are you willing to pay for an attorney? The DOL costs you nothing but they are the government and move at that speed. They do have plenty of power and if there is something wrong they will most likely find it. They will then work on a correction. An attorney is obviously quicker but more expensive. it is hard to predict how a little saber rattling by an attorney will work. An attorney can help you get a solution also. You just don't know how much time and cost it will take.

I have heard people use it in training sessions back in my 401(k) days. Although I do see I also spelled it wrong.

I would add on the Form 5500 search if you put in part of the name you will get more results and then you can thin from there. Example: You are looking for Dover Manufacturing, Inc. but they have been filing as Dover Manufacturing. If you put the first part in you might not get a hit. If you simply put Dover in you will get every company the first word in the name is Dover in the name. So one of them ought to be Dover Manufacturing.

It MIGHT pass coverage if you test all the Otherwise Excludedables as a separate group and just about all the excluded people don't ever stay a year. Restaurants have terrible turnover so it is possible if you test the people in those two groups.. But if the demographics change on you there better be a plan for a coverage/discrimination failure.

Unless the amendment says something about rehires-- which it should in my mind. I would go with 100% vested. To me this is a risk/cost thing. How much is it really going to cost the company to vest this person upon rehire vs getting called out on it? Here is the thing it is done often for practical reason but I believe you could amend a plan to say all funds in a persons account as of a given date is vested on sch #1. All funds earned after that date are on Sch #2. The rules only talk about not taking YOS away not how the YOS are applied to any given sch. So if the amendment was drafted to say rehires after this date new money is on sch #2 could be defended. It is the fact the amendment appears to be silent that you are stuck. The real moral of this story is spend more time drafting your amendments to think of this kind of fact patterns.

Correct I know of no exception based on balance size.

Doesn't this part of the procedure answer your question? In order to remove the hold, the Administrator should request the Participant to provide written confirmation that a court will not issue a QDRO with respect to the account; such as a property settlement agreement awarding the entire account to the Participant. It just says you need the participant to respond and it needs to be written. Not both it doesn't need to be notarized.....

The document shouldn't be vague on this. If it is a C corp it has to allow the person to ask for stock UNLESS the corporate charter restricts ownership of the stock to the ESOP or employees. The plan provision ought to say something about the charter. In fact if you have the document in pdf or Word form you ought to be able to search on the word "charter" and find the provision. But if it is a force out is the person asking for a stock distribution? It seems like most ESOP documents allow the plan administrator discretion unless the participant demands stock. Are you saying this plan forces people out and NEVER sends distribution form if their balance is <$5k? I have seen plans that do that with <$200 balances but even back when I worked 4k/PSP plans I don't think I have ever seen a plan that doesn't at least send forms and give you a chance to rollover without withholding. If they are sending no forms I am less sure what to say. Are the people informed of the right to demand stock in the SPD? How does one demand if never given forms? If this is what you are saying I see your problem and I am not giving great answers.

You might want to simply read the most recent copy of the SPD and other notices. If the plan is frozen they should clearly say that. It is possible you just don't remember getting the notices. Before you lawyer up try and decide which is the case. If you don't have a copy of the SPD or it isn't online with other benefits information you might have access to as a plan participant ask for one. Asking for an SPD isn't as hostile as other actions. There can be a time for a lawyer and asking for specific notices and so forth but not sure that ought to be the first move.

As I stated above it is my understanding you are correct. I just have never seen it done in all the decades I have worked in this field. Maybe it is because not withholding is rare so I have never seen a fact set where taxes weren't withheld and the IRS didn't collect. I think you state a risk just not a very high one.

It has always been my understanding that ESOPs with less then 100 participants could count on the audit exception rule without the extra fidelity bonding if all it has was ER stock. The employer stock is a qualifying asset.

Back to read the regulations or plan as it is very important here. What they say is the first dollars distributed to someone in the year they are due an RMD for that year IS THE RMD. So not only don't you have to wait to pay the RMD but if you pay him any kind of distribution in 2017 the RMD has to be paid first then the rest of the distribution is paid.

As a practical matter if you do nothing to correct it I have never seen anyone get in trouble. What the IRS wants is their money in the end. If the person reports the income and pays the tax come next April 15th the IRS is good. I realize that is not the "right" answer in the sense of how to correct but over the decades I have seen this happen and nothing is done about it and it has never bitten anyone. My guess is KCbrim's answer is the "right" answer. If I recall the risk is if the person for some reason doesn't pay the taxes due on the distribution I believe the IRS can come back to the person/company/plan who should have withheld the taxes and get them to pay the withholding. Since people who get 1099-Rs report the income and pay whatever is due per the 1040 the risk is small in my mind.