ESOP Guy

In an ESOP at least the shares in the plan the law is clear the trust owns the shares. So if Mr. Smith has over 5% of the shares in his account that does NOT count for HCE purposes because he doesn't own the shares. I believe that is true here where it is a PSP plan trust that owns the shares. So if 100% of the shares are owned by the trust then no human owns any shares. Although most ROBS I have seen (as noted above) the plan doesn't own 100% of the shares more like 99% of the shares. I have seen PSPs that own 100% of the shares however.

I think you are overthinking it. The fact this isn't cash doesn't change the classification in my mind. So put it on the line with any other rolled over assets if any. (And then move it to where the auditor says.)

You can exclude interns as a class. They might not be excludeable from the coverage test if they work enough hours and are over 21. For vesting those all years count if they have a year of service. As rule you can't exclude part-time employees as a class. I believe that is seen as a backdoor service requirement that violates the rules. Now if the part-time employees are all in one class (they are all maintenance workers for example) you can exclude the class but you might have to factor them in coverage testing.

Wow put me down for a couple of billion!

What I can tell you is the note gets you past the computer edit checks. If you say the plan is large enough for a report to be attached and there is no pdf attached the computer rejects the filing. However, since a computer isn't smart enough to know the difference between a note and a report it simply accepts any pdf attached. We have filed with a note when the report wasn't ready on time and then filed an amended form when the report was ready. It so far has worked even if it is playing with fire.

K2retire mentions something I has said in passing above and it is worth repeating. That is why I would start by asking if when they think they will pay out. They don't have to pay you the year after the QDRO but some time down the road. But they should be willing to give you an idea what the triggering event is to start the payments.

There is no reason for them to not give you a copy of the Summary Plan Description (SPD) upon request. It will at least give you some idea who distributions work although it might not address Alt Payee directly. You have a right to an SPD. So I would push for one. I would ask them again to describe to you when they think you can start to be paid. Be aware if the stock isn't publicly traded on an exchange they might not know the current stock price until it is appraised. That can take months in the best of plans and until the summer for most. They should be able to give you a general idea. Something like "...we typically make the payments in the fall and it is our understanding you will get distribution forms then." In the end, once you get the SPD if they really just refuse to work with you the SPD will describe who you send a formal written claim for benefits. Once you start the process they are obligated to tell you if you are due a benefit or not and why/why not. Send a written claim for benefits certified mail and compel them to at least reply to you. Lastly, you can always file a complaint with the DOL. I never recommend going to them first. It is a pretty hostile move and people tend to lawyer up in response. Also, it is the government, so it doesn't move fast. There is also a good chance they are following the law and plan document just no communicating that fact well so you might not get the response you want.

I always cringe when I hear I am being assigned a client who did the plan's work in house before me. The odds of a VCP are always very high.

It is hard to understand what your question or concern is. Are you the participant or the alternate payee in the ESOP? (Or put another way do you work for the ESOP company or the former spouse of the employee?) Do you think you are entitled to a distribution from the ESOP? If so, be aware ESOPs work on their own pace. If the company's stock is not traded on an exchange they have to go get the stock appraised and all the annual work done. This might not be done until the summer or even some times the fall. I work with some ESOPs that won't make payments for the 12/31/2016 plan year until Nov/Dec of '17. I have some that will be starting in May. Also be aware even with a QDRO a plan isn't required to pay you until the terms of the plan say so. This can be years in the waiting. (Assuming you are the Alternate Payee) So if you wouldn't mind answering my questions, it might help in getting you better answers. Either way, it sounds like you think you have shares in an ESOP. They should respect your request for a copy of the Summary Plan Description (SPD) if you have shares in the plan. This should give you some basic idea of how the plan is run. It also tells you who the Plan Administrator is so you can focus future questions towards the correct party. See if they can give you any idea when participant statements are issued for the plan for any given year. Don't be shocked if they come back and say next summer or fall (it could be this spring). But at some point you should get a statement saying how many shares you have and what they are worth if the QDRO gave you a benefit or you had to give up a benefit to someone else..

The strict legal answer is they should file all the forms it seems to me. However sort of like David's comment I have not seen any interest from anyone at the IRS or DOL to look at returns before EFAST2 returns. I guess it is a risk tolerance vs cost balancing act if you do less then all of them.

Mass Mutual is most likely not the legal Plan Administrator. I agree with Bill the two sides need to have a discussion and get the same answers to the questions.

There is the answer no hardships. The idea of ESOP money paid over 5 years is very common.

I guess we need to step back and make sure everyone (mostly me) understands the facts although the basic answer is most likely still correct- that is to say most likely the plan terms control. Is there really two plans or is this a KSOP? A KSOP is an ESOP that has a 401(k) component but is legally still one plan. They can operate like there are two plans but I am starting to wonder if this isn't a KSOP. So employee Joe terminated from Xyz corp in 12/15. His ESOP balance was rolled to the Xyz corp in 11/16. It sounds like the company moved the funds and this wasn't an election by Joe. Is the above correct? Can Joe just take a full distribution of all the funds in the 401(k) plan? If so, why not just do that? If not, what conditions need to be met to get 100% of the funds out of the 401(k) plan? Once again most likely the plan provisions would control here and you would have to ask about a hardship withdrawal. The plan isn't required to offer a hardship provision and it would be very rare to offer one to a terminated employee. I am getting stuck on the fact the person is terminated and can't get his money. It is sounding like this might be a KSOP that cashes a person out of the company stock but still makes them wait 5 years to get their benefit. They simply use the 401(k) portion of the plan to park the cash until the distributions can be made per the terms of the plan. If that is true then they wouldn't offer a hardship because the point is to make the person wait the 5 years. So bottom line is most likely there isn't any hardship option for this person. They are never required to offer a hardship distribution. I hope I am helping and not making things more confusing.

Also do you mean you have been terminated or the ESOP has been terminated? If you are terminated then can't you just take your full benefit from the 401(k) plan? Also, it is rare to offer a hardship payment to someone who is terminated because they can take their full benefits. My first answer assumes you meant the ESOP was terminated and you are still employed by the company that had the ESOP.

It is governed by the terms of the plan. Ask the plan administrator if it is allowed. It might be allowed but the plan would not be required to offer a hardship payment of funds rolled over to a 401(k) plan from an ESOP or any other type of plan.

If the murder case is still not fully resolved the family MIGHT try and get the prosecutor on their side. If that happens and as part of any plea deal (if there is one) it can cover the assets as long as it respects the anti-alienation rules. That is to say the distribution would have to be to the participant and then they are obviously free to do what they want with the cash. I had many years ago a bank that had an ESOP. One of their tellers embezzled a large sum of money. The only assets she had that was close to enough was her 401(k) and ESOP balances combined. As part of the plea agreement, the teller pleads guilty and for a reduced sentence she agreed to take a distribution from both the 401(k) plan and ESOP and deposit the funds into a savings account of her former employer. The money was then turned over to the bank. I can imagine a prosecutor being less willing to go for a reduced sentence on a murder but the family does make a sympathetic group.

I am pretty sure you will get a letter asking why your beg bal doesn't match if you do your idea. I agree with BG5150. If the prior year's work comes up in an audit the prior TPA can defend their work in my opinion. But most likely the audit lottery is on your client's side and no questions will be asked.

And to be real clear about this, it doesn't matter if it is a DB or DC plan, the answer would be the same. The reason the answers are what they are is because all the QDRO rules tell you is if you have a valid QDRO. There are no QDRO rules that tell you what a QDRO has to say that isn't related to it being a valid QDRO or not. As such the plan benefits are just property that can be negotiated over in a property settlement during a divorce. So if one party is willing to give up a part of their pension benefits as part of the property settlement, so be it from the plan's perspective (as long as there is a valid QDRO).

You can use full year comp has always been my understanding.

Once again I know of no one that advocates ROBS that sets up the process the way you describe. If they issue 1 share for the original $50,000 investment then for the next $200,000 investment they would issue 4 share to the qualified plan. So at the end the corporation would have $250,000 in assets and that would be seen as the value of the corporation. There would be 5 shares outstanding so the value of each share is worth $50,000. There has been no dilution of the original investor.

Actually whether the company has any assets at the time of the purchase IS KEY to the question I was answering. Allow me to quote part of it again. If a corporation invites an arm’s-length investor to purchase 100% of the corporation’s original-issue shares before the corporation has any customer, any business activity, any franchise right, any intellectual property, any other property, any money, or any other asset (beyond the corporation’s right to be a corporation), how much should the investor pay for the shares? If your answer is anything more than $0.00, why? Emphasis is mine The question clearly states the value of the corporation is zero before the qualified plan has any assets would have a value of zero. As I point out I have never seen one of these transactions done when the company has not assets at all. They always set up a corporation and have it receive a nominal amount of cash. So it has assets so the value has to be something greater then zero. So the answer to the question given is the question has a fatal flaw in assuming the corporation has no assets. I don't see how anyone disputes the idea if a corporation has $1,000 in cash and not other assets or liabilities can be worth less then $1,000? You might make a case there are some transaction costs in shutting it down but as long as it is a going concern that doesn't seem to apply. So read my example again I don't say the stock has a value AFTER the transaction. I clearly say the stock has the SAME value BEFORE and AFTER the transaction with the plan. No one has given a valid reason addressing the facts I gave why that isn't true. The one attempt to do so make a false statement the corporation had no assets before the transaction when I clear said it had assets before the transaction with the qualified plan.

I think that is why the defenders of this say you first sell one share for some nominal amount be it $1, or $1,000 before the qualified plan does any transaction then your question is n/a It has some assets and nothing else.

Strictly speaking I know people who make the case you don't have to have this stock independently appraised every year. There is no legal requirement for that to be done which is true. You would have to answer the question on the Form 5500 saying there was no appraisal. I worked with a company that wasn't a ROBS but a PSP that owned almost 100% of the company stock. They did not get an appraisal. When we got a letter from the IRS about it we explained how the company came up with the value on their own. The IRS never came back after that. I think that was VERY risky. They had both NHCEs and HCEs and they made distributions based on their value. I think if they had been challenged over the value and lost they could have owed a lot of people a lot of money.

As I understand it the logic goes this way regarding the FMV. I start AB corp and put $1 of capital into the company and issue 1 share. What is its FMV at that point? They say the answer is $1 for total enterprise value and $1 per share. I roll $100k into AB corp's PSP. The PSP buys 100k of newly issued shares from AB corp for $1 each. So now AB corp has $100,001 and 100,001 shares issued. The FMV per share is still $1 with total enterprise value of $100,001. Now AB corp uses that money to start a franchise (it is this industry that seems to push this idea more then anyone else) and maybe the value drops but that is AFTER the transaction with the PSP. Not saying an appraiser would sign off on the above but that is my understanding of the logic. From what I can tell the IRS doesn't seriously dispute the above logic. Their problem comes after this point more then this part of the transaction.

I believe it was last Saturday in Sept. It mentioned this was a 52/53 week year plan year in the definition of a plan year. The problem was their payroll system didn't really cut off well except at month end. Of course their investment statements all cut off as of the last day of the month.