ESOP Guy

I used to work on a profit sharing plan that was a 52/53 week year end for a grocery store chain. The year end was always a Saturday in Sept. They did this because that is how they thought of their business. Their weekly specials started on Sunday and ended the following Sat. This could mean that the actual year end was between something like Sept 25 or 26 to 30 just depending on how things fell. I got census and trust accounting every year for 9/30. All the participant statements were ending 9/30. The only thing that followed the actual year end was the auditor felt like they should audit the actual plan. So there was a reconciling note in the auditor's report reconciling the 5500 assets to the auditor's report. That plan never had any problem that I know of doing what I described. Truth be told I had to check with the actuary who worked on their DB plan make sure I even knew the correct year end just in case it came up every year.

So are you saying the HCE doesn't have his statements from 2016? (Or 2015 it isn't clear which year you are actually talking about) But if you had those you can compute the earnings it seems like.

I have always understood it was for facts like this that there was the April 1 following rule. People who terminated late in a year it might take a while to determine they are due an RMD. Obviously, there is no practical way to hand him an RMD check as he walks out the door. I think he is due 4/1/2017. That is how I have always recommended it to my clients. He terminated in 2016.

While I agree the client needs to keep the records there are TPAs out there that are just plain jerks. Back in the '90s I worked in a town that wasn't huge. So all the various people who did record keeping/TPA work in town knew each other pretty well. There was one bank that sold the trust services and record keeping combined. The guy in charge got it in his head that it helped keep clients from switching by making it a policy to be a big pain in the rear in terms of conversions. He had decided if he made it painful enough the rest of us wouldn't bother to solicit his clients. (He was wrong by the way.) Their policy was to drag their feet. To provide all data on paper. (We once landed a 1,000+ life plan and they sent us all the account balance data on paper). The client hadn't paid all the invoices it turned out and withheld payment until we got electronic versions of the data. So yes the client is wrong. Maybe the former TPA should get paid. I have worked for plenty of TPAs that charge a deconversion fee that was reasonable. Since we were paid we always gave were very cooperative in regards to the process. But there are unreasonable TPAs also. And there isn't much you can do about it.

I am assuming the amendment was not written to answer these questions which it should have been done. If the amendment doesn't answer this question then all plans give the Plan Administrator the power to make reasonable interpretations of the plan that don't discriminate. The PA needs to use that power to answer these questions. To me I don't see how you don't grandfather the existing loans. It might even be a protected benefit since it exists. The next two I can make a case for either one and the PA would seem reasonable. What I mostly see is you can't refinance in either case. You might have 2 loans but any change needs to result in 1 loan after the change. Likewise in 3 any change needs to result in zero loans.

Before you hire an attorney you might just want to talk to the ex-spouse and see if the plan has a benefit for your mom as an Alternate Payee. It is possible she is due the money but the plan provisions don't allow them to be paid until some triggering event. The ex-spouse might be able to say she got paid and show that it happened and your mother forgot about the payment. A simple conversation won't hurt and could save you costs. If the conversation doesn't result in what you think needs to happen then you can hire the attorney.

Yup, no de minimus. Years ago I had a client who had a person whose RMD was under $1 every year. They simply had a no force out policy so the check was sent every year. Many years it went uncashed but some years it was.

By the way link to IRM https://www.irs.gov/irm/part25/irm_25-006-001r.html#d0e1004

Aren't there questions on the Form 5500 that would let the IRS know there is a violation for the 4975 violation? That isn't true for over contributions. That logic seems consistent with the pizza case logic used by the court.

I don't think the Form 5500 statue of limitations (SOL) is the guiding SOL. You owe an excise tax on the over contributions for all those years and that is done by filing a Form 5330. Since it doesn't sound like you ever filed any of those has any SOL started? It would seem like the relevant SOL would start with that form not the 5500. I think you owe for all the years back to 2007. Willing to be told I am wrong as I can't think of any cite to say I am correct but I don't see the 5500 SOL is being applicable. What is true since that excise tax is cumulative whatever years you do pay will be effected by those older prior year. I will add if you can show that this was an innocent error and once discovered was fixed quickly the penalties for late filing and late payment are often times waived by the IRS if you ask. I have had much success getting late Form 5330 penalties waived over the years. This leave the client only paying the tax and interest. The IRS never waives interest.

K2retire it has been since the '80s since I took my B law classes but my memory says merely writing "for deposit only" isn't an endorsement. Not saying there aren't banks that don't take checks like that. But the most common way you see it is a business which stamps for deposit only and the business name but note it does have the business name. A check is payable to a specific person and payable only to that person. An endorsement is that person giving someone else the right to collect on that check. You can put restrictions on that endorsement but the person has to sign over those rights. In this case I stand by the idea a dead person can't sign over the right to have that check paid to someone else simply because the person is dead.

I guess we just disagree about the facts. If the person is dead they can't receive the funds period because there is no person. Depositing the funds doesn't solve the question about how will the check be cashed. Depositing money is a form of cashing the check. It is cashing the check and then depositing the cash into an account. It requires someone to endorse the check and the person who needs to do that is dead. So who is endorsing the check? I don't see what the form says matters. The person who completed the form is dead. To me that means the form no longer is valid. What matters is the plan document. Any plan document I have seen says this is a distributions from the plan. All plan documents say upon death a distribution is made to the beneficiary not the participant. So I stand by my answer the check ought to be made payable to the beneficiary. To make a distribution to someone who isn't alive is violating the terms of the plan that is an operational error. In my mind you simply are defining the problem incorrectly by insisting the problem is the estate does or doesn't need an EIN. I repeat myself again it is true if an estate is being paid a distribution it has to have an EIN.

While as a practical matter KSOPs tend to be run like two plans they are legally one plan. So for example when deciding if a person has been fully paid in order to forfeit a person on the ESOP side you have to make sure they were paid on the 4k side and the ESOP side. So in my mind this plan has regular contributions if the 4k side is getting the contributions you describe. I can't point to a cite but I think doesn't exist because it is one plan so any contribution to the plan count.

Who is the actual beneficiary per a beneficiary form or plan document? Isn't that who the check is made payable to? If the beneficiary is an estate then the estate needs to get an EIN which is a pain. But the estate will have to pay the taxes. (I believe this make a rollover to an IRA not an option for the person(s) who are beneficiary (ies) of the estate.) That is just a good reason to make sure people are completing beneficiary forms. I think it helps if the plan document also says who is the beneficiary if there is no form more then spouse and then estate. I like documents that say: spouse, children (pro rata), then maybe parents/siblings and if none of those exist then an estate. .

That is a function of if the only participants are owners and the amount of assets in the plan. Its history doesn't matter so there is no need to terminate the old plan and start a new one. You might get some letters from the IRS asking where the next Form 5500 is if after years of filing them you stopped. Maybe someone who has gone through that can give you insight how big of a pain it was or wasn't to get the IRS to understand. I for one would file a Form 5500-EZ if I was in that position regardless to start a statute of limitation. That is just me.

It has been a long time and I might be getting excess contributions and excess deferrals mixed up. But there is a code P for the 1099-R that goes a years. Code P on the 2017 instructions says you use this code to report excess contributions taxable in 2016. An 8 is excess taxable in 2017. I have a vague memory that says if you had an off calendar year you could get the code P and it was because you had to take the excess contributions from the first dollars. I might have the wrong type of excess as I am out of the 4k business and I was never a 1099-R expert. I just always remembered you could have to send to people a 1099-R in Jan 2017 that told them they had a taxable distributions in 2016 and it was some kind of FIFO rule that caused it. Back at one of my old 4k TPA firms we had a whole letter explaining to people how to do their taxes when it kind of rare facts set came up. So happy to be told I am wrong or it doesn't apply.

I agree with kcbrim the correction needs to put both people back to where they would have been if the error wasn't made. The person who got the funds in error should not receive any kind of windfall from the error. The person who got shorted in funds should not be subject to any kind of shortage. Back when I did daily valued 4k plans I would have been expected to figure out how many units where purchased in the person who got the money any dividends paid (and units bought with those dividends) and get them out of his account. I would then have been expected to compute how many units the other person should have gotten and any dividends they should have received (and units they would have purchased) and that would go into their account. This was based on their investment election and hopefully they didn't change during this time frame as that just made it more complex. If that resulted in too little money in the plan the firm that made the mistake had to add money. If there was too much money it got less clear who got that. That was the one time the person who got the deposit in error might get a windfall. I understand the point this is small and what I described might be costly in terms of time. Someone else can decide if it is worth it but that was always the expectation back in the day.

I am assuming this is a balance forward plan. If it is an individual directed account plan I don't see how this is even a question. What I can tell you if for example X was getting 100% of the insurance proceeds and my account was taking a hit to pay taxes on those funds (and I figured out that was happening which might be hard) I would be an unhappy camper. This really strikes me as an individual account investment within an otherwise balance forward plan and the individual account holder takes 100% of the good and bad. They get the proceeds but pays the tax also. Any other treatment seems illogical and inconstant. I have never seen the benefits of an investment go to one person and the costs of that investment go to a group.

Even a 401(k) plan you would have had to sign a form in order for you as the spouse to not be the beneficiary. I would ask the Plan Administrator if they have a form with your signature on it saying you waived your rights to be the beneficiary. You might want to let them know you are the legal wife of the deceased. What I can tell you is that people tend to "fire and forget" beneficiary forms. By that I mean they fill them out once when they first get hired or when they enter the plan and never think about them again. So if your husband worked for this company and then you got married it is possible your husband never changed the form to include you. But if that happened the form is very likely null and void upon the marriage. So it is possible if this is a large company or they use an outside service they don't know he was married and they are merely going off the form. So let them know he was married. If the people you are dealing with aren't part of the HR department of your late husband's employer maybe call them and ask for help to let the people who run the plan know he was married at the time of death. Keep asking questions!!! Lastly, I am not trying to be mean but I have to ask this: Are you sure you didn't sign a waiver of your right to be a beneficiary?

Is it possible the purchase price was paid when the business was sold and this is some kind of bonus or incentive comp paid to the Dr. to incentivize him to help retain his former patients? I think you need to get more details. I can see where this isn't comp and where it is based on small differences in the details. I just think you (or us on this board) have enough details to know what it is. It sounds like you need to talk to someone who can give a better description. Maybe the client needs to get their attorney to make a ruling.

I believe if you search on the words "solo" and/or "after-tax" you will find threads about a solo 4k plan and this idea on this board. I know it has been discussed before. I at times get real luck on the searches and find exactly what I want and other times I know it is out there and seem to not find it.

I'm imagining that such a provision might be extremely desirable for some low-income employees. For example, someone who is married and makes $60K / year may have a spouse whose income alone provides living expenses. The person making $60K/year might want to stick every available dollar into an after-tax retirement pool. It's hard to see why any company would discourage that. Back when I did 4k plans I saw this now and then but it is in fact a pretty rare set of facts. But yes now and then you would find someone (typically a wife) whose spouse made great money and the kids were all grown up and the lady got a job because she was bored. So she was putting the 402(g) limit into the plan. It made the ADP test that much easier to pass. Such a person could benefit with this kind of provision. But for this rare fact set very few companies are going to add this complex feature.

It has been a almost 5 years since I was working 401(k)s and ESOPs. Since ESOPs can't be on a prototype it has been 5 years since I worked on prototypes. One thing I would check is if the prototype is linked to the provider in some legal way. I seem to recall seeing some from brokerage houses that had language that said if you leave that firm you would no longer rely on their letters and base document. That caused the firm I worked for to almost always move them to one of our document. I want to say we did offer a discount as this was part of our sales/conversion pitch.

Read the definition of early and normal retirement in the document it will answer this question. If it is like most plans I see the definition will be ANY termination after being a given age and/or service. Rarely does it define it any other way. So my guess (and it is a guess at this point) is you will find upon careful reading of the document that they did retire.

What does the promissory note say? Back when I worked in the 401(k) world our standard promissory note said they agreed to make payment via payroll deduction. I understand a contract can not make something illegal legal but it could be a breach of contract. I forget how that all interacts but something to look into.